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Global Strategic Management- Costco case study

Author(s): Chen Yu Wen(陳郁汶), Lin Yu Joy(林雨柔), Tsai Ya Yi(蔡雅宜),Jiang Cai En(江采恩)

Class: 2nd year of Department of International Trade

Student ID: M0523519, M0529992, M0523566, M0597326 Course: Global Strategic Management

Instructor: Lo, Fang-Yi

Department: Graduate Institute of International Trade Academic Year: Semester 1, 2017-2018

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Content

Title: Global Strategic Management- Costco case study ... 0

Class: 2nd year of Department of International Trade ... 0

Content ... I List of Table ... X Abstract ... 1

1 Introduction of Costco ... 2

1.1 Global overview of Costco ... 2

1.1.1 Category Sales ... 2

1.2 The introduction of Costco in Taiwan ... 3

1.2.1 Locations in Taiwan ... 3

1.2.2 Membership in Taiwan ... 4

1.2.3 Operative performance in global for Costco ... 5

1.3 Vision ... 6

1.4 Value ... 6

1.4.1 Part1 ... 6

1.4.2 Part2 ... 7

2 Three level strategies ... 8

2.1 Purpose of corporate-level strategy ... 8

2.1.1 Corporate level-Costco’s SBUs: ... 8

2.2 Business level-Kirkland signature ... 10

2.2.1 Background ... 10

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2.3 Functional level ... 12

2.3.1 Marketing strategy-membership ... 12

2.3.2 Marketing strategy-bulk-packaged ... 12

2.3.3 Marketing strategy-one-stop shopping ... 12

2.3.4 Marketing strategy- co-branding ... 12

2.3.5 Marketing strategy-4P ... 12 2.3.6 Financial strategy ... 14 3 Strategic map ... 16 3.1 Low Cost ... 16 3.2 Low Price ... 19 3.3 High Quality... 19 3.4 Membership ... 19

4 Five Forces analysis ... 21

4.1 Rivalry: Carrefour/ RT-Mart/ A-Mart/ Taisuco/ Save& Safe: weak ... 21

4.1.1 Product diversification: strong ... 21

4.1.2 Product differentiation and uniqueness: weak ... 22

4.1.3 Capital requirement: weak ... 22

4.1.4 Size: weak ... 22

4.1.5 Cost condition: weak... 23

4.1.6 Overall... 23

4.2 Bargaining power of suppliers ... 23

4.2.1 Large population of suppliers: weak ... 23

4.2.2 Place-product differentiation and large volume from suppliers: weak 24 4.2.3 Forward integration: weak ... 24

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4.3 Bargaining power of buyers: strong ... 24

4.3.1 The differentiation of unique import: weak ... 24

4.3.2 Low switching costs: strong... 24

4.3.3 High available of substitutes: strong ... 24

4.3.4 Easily to get information: strong... 25

4.4 Threat from Substitutes: strong ... 25

4.4.1 Same products from other rivalries or companies: medium ... 25

4.4.2 Places: Online shopping-PC Home, momo shop: strong ... 25

4.5 Threat of new entrants: PX-Mart: weak... 26

4.5.1 Cost advantage: weak ... 27

4.5.3 Product differentiation and uniqueness: weak ... 27

4.5.4 Daily necessities: strong ... 27

4.5.5 Access to distribution channel: strong ... 28

4.5.6 Overall... 28

5 Strategic Group Analysis ... 29

6 Resource, Capability, and VRIS Analysis ... 32

6.1 Resource-Tangible ... 32

6.1.1 Finance-good sales and financial performance ... 32

6.1.2 Physical-Location and Equipment ... 34

6.2 Resource-Intangible ... 35 6.2.1 Intangible-Technology ... 35 6.2.2 Intangible-Service ... 35 6.2.3 Intangible-Reputation ... 37 6.3 Resource-Human Resource ... 39 6.3.1 Costco’s culture ... 40

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6.4 Capabilities ... 41

6.4.1 Tangible-operating management: Finance ... 41

6.4.2 Tangible-Expansion ... 42

6.4.3 Intangible-Marketing ... 43

6.4.4 Intangible-Human Resource ... 44

6.5 Strategies analysis ... 46

6.5.1 Tangible strategies analysis ... 46

6.5.2 Intangible strategies analysis ... 48

6.6 VRIS ... 52

6.6.1 Resource-VRIS analysis ... 52

6.6.2 Capabilities-VRIS analysis ... 54

7 Value Chain and Low Cost strategy ... 56

7.1 Primary Activities ... 56

7.1.1 Inbound Logistics... 56

7.1.2 Operation... 57

7.1.3 Outbound Logistics ... 58

7.1.4 Marketing and Sales ... 59

7.1.5 After-Sales and service ... 62

7.2 Support Activities ... 64

7.2.1 Firm Infrastructure ... 64

7.2.2 Technology Development ... 67

7.2.3 Procurement ... 68

7.3 Costco is cost leadership ... 68

7.3.1 Economies of scale ... 69

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7.3.3 Input cost ... 69

7.3.4 Private label brand-Kirkland ... 69

7.3.5 Geographic locations ... 70

7.3.6 HR management... 70

7.3.7 No advertisement ... 70

8 BCG Analysis and Synergy ... 71

8.1 Question mark ... 72

8.1.1 Ancillary and others – gasoline... 72

8.1.2 Hardline - Health & Medicines ... 72

8.1.3 Fresh food - meat and cooked food... 72

8.2 Star ... 73

8.2.1 Sundries - snacks, beverage, cleaning product and daily necessities ... 73

8.3 Dog ... 73

8.3.1 Hardline- major appliances, electronics, hardware ... 73

8.3.2 Softline-clothing ... 74

8.3.3 Ancillary and other-food court, optical, photo, hearing aid, tire center 74 8.4 Cash Cow ... 74

8.4.1 Food-dry food, packaged food ... 74

8.5 Synergy ... 74

8.5.1 Operating Synergy- Costco+Kirkland ... 74

8.5.2 Financial Synergy ... 76

8.5.3 Marketing Synergy... 77

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9.1 Outsourcing Strategy ... 79

9.2 Vertical Integration ... 80

9.3 Kirkland-Vertical and Outsourcing ... 81

9.3.1 Outsourcing strategy and vertical integration for Kirkland ... 81

9.4 Diversification Strategy ... 84

9.4.1 Related ... 84

9.4.2 Unrelated ... 85

10 National Diamond ... 86

10.1 Factor conditions ... 86

1. Natural resources, Location ... 86

2. Technology ... 87

10.2 Demand condition ... 87

10.3 Relating supporting industries ... 89

10.3.1 Retail Industry ... 89

10.3.2 Logistics ... 90

10.3.3 Technologies ... 90

10.4 Strategy, Structure and Rivalry ... 91

10.4.1 Structure ... 91

10.4.2 Strategy ... 91

10.4.3 Rivalry-Walmart/Amazon/Target ... 96

11 Conclusion ... 101

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List of Figure

Figure 1 Categories Sales ... 3

Figure 2 Locations in Taiwan ... 4

Figure 3 Business membership includes household card ... 4

Figure 4 Gold star member includes household card ... 5

Figure 5 The financial highlight from 2012-2016... 5

Figure 6 Average sales per ware-house (sales in millions) ... 6

Figure 7 Global brand sales ... 15

Figure 8 Strategic map of Costco ... 16

Figure 9 Five Forces of Costco ... 21

Figure 10 Strategy Group ... 31

Figure 11 Membership Fee from 2012 to 2016 ... 32

Figure 12 Net income ... 33

Figure 13 The Total Members from2014 to 2016 ... 33

Figure 14 Costco Membership Renewal Rate ... 33

Figure 15 Numbers of Warehouse and Average Sales Per Warehouse ... 34

Figure 16 In-store services ... 35

Figure 17 Brand Reputation of Costco ... 37

Figure 18 Membership Revenue ... 38

Figure 19 Membership Renewal Rates ... 38

Figure 20 Membership Data ... 39

Figure 21 Equal Employment Opportunity Report ... 40

Figure 22 Operating Management ... 42

Figure 23 Numbers of U.S. Warehouse ... 43

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Figure 25 Strategies- key strength ... 46

Figure 26 The Percentage of E-commerce Revenue for Costco ... 50

Figure 27 The Sales of Kirkland by Online Retailer ... 50

Figure 28 Value Chain ... 56

Figure 29 From 2016 to 2017, Costco Is The Most Valuable Global Retail Brands, Ranking at 6th... 61

Figure 30 Membership revenue of Costco ... 61

Figure 31 Membership Renewal Rates ... 62

Figure 32 The Range of Service Which Costco Provide ... 64

Figure 33 Average Sales Per Warehouse ... 65

Figure 34 Cost leadership ... 68

Figure 35 BCG Matrix... 71

Figure 36 Costco Versus The High Street Supermarket ... 73

Figure 37 Types of Tissue Sales in Costco ... 75

Figure 38 Nuts Which Sales in Costco ... 76

Figure 39 Vertical, Outsourcing for Kirkland ... 81

Figure 40 Tissue Made from Kirkland ... 83

Figure 41 National Diamond ... 86

Figure 42 Distributions of Costco in America ... 87

Figure 43 Space of Retail Stores in Each Country... 88

Figure 44 The United Sates Local Food ... 89

Figure 45 Costco’s Hinterland in The U.S ... 90

Figure 46 Amazon Revenues by Geography ... 91

Figure 47 The Structure of Pyramid ... 91

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Figure 49 Inventory turnover and gross margin profit of retail stores in U.S. .... 92 Figure 50 Amazon growth rate compared to e-commerce sales growth in U.S. .. 98 Figure 51 Contribution to Comparable Sales Change ... 99

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List of Table

Table 1 Capital of Each Retail Store in Taiwan... 22

Table 2 Hypermarket ... 29

Table 3 Supermarket ... 29

Table 4 Convenience store... 29

Table 5 Department stores ... 29

Table 6 Warehouse ... 29

Table 7 The Numbers of Categories That Every Group Sells ... 30

Table 8 VRIS-Resource ... 53

Table 9 VRIS-Capabilities ... 55

Table 10 Costco's Sales Rank... 71

Table 11 Costco-Ancillary (Fiscal Sales)... 72

Table 12 Vertical and Outsourcing Integration Strategy ... 79

Table 13 Diversification Strategy ... 84

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Abstract

Costco Wholesale Corporation is an American membership which is the only one membership warehouse club and provides a wide selection of merchandise. Otherwise, they are currently the largest membership club not only in American but also in global. Around the world, in this market, it owns the biggest branches. In Taiwan, it is the first membership-only warehouse club. With this advantage, customers in Taiwan tend to get all the necessities in one store. It’s more convenient than before and the prices of their products are much cheaper. In addition, Costco has changed the consuming habit gradually. On this report, we would like to take Costco Wholesale Corporation as a case study, analyzing their strategies, advantages, disadvantages and so on. With the above reasons, we’d like to discover the reasons why it can succeed in a short period of time. By comparing with the rivals, we can do the strategy analysis and figure out the answer.

Key Words: Costco Wholesale Corporation, business strategy, strategy management analysis

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1 Introduction of Costco

1.1 Global overview of Costco

The Price Club is the first concept of a membership warehouse. Costco's founders Sinegal had a working experience at Price Club, and in October 1997 the Price club and Costco merged into PriceCostco. In August 30, 1999 changed its name to Costco Wholesale Corporation.

Costco is the second largest retailer in the United States, the seventh largest retailer in the world, and the largest chain member storehouse in the United States. It is also 36th in Fortune's 2017 Fortune 500 list.

Costco Wholesale located in North America, Europe and Asia. In 2017, Costco operates 741 warehouses in the United States (514), Canada (97), Mexico (37), United Kingdom (28), Japan (26), South Korea (13), Taiwan (13), Australia (9), Spain (2), Iceland (1) and one in France.

Costco provides high-quality and bulk package products at low prices and carefully select their product. Costco also has their private label brand ─ Kirkland signature. Costco operates under the membership system and successfully cater to the preferences of business and large family.

1.1.1 Category Sales

- The Price Club is the first concept of a membership warehouse. Costco's founders Sinegal had a working experience at Price Club, and in October 1997 the Price club and Costco merged into PriceCostco. In August 30, 1999 changed its name to Costco Wholesale Corporation.

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in the world, and the largest chain member storehouse in the United States. It is also 36th in Fortune's 2017 Fortune 500 list.

- Costco Wholesale located in North America, Europe and Asia. In 2017, Costco operates 741 warehouses in the United States (514), Canada (97), Mexico (37), United Kingdom (28), Japan (26), South Korea (13), Taiwan (13), Australia (9), Spain (2), Iceland (1) and one in France.

- Costco provides high-quality and bulk package products at low prices and carefully select their product. Costco also has their private label brand ─ Kirkland signature. Costco operates under the membership system and successfully cater to the preferences of business and large family.

Figure 1 Categories Sales

1.2 The introduction of Costco in Taiwan

1.2.1 Locations in Taiwan

The first location of Costco in Taiwan was opened in Kaohsiung in 1997. They are now operating 12 warehouses in Taiwan, three in the Taipei market, one in Taoyuan, one in Hsinchu, one in Taichung, one in Chiayi, one in Tainan and two in Kaohsiung.

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Figure 2 Locations in Taiwan

1.2.2 Membership in Taiwan

Costco is a membership club, dedicated to bringing their members the best possible prices on their merchandises. In addition, they also provide the convenience of specialty departments and exclusive services with their membership who can be satisfied with all necessities in one-stop destination.

Figure 3 Business membership includes household card

About the membership cards which were divided into two types of cards, one is business primary cards, the other one is gold star membership card. The reason of separating into two types of cards is because different customers can apply different types of card with different membership fee. In addition, there are also some of

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limitations for each card as following.

Business primary membership is only available to business owner, or head of a non-profit organization or government agency. Up to six add-on cards are available for business primary at NT$900 each. Business identification is needed to be shown when applying for Business Membership. The price of this card is about NT$1150.

Figure 4 Gold star member includes household card

Gold Star membership is available to apply individuals age 18 and over. Personal identification is needed to be shown when applying for Gold Star Membership. The price of membership is about NT$1350.

1.2.3 Operative performance in global for Costco

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Figure 6 Average sales per ware-house (sales in millions)

The net sales of Costco is about $116.1billion;besides the warehouses in operation are 715 in 2016.Therefore, the average of each warehouse was $159million in annual sales, and operating globally in several countries throughout the world. Otherwise, net income remained strong in 2016, coming in at $2.35 billion.

1.3 Vision

Their operating philosophy is simple. Keep costs down and pass the savings on to our members. Our large membership base and tremendous buying power, combined with our never-ending quest for efficiency, result in the best possible prices for our members. Costco’s mission to their corporation is lower cost as much as possible and then give their members those savings.

1.4 Value

1.4.1 Part1

-Low price with high quality of products -Many benefits only for their membership -Lots of imported merchandise


-Season sales activities randomly -Treasure hunting of shopping

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1.4.2 Part2

 On membership

Costco refunds your membership fee if you are dissatisfied and want to cancel your membership during the valid membership year.

 On merchandise

- Costco guarantees your satisfaction on each product with full refund but the following exceptions:

- Electronics: Costco will accept returns within 90 days from the date of purchase for Televisions and Projectors, Major Appliances, Computers, Touchscreen Tablets, Cameras, Camcorders, MP3 players and Cellular Phones.

- Diamonds: 1.00ct or larger: Members returning a diamond over 1.00ct must also present all original paperwork (IGI and/or GIA certificates). Within 3 business days, we will have a third-party Graduate Gemologist inspect for authenticity. 


- All tires sold and installed through Costco Wholesale are covered by a 5-year Road Hazard Warranty protecting customers against treadwear damage and tire failure. Please visit Costco Tire Center for details. 


- Special Order Kiosk and Custom Installed Programs: Custom product(s) manufactured to our member’s personal and unique specifications cannot be returned or refunded, except for warranty repair/replacement due to failure to meet specifications.

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2 Three level strategies

2.1 Purpose of corporate-level strategy

Making the company be much effective, such as the umbrella company must contribute to the efficiency, profitability and competitive advantage to each business unit.

2.1.1 Corporate level-Costco’s SBUs:

- Costco merged Price Club

The company opened in 1976 only serving for small business in San Diego under the Price Club name.

The first Costco warehouse location was opened in Seattle in 1983. Costco became the first company ever to grow from zero to $3 billion in sales in less than six years. When Costco and Price Club merged in 1993, the combined company, operating under the name PriceCostco, had 206 locations generating $16 billion in annual sales.

- Kirkland-Costco’s private brand

Kirkland is Costco’s private brand providing their membership good quality products with lower prices than other brands’ products. Such as tissue, candy, nuts etc.

In 1995, Costco created the Kirkland Signature label in 1995, named after the city of Kirkland, Washington, where the Home Office was located at the time. And, Kirkland Signature has been one of the most powerful private labels brands in the U.S.A. "We can do more with Kirkland Signature products than other private labels", says Tim Rose, Senior Vice President, Food & Sundries "because we move huge volumes, and with our standards for excellence and value, we impact other name brands' pricing, as well as their quality".
Some of our most popular items include: Tissue Spring water Chocolates Assorted nuts Nutritional Supplements Meat Detergents Clothing

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- Tire Center

Costco Tire Center Installation Package includes Lifetime Maintenance Services listed below.

Free nitrogen tire inflation Flat repairs for the life of the tire New rubber valve stem

Balance and rotation for the life of the tire Inflation checks for the life of the tire 5-year Road Hazard Warranty

Stop by the Tire Center for professional installation of brand-name tires while you shop. You will enjoy our low warehouse prices on the tires of your choice.

Whether you drive a car or a van, you will find the right tires for your vehicle at a price that won’t drive you away! It helps maximize vehicle handling, fuel efficiency, and tire life.

*Flat repairs must adhere to RMA standards and Costco tire policies. - Optical

Free optical exam

Frame maintenance and adjustment Lens cleaning

- Pharmacy

Help desk for members when they need explanations to medicine products. - Hearing Aid Center

Free hearing test for their memberships - Food Court

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dogs, hot soup, delicious smoothies, lattes, and refillable cold soft drinks. - Photo Center

Costco develops film and provides services such as reprints, enlargements and more..

2.2 Business level-Kirkland signature

2.2.1 Background

In 1995, Costco created their private label brand ─ Kirkland Signature. Their private label brand emphasis on quality and value.

2.2.2 Kirkland signature means quality and value

Kirkland Signature accounts for 20% of the products in Costco. With Kirkland Signature, Costco can develop their product category as well as control quality, cost and price to compete with other brands.

- Product categories

body care、pet area、grocery clothing & luggage、home life、household & cleaning 、diapers &baby、hardware office product、gasoline、other

- Target consumer

Costco through membership system to create the exclusivity and aim to their target customer groups who approve Costco's value to make Costco effectively communicate with their members.

Business: corporate procurement

Big family (middle class) : have the bulk shopping needs

Individuals: prefer quality goods with low prices, special product, treasure hunt shopping environment and understands the value of Costco membership.

- Guarantee and Refund

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2.3 Functional level

2.3.1 Marketing strategy-membership

Most of KIRKLANDs’ products sell in Costco, members gain to know their brand by shopping in Costco. In addition, KIRKLAND is displayed directly next to other goods for members to choose. KIRKLAND is always at the lowest price with good quality. The reports of members even ranked Kirkland products in the sixth in the U.S.

2.3.2 Marketing strategy-bulk-packaged

With the high volume of products, goods are marketed primarily to large families and businesses. They don’t need to buy many packages of goods or shop again in a short period of time.

2.3.3 Marketing strategy-one-stop shopping

There are 4,000 kinds of items in Costco. With the advantage, members can shop almost everything here. Costco even offer other services such as pharmaceutical consultation.

2.3.4 Marketing strategy- co-branding

Starbucks on KIRKLAND Signature blend house coffee. Furthermore, KIRKLAND is now trying to work with Kimberly-Clark in order to have own-branded diaper.

2.3.5 Marketing strategy-4P

- Product

Differentiation: Almost sixty percent of goods are imported from the U.S. To Taiwanese customers, those products are special and it’s hardly for them to buy the same thing in different place, which made them stick to the unique products as well as continue paying the membership fee to Costco.

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companies, people such as they, are willing to shop in Costco. Those volume are suitable for what they need. Therefore, members don’t need to shop for many times. High Quality: Costco has selected at most four thousand products for its members and eliminate products which it thinks are not so good. The limitation of goods made Costco has a good reputation for its good quality of merchandise.

- Price

With a very big ordering quantity of Costco, they can provide members in lower price with every good. Furthermore, forty percent of Costco’s products are domestic. These domestic products compete with other rivalries, they sell in lower prices.

- Place-distribution in Costco

This element of the marketing refers to the firm distributes of sells its products to customers. Costco’s main places for the product distribution are as following: in-stores 、 online store、mobile app.

All the goods and services are typically available in its warehouse-style stores. However, consumers can also purchase products through Costco’s e-commerce website. Mobile users may use the mobile app to access information about product and to make a purchasing. The shoppers may be suitable for having their online or mobile purchasing delivered to their house. Therefore, in this element, Costco has already reached a broad market.

- Promotion

Costco’s main promotion strategies are as following: Sales promotion

Direct marketing Personal selling Public relations

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The form of sales promotions that Costco uses bulk discounts attract consumers to get into their stores. Members are guaranteed low prices for products sold per pack or in wholesale amounts. In addition, Costco uses direct marketing with sending emails to members monthly. Personal selling is also one of sales promotion that happens when sales personnel persuade customers to purchase certain products at the warehouses. Costco applies public relations to boost its corporate and brand image. For example, the company has sustainability programs for its supply chain, and gives donations to support programs for children, education, and health and human services.

You can see Costco is lack of advertising which separates Costco’s marketing strategy from those of other retailers like Walmart. Costco does not advertise, and relies more on its low price and product value to attract consumers.

2.3.6 Financial strategy

The location of Costco may be big in size, but it makes the purchase decisions with small types for their shoppers. Rather than having to choose from 15-20 brands of each product, Costco gives them one or two brands to choose that make their customers decide quickly. Costco is not only a merchandiser but also a planner, they select from across the growing body of brands in any particular category and choosing the best options for their customers.

Increasingly, Kirkland is a pillar of the Costco’s profitability and driver of sales that can make their customers buy their private label more easily. According to WSJ(The Wall Street Journal), Kirkland is accounted for about 25% of the company sales which is well above the average industry(17%). Costco shoppers are not only drawn to Kirkland brands because they are cheaper than other brands, but also they always promoted that Kirkland products have a quality that the consumers can rely on them.

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- The private brand-Kirkland

A key traffic growth driver has been the success of Costco’s private-label brand-KS (Kirkland Signature). Costco makes about $24.6 billion in global sales under this brand annually. According to the following figure, you can know that the revenue of Kirkland is much higher than Danone ($12.7 billion) and Nestlé ($10.3 billion) when they combined.

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3 Strategic map

Figure 8 Strategic map of Costco

3.1 Low Cost

1-1 Operating efficiency

There are four small activities in operating efficiency, and operating efficiency is one of the big activities to achieve one of Costco’s goals, low cost.

1-1-1stock-outs and over stocking

Reduce the volume of stock and over stock is one of Costco’s activity to extent its operating efficiency. If Costco have lots of stock, it needs bigger spaces to storage stock and cost will increase by managing stock.

1-1-2Simple-packaged product

Costco use the way of simple-package to cut its cost on package. Packaging products need much cost and waste resources. Customers’ need are products themselves not package. Even, Costco’s customers most are family, they buy products for using

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not for being as gifts. Therefore, simple-packaged is one way of Costco to extend its operating efficiency. And then making cost down.

1-1-3No frill, self-service warehouse

Costco is a warehouse store providing no-frill products and store. From this way, it has no extra or unnecessary expenses. Moreover, Costco is a store for self-service to reduce labor cost, this concept is alike IKEA. From these two activities, Costco can increase its operating efficiency even meet its goal, low cost.

1-1-4Volume purchasing of members

Costco’s members are most of family and family need the large volume of products. Selling a big volume of products in one time saves Costco’s labor cost owing to reducing the demand of cashiers. As the result, customers buy for huge volume makes Costco’s operate efficiently.

1-2Bulk-packaged

The products in Costco are all in big volume. By this way, Costco can reduce its storage cost. If Costco sell merchandise by small package, it needs a bigger space to store goods. Consequently, Costco sells products by bulk-packaged can make its cost lower possibly.

1-3Word of mouth advertising

Costco does not advertise itself by TV channel or billboard. But it does not mean that Costco has no advertisement. Costco advertise by their consumers’ mouth. For instance, Costco’s members will tell their friends that buying commodities at Costco is great, no matter on price or quality. Accordingly, Costco has low cost on advertisement.

1-4Procurement

Procurement plays an important role in the part of decreasing the cost. And the following are two ways to help reducing the cost as much as possible.

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1-4-1Quantity-ordering and Bargaining power

With the quantity-ordering, Costco can bargains with the suppliers. Due to the big bargaining power, Costco have the ability to order the goods in low prices of cost.

1-5Supply chain cost management, 1-5-1 Reduce transaction cost

1-5-1-1 Retail link

To Costco, supply chain is also a main factor to reduce its cost. In order to manage the supply chain more efficient, Costco negotiates the price of its cost with the retailer directly. By doing so, Costco has the partnership with suppliers. With this kind of supply chain management, Costco reduce the transaction cost.

1-6Kirkland

1-6-1Costco private label brand,1-6-2 hold 20% products in one store

The one reason is because Costco has their own brand which is called Kirkland, they not only provide one merchandise of category with their members but also hold about 20% products in one store to attract their customers buy and know their private label brand deeply. Otherwise, Costco has introduced new products under the Kirkland brand each year in categories as diverse as food, apparel, optical, and pharmacy.

1-6-3Great products value and quality are equal or better than the national brands, 1-6-4 Produce cost and sell prices lower than other products

Costco tries to let their members know that the quality of their products is equal to or better than other competitors. To attract more shoppers to buy their private products, Costco will put them in each category with each supplier instead of putting their private products in the same area. They let their shoppers to compare the price, quality, and ingredient with other suppliers generously.

1-6-5 Produced by itself (Costco) to control products’ quality and cost

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suppliers? The reason is because Kirkland is produced by itself. They clearly know each process of development and control their quality as well as lower price than others. Even though they reduce cost and price, they will not make their product’s value low.

3.2 Low Price

2-1mark-up less than 15% on every brand name

Costco doesn't mark up their price more than 15 percent on their every product and average markup price at Costco is 11%, which compares with other retailers such as Walmart ( 24% ), and supermarkets ( 30-35% ).

3.3 High Quality

3-1limited&selective product

Costco control their product amounts below than 4,000 types which compares with other retailers such as supermarket (40,000 types) and Wal-Mart (125,000 types)

Costco's product selection is special and deliberated to create the product difference. And their product placement and price discount is not fixed and irregular (For example : Levi's pants has a discount, but if you don't buy it, next time maybe this pants sold out or restore to the original price ) so it can trigger member to have a treasure hunting experience and also creates a sense of urgency to buy.

3-2parnership with supplier

Costco cooperate with suppliers that have high quality and good reputation to manufacture product to satisfy member's needs and maintain Costco's reputation.

3.4 Membership

4-1one-stop shopping

One-stop shopping is customer can buy all they need in one destination. Costco has a variety of product from sundries to boutique to let customer select and also have in-store service such as food court, tire center, gasoline to add the value of membership.

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4-2treasure hunting

Costco's product selection is special and deliberated to create the product difference. And their product placement and price discount is not fixed and irregular (For example : Levi's pants has a discount, but if you don't buy it, next time maybe this pants sold out or restore to the original price ) so it can trigger member to have a treasure hunting experience and also creates a sense of urgency to buy.

4-3Nearly 90% members continue their membership in the U.S. and Canada

Costco has 91% renewal rates in USA and average 80% renewal rates in the world, it means their members generally approve Costco's membership value and consider that it is worth to be Costco's member and pay the annual fee.

4-4offer a savings to members

Costco have strong supplier's bargaining power and through their economies of scale to bulk procurement the goods at low cost to pass the savings onto its members.

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4 Five Forces analysis

Figure 9 Five Forces of Costco

- Rivalry

- Bargaining power of suppliers - Bargaining power of buyers - Threat from substitutes - Threat of new entrants

4.1 Rivalry: Carrefour/ RT-Mart/ A-Mart/ Taisuco/ Save& Safe:

weak

In Taiwan, Carrefour has 104 stores, RT-Mart (22), A-Mart (16), Taisuco (10), Save& Safe (2). Carrefour is one of the largest hypermarket chains in the world (with 1,462 hypermarkets at the end of 2016). Carrefour operates in more than 30 countries. RT-Mart, A-Mart, Taisuco and Save& Safe are hypermarket chains in Taiwan

4.1.1 Product diversification: strong

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Costco, Costco control their product amounts below than 4,000 types and select only 2 or 3 best seller for each category. (Costco's sales items are 1/10 of hypermarket )

4.1.2 Product differentiation and uniqueness: weak

Costco is deliberated to select their products to compete with other retailers through product differentiation to attract members such as imported goods, boutique (Coach, Prada, diamond, and so on ), in-store service (food court, tire center, gasoline and so on). Costco's products are bulk-package and low prices and irregularly have a discounts to members.

Compare to their rivalry, their main product are daily necessities, groceries and fresh foods.

4.1.3 Capital requirement: weak

The hypermarket need to invest more capital to expand their size to compete with Costco.

Table 1 Capital of Each Retail Store in Taiwan

4.1.4 Size: weak

Costco's size is bigger than hypermarket. Costco have economic of scale make them procure more bulk package products with low cost. The more goods Costco sells, the bigger the economic scale and cost advantage they have.

Capital

Costco 64.4 billion (USD) Carrefour 38 billion

RT-Mart 49 million

A-Mart 52 million

Taisuco 1.8 billion Save & safe 45 million

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4.1.5 Cost condition: weak

Costco has economic of scale to enhance their bargaining power with suppliers and they bulk procure a large amount of products to generate cost savings. Costco's supply chain is different from other retailers. They directly buy the goods from suppliers through cross-docking transport to a big warehouse to allocate their goods and then deliver to Costco. The traditional method of delivery is first delivered to the wholesaler through the supplier, then to the warehouse, and finally to the retailer. So Costco have more supply efficiency compare to their rivalry.

Costco's store decoration is very simple, so it also can save the cost. About the product, they deliberate to select their goods and control the items below than 4,000 types. Thus, it can increase their inventory turnover and cut down the inventory management cost. And they also have private label brand to control the cost by themselves.

Overall, through their supply, inventory management, no-frills, product selection, private label brand and pricing strategy, it make them have an inventory and operating efficiency to create the cost advantage to compete with other retailers.

4.1.6 Overall

Costco's competitors in Taiwan are hypermarkets and they concentrate on different consumer groups. Costco's business model and strategy are different from Taiwan's hypermarket. In addition, Costco gain strength through internationalization. Therefore, it's hard to imitate and compete with Costco's model (supply chain, distribution system, product selection, pricing, marketing and membership system) and financial capital.

4.2 Bargaining power of suppliers

4.2.1 Large population of suppliers: weak

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its demands on Costco which means that a single supplier’s action is unlikely to significantly impact the level of total supply available to Costco.

4.2.2 Place-product differentiation and large volume from suppliers: weak

Most of things in Costco are imported products. When comparing to the traditional retails in Taiwan, we can know that the Costco products in Taiwan are much more different than traditional stores. Thus, for importers, they only have one way to get into the Taiwanese market which way is trading with Costco. Otherwise, Costco orders large number of products from suppliers which means Costco control most of suppliers’ place; thus, to suppliers, Costco has advantage of channel.

4.2.3 Forward integration: weak

In addition, most of Costco’s suppliers have low forward integration, which means that they have minimal control on the distribution and sale of their products in Costco warehouses.

4.3 Bargaining power of buyers: strong

4.3.1 The differentiation of unique import: weak

Customers can only get some special products from Costco, which means that they cannot buy the same product in different place. Costco has become the only choose for them to shop. Therefore, buyers here have the low power of bargaining some unique merchandise.

4.3.2 Low switching costs: strong

Of the low switching cost for customers, they can easily buy the Same goods in different places such as Walmart’s Sam’s Club or other retail stores. In Taiwan, customers can also buy the same product in RT-MART or Carrefour.

4.3.3 High available of substitutes: strong

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substitute Costco. Beside from some unique items we talked above, other products such as vegetables, fruits or daily necessities with lower price will make customers not to shop in Costco.

4.3.4 Easily to get information: strong

Since nowadays the Internet has rapidly improving, customers can easily search the information on the Internet to see the quality among every retail stores. Once they think Costco doesn’t satisfy their expectation, they can quickly transfer to another store to buy the same product.

4.4 Threat from Substitutes: strong

4.4.1 Same products from other rivalries or companies: medium

Costco’s characteristic is full of imported products and more than other hyper-markets, such as Carrefour, A Mart, RT Mart. However, for instance, I MEI milk is not only sold at Costco but also other hyper-markets, Costco will be substituted easily. Because customers can buy the same products near their places, even at a lower price. (weak)

Some products are imported only at Costco, customers cannot buy other stores, such as brands discount campaign. For example, Levi’s, Timberland and Havaianas. (strong)

4.4.2 Places: Online shopping-PC Home, momo shop: strong

- product diversification(strong)

Kinds of products on websites are more than our expectation so online shopping might substitute real stores, Costco.

- price differentiation(medium)

Shopping online can easily compare prices then buying on the price that customers accept. If customers shop at real stores, comparing prices within stores is more difficult

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than online shopping.

- pick-up conveniently(strong)

After finishing shopping online, you can choose the place you want to pick-up, like convenient stores, parcel delivery from community management committee etc. You do not need to be the store then take products back.

4.5 Threat of new entrants: PX-Mart: weak

PX-Mart is a supermarket chain in Taiwan. In 2014, they announced they expect to expand their stores over than 1,000 and turnover increase from 70 billion to 200 billion in 3 years. And 2017, they have 900 stores in Taiwan and turnover is nearly 100 billion. So, their size is continuously increasing.

In 2006, PX-Mart took over 善美的超市 and learned fresh food processing skills from them. In 2007, they took over 台北農產 and learned vegetable and fruit logistics system. In 2014, they took over 全買超市 and opened 全聯二代店 to cooperate with peasant farmers and built a charitable platform. In the shop, they offer fresh goods account for 50%. In 2015, PX-Mart took over MATSUSEI to access into department store. Before, MATSUSEI is good at import and international procurement. Thus, PX-Mart make good use of acquisitions to strengthen their own development path.

And nowadays, in Taiwan have lots of small family, so most of consumers take distance and convenient as their consideration. So PX-Mart is a good choice for small families or who want to buy goods nearby their home and seek convenience. PX-Mart also make an effect to their ads and social networking apps promotion, in recent years the age of group gradually decreased.

But Costco's business model and strategy are different from PX-Mart. In addition, Costco gain strength through internationalization. Therefore, it's hard to imitate and compete with Costco's model (supply chain, distribution system, product selection,

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pricing, marketing and membership system) and financial capital. And PX-mart now is a supermarket compare to Costco the size and economic of scale are different. Thus, for PX-mart have difficulties to enter into wholesale industry and compete with Costco.

4.5.1 Cost advantage: weak

Costco have bargaining power with suppliers but also reduce operating costs such as warehousing and inventory management. Their product is bulk package and also offer their own brand Kirkland to control their cost. So compare to PX-Mart, Costco have more cost advantage.

4.5.2 Product diversification: strong

PX-Mart is a supermarket. Their main product is daily necessities and fresh foods. And each product has kinds of choice to meet consumer demand. However, Costco take the opposite strategy they select only 2 or 3 best-selling products for each demand and to keep fewer than 4,000 sales items.

4.5.3 Product differentiation and uniqueness: weak

Costco attracts members by differentiating themselves from competitors through importing goods, private label brands─Kirkland, boutique (ex: LV, Rolex, diamond and so on) and service (tire center, pharmacy or hearing aid center). and their product is bulk package. Each product equal quality or better than their competitors with lowest possible price and irregularly steep discounts. Compare to PX-Mart, their product is daily necessities and fresh foods account for a large part.

4.5.4 Daily necessities: strong

About daily necessities, PX-Mart has more selection than Costco. Because Costco take the opposite strategy they select only 2 or 3 best-selling products for each demand and to keep fewer than 4,000 sales items.

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4.5.5 Access to distribution channel: strong

In Taiwan, PX-Mart have 900 stores compare to COSTCO they have 13 stores. PX-Mart are opened in community, so it's near and convenient for residents. People can just walk, ride a bike or motorcycle to PX-Mart. If people have urgent needs to buy some product, they can quickly to buy what they want in PX-Mart. And PX-Mart don't have restriction about membership, so everyone can enter to there.

4.5.6 Overall

Costco's business model and strategy are different from PX-Mart. In addition, Costco gain strength through internationalization. Therefore, it's hard to imitate and compete with Costco's model (supply chain, distribution system, product selection, pricing, marketing and membership system) and financial capital. And PX-mart now is a supermarket compare to Costco the size and economic of scale are different. Thus, for PX-mart have difficulties to compete with Costco.

Costco's economic of scale enhance their bargaining power with suppliers and they bulk procure a large amount of products to generate cost savings. And through their supply, inventory management, no-frills, product selection, private label brand , pricing and add-value service strategy, it make them have an inventory and operating efficiency to create the cost advantage and differentiation to compete with other retailers.

Thus, for PX-Mart, the barriers to entry into the wholesale industry are high. It needs to invest huge costs include in imitating Costco's supply chain, distribution system, brand reputation, capital structure, membership system, service and so on.

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5 Strategic Group Analysis

Since Costco is the only store in the group of warehouse, therefore, we chose different groups to see the difference between the branches and categories they have.

Table 2 Hypermarket

Name Number of branches Categories

Carrefour (家樂福) 114 43

RT-MART (大潤發) 23 38

a.mart (愛買) 16 46

Table 3 Supermarket

Name Number of branches Categories

Wellcome (頂好) 300 29

PX Mart (全聯) 900 30

Table 4 Convenience store

Name Number of branches Categories

7-11 (統一超商股份有限 公司) 5161 14 FamilyMart (全家便利商 店股份有限公司) 3105 14

Table 5 Department stores

Name Number of branches Categories

Pacific SOGO(崇光) 7 38

SKM(新光) 13 52

Far Eastern(大遠百) 11 66

Table 6 Warehouse

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Costco(好市多) 13 109

Table 7 The Numbers of Categories That Every Group Sells

Convenienc e store

Supermarket Hypermarket Department store Warehouse

categories Cookies/can dies Wine/bever age Bread Necessities Fresh food Clothes Cookies/candies Wine/beverage Bread Necessities Fresh food Clothes Household cleaning Vegetables Dietary supplement Hardware Cookies/candies Wine/beverage Bread Necessities Fresh food Clothes Household cleaning Vegetables Dietary supplement Hardware Appliances Accessories Furniture Infant supplies Electronics Computers Outdoor supplies Makeups Luggage Bikes Pet supplies Cookies/candies Wine/beverage Bread Necessities Fresh food Clothes Household cleaning Dietary supplement Hardware Appliances Jewelry Accessories Furniture Infant supplies Electronics Computers Outdoor supplies Makeups Luggage Luxury Bikes Pet supplies Cookies/candies Wine/beverage Bread Necessities Fresh food Clothes Household cleaning Vegetables Dietary supplement Hardware Appliances Jewelry Accessories Furniture Infant supplies Electronics Computers Outdoor supplies Luggage Bikes Pet supplies Tires

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Branches Product diversity Warehouse Costco:13/109 Department Store Sogo:7/38 SKM:13/52 FarE:11/66 Hypermarket Carr:114/43 RT:23/38 A-mart:16/46 Supermarket Wellcome:300/29 PX:900/30 Convenience 7-11:5161/14 FM:3105/14

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6 Resource, Capability, and VRIS Analysis

6.1 Resource-Tangible

6.1.1 Finance-good sales and financial performance

In the beginning, because Costco has good reputation, they can create good sales. In addition, the good sales can be shown on financial performance. Two of their major revenues are product sale and membership fee. You can see their net sale is still increasing from 2012 to 2016 although their net income is steady between 2015 and 2016 (figure10 and 11). About the other major revenue of membership fee, the revenue of gold star membership keeps increased as well as the revenue of business member does (figure12). Otherwise, not only attract more customers to apply for the membership card, but also try to make their members apply the cards year by year. The figure 13 show the Costco’s membership renewal rates as following. You can see the membership renewal rate in U.S. and Canada is much higher than global which accounts for 90 percent. Besides, even though the company still increases their stores in global, their sales revenue of per warehouse store remain increases year by year.

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Figure 12 Net income

Figure 13 The Total Members from2014 to 2016

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Figure 15 Numbers of Warehouse and Average Sales Per Warehouse

6.1.2 Physical-Location and Equipment

One of their targets is to create more profit, and they have already attained this goal; the other target is open more warehouse stores. Therefore, they try to operate more warehouse steady in global every year. In 2016, there are 29 new locations in global, 21 stores are in the U.S., including four Costco Business Center, and two new locations were opened in both Canada and Japan; and one new warehouse was opened in the U.K., Taiwan, Australia and Spain. In 2017, they decided open 31 new openings, and extending their global footprint into two more countries: France and Iceland. It brings them to nearly 750 warehouses in global. Besides, about their equipment in stores, they don’t have so many decorations in their stores. Therefore, that way makes them minimal the maintenance cost for their equipment.

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6.2 Resource-Intangible

6.2.1 Intangible-Technology

- CRS system

The introduction of the CRX system by Costco enabled Costco's supplier to conveniently track and check the current stock and provide the overall operation of the supplier's global operations at COSTCO,

- IRI system

Provide the inventory of individual retail sales.

6.2.2 Intangible-Service

- In-store services

" What we're trying to do with the business is to make the product more appealing and the product is the warehouse." ─ Jim Sinegal, CEO, Costco, April 2002.

Figure 16 In-store services

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Pharmacy (Pharmacy's sales accounted for 2nd in Costco's in-store services) Pharmacies have private consultation so their member can not only buy their product also consult.

Gas station (Gas station's sales accounted for 1st in Costco's in-store services) Costco's gas station products and services generate about 10% of Costco’s total merchandise sales (excluding membership fees). Their gasoline price is lower than other competitors.

Food court (Food court's sales accounted for 3rd in Costco's in-store services) There have pizza, hot dog, smoothie, hot soup and soft drink.

Optical

Costco offer a wide variety of eyeglass, frame and contact lenses 1 hour photo

Members can upload their picture to Costco's website in advance and directly go to Costco photo center to print out.

Hearing aid center

They offer free hearing test and hearing aid cleanings. Tire center

Their professional staff test tire pressure and also offer installment. Print & copy center

After-sales service

If consumers are not satisfied with the goods, Costco can let their member return and refund until the last day become overdue.

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6.2.3 Intangible-Reputation

Figure 17 Brand Reputation of Costco

- Customer Loyalty

 Membership Retention Rate

The following figures about membership revenue and renewal rates for Costco are remained high. In other words, for Costco’s members, they have high loyalty to Costco; in addition, the membership fee has already become one of major revenue for Costco. Costco is a low margin business because they mark up the price not over than 15% compare to Walmart is 24% and supermarkets are 30%. Thus, Costco's success factor is from their membership fee and it also is their source of revenue.

About Costco's membership renew rate, Costco has 91% renewal rates in USA and average 88% renewal rates in the world, it means their members generally approve Costco's membership value and consider that it is worth to be Costco's member and pay the annual fee.

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Figure 18 Membership Revenue

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Figure 20 Membership Data

6.3 Resource-Human Resource

The key to Costco’s continuing success and growth is its employees.

Consequently, everywhere they do business, they provide competitive wages and benefits. An important reason for the success of Costco's business model is the attraction and retention of great employees.

Costco also has long-tenured workforces in the other locations where they do business, particularly in more mature markets in Canada, the UK, Mexico, Japan, South Korea and Taiwan. They feel that the experience level and loyalty of our employees is a significant advantage in our business operations.

It pays its employees better than the other retailers. In 2016, it raised its base wages further. It raised the least wages from $11.5 an hour to $13 an hour. The average wages at Costco have also grown and the best paid workers there make more than $22.50. In 2016, it employed 205,000 people out of which 117,000 were full time workers and 88,000 were part time workers. However, it is not just about paying higher wages than the competitors but Costco has focused on other things too. It provides its employees with better health benefits and other benefits too. All of this is done to keep the employees happy.

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their employee information report to everyone means that Costco is doing this thing seriously. An American company can do this matter equally is not quite easy because there are lots of racial discrimination in America.

Figure 21 Equal Employment Opportunity Report

6.3.1 Costco’s culture

Happier employees are always more focused and deliver with dedication. If Costco has been able to sustain its low prices and customer centered strategy then somewhere its organizational culture has played a very important role in it.

The company’s focus on employee satisfaction has paid in the long run. Not just are its employees highly satisfied but they are more productive and highly dedicated too. Costco strengthened its promise further by raising the wages in 2016. Focus is on collaboration and not pushing the employees to deliver more than they can. This was known to be the norm at Walmart where employees were made to work much more than they were paid for. Continued assault from various groups has made Walmart

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make changes and it has also increased the minimum wages for its employees. However, still in terms of having an employee oriented culture the brand is years behind Costco.

6.4 Capabilities

6.4.1 Tangible-operating management: Finance

Why they can success in the retail business, we think that it is because they have strong business model as well as strong management team. Let me explain the strong business model first.

- Costco’s business model is predicated on providing its members the lowest prices for high quality goods. This doesn’t mean the cheapest or lowest priced products in a given category. You can find cheaper unbranded toilet paper or laundry detergent elsewhere. Rather it means providing the lowest relative price for a name brand or high quality item. For example, a member can purchase name brand Tide detergent for the lowest price on a per ounce basis at Costco. In fact, the prices are so good that Costco essentially breaks even on the merchandise they sell to their members and makes their money on the memberships. As the result, the low price means the unit price

- The low prices on merchandise can’t really be matched by competitors because competitors need to actually make money on selling the merchandise while Costco doesn’t really have this “problem”. The incredible value drives very high membership renewal rates among existing members and persuades new members to join so they too can benefit from the low prices. In recent years Costco has sustained renewal rates ranging from 88% to 90% - very high for any industry especially retail.

- At the same time, Costco continues to add more verticals and categories that members can save on if they purchase

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- the greater scale helps Costco negotiate better price from suppliers

Figure 22 Operating Management

The second point is strong management team. The key elements of Costco’s operating strategy is because they have strong team who has clear understanding of the retail business and know what their membership want.

6.4.2 Tangible-Expansion

Because they have the high profit in each warehouse stores in global, they can extend their stores year by year. So far, their stores still concentrate in U.S. which accounts for 506 stores, and the stores in U.S. are still increased now (figure7). Otherwise, they extend the warehouse stores not only in U.S., but also in global. You can see the figure 8 which show every country has already been extended the Costco’s warehouse stores. Therefore, we think they have capability to extend their stores.

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Figure 23 Numbers of U.S. Warehouse

Figure 24 Geographical Summary of Costco's Warehouse Stores

6.4.3 Intangible-Marketing

Every element of Costco’s business model is aimed at one thing – increasing and improving the value proposition of a membership. This is a done through both improving prices on products and services (ex: adding gas stations, optical, photo centers, insurance). This ultimately makes (1) switching costs higher; (2) the membership stickier and (3) generate some additional operating margin on the additional items sold.

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The key differentiating aspect of these warehouse clubs versus other retailers is that you must be a member to shop there. They charge an annual membership fee in exchange for lower prices. Costco's renew rate in USA is 90% and average 80% around the world. It indicate that member approve the value of Costco. - Low price, large quantities and limited featured product

Costco doesn't mark up their price more than 15 percent on their every product and average markup price at Costco is 11%, which compares with other retailers such as Walmart ( 24% ), and supermarkets ( 30-35% )

Costco control their product amounts below than 4,000 types which compares with other retailers such as supermarket (40,000 types) and Wal-Mart (125,000 types)

Costco's product selection is special and deliberated to create the product differentiation. And their product placement and price discount is not fixed and irregular (For example : Levi's pants has a discount, but if you don't buy it, next time maybe this pants sold out or restore to the original price ) so it can trigger member to have a treasure hunting experience and also creates a sense of urgency to buy.

- Treasure Hunt & drive consumer frequency - discovery and exploration

About 25% of Costco’s products are called “treasures”. These items from luxury brands to seasonal products. Costco has embraced what they often call the “Treasure Hunt” – their quantity and discount time are limited and irregular to trigger customer's desire and provide member a fun shopping experience.

6.4.4 Intangible-Human Resource

- Automated System (Maintains Scheduling)

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a valuable culture at Costco. For him retail was a people business and therefore it was important to get the people part of the story right. It is the most valuable and important part of the equation and getting it right meant having solved the most important part of the puzzle. How happy your people are would decide how happy your business is. Therefore, Sinegal’s focus was on wining people’s dedication by keeping them happy and satisfied. At Costco, they hire good people and thereafter train and pay them well. Apart from it, the opportunities of advancement are also better at Costco. In return, what Costco gets is higher dedication and productivity from its employees. However, all this investment is at last worth it because it all translates into sales and profits. Therefore, their check the bill service is pretty fast and employees will check the situation whether needs more employees to do check the bill with self-motivation. Moreover, employees put customers’ goods orderly not making mess or confusing. Employees work fast and accurately..

- Training

Employees in Costco have training courses to their working content. Costco not only wants their workers do well but hopes they can grow when they work. Include great wage, benefits, safe environment, challenging work etc

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6.5 Strategies analysis

Figure 25 Strategies- key strength

6.5.1 Tangible strategies analysis

Tangible-Inventory (Finance): Key Strength

For this group of area, Costco tries its best to reduce the cost of hiring staff. First, it uses pallets and forklift to carry and put products in the shelves. As a result, there only may be a few staff of controlling the equipment. Also, the company displays goods in their shipping pallets, instead of arranging individual items on shelves.

Tangible-Supply Chain (Finance):Key strength

With the efficiency supply chain management, Costco directly order as well as negotiate the price of the products with the local suppliers or manufacturers. Then, merchandise will be sent directly to Costco since it has the cross-docking strategy. By

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use this strategy, Costco can decrease the time for storing goods and instantly distribute all the products in one place in the logistic center. It doesn’t need to spend other time for suppliers to distribute products to different logistic center. Therefore, we think good management of supply chain also helps the inventory system in Costco.

Negotiation with supplier (Finance): Key strength

In the strategies of international management of Costco, as what we mentioned above, it directly sources and cooperates with the suppliers locally. Consequently, Costco can have the lower prices of importing goods. This can not only benefit Costco but also the manufacturers worldwide. Costco therefore purchases the most of their merchandise directly from manufacturers. The greater scale helps Costco negotiate better prices from suppliers that are in turn passed back on to their members.

Product selection-featured products: Key strength

A typical Costco warehouse store stocks only 4,000 types of items per store. With this kind of selection, Costco helps its members to choose good qualities items on every category, and avoid importing goods that the quality is not so well or no branding products.

Product Selection - small variety of goods (Zone of Irrelevance)

As the most powerful competitor of Costco, Walmart sells almost ten thousands of products. However, Costco only selects 4,000 products as same as supermarket. However, with the limitation of merchandise, Costco cannot compete with other rivalries because other stores sell a variety of goods than Costco. Perhaps some of customers would like to shop and select items by themselves.

Product- low price and big volume: Key Strength、Zone of Irrelevance

Finance: Key strength

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it competes the unit low price with a very big volume with other rivalries. Bulk sale is suitable for big companies or several big families in Taiwan.

Nevertheless, for the individuals or single nowadays, they wouldn’t prefer goods in big volume. For example, it’s hard for them to finish a big package of potato chips within a short time. Besides, there aren’t so many big families in Taiwan now. Most of families only have three to four people.

Private brand (Finance): Key Strength

The Kirkland Signature products allow Costco to earn higher margins versus similar branded products they sell while also differentiating their offerings from other retailers. In recent years, an increasing percentage of Costco’s total merchandise sales are derived from their Kirkland Signature products with a strategy of increasing penetration of Kirkland Signature sales, given higher margins on these products versus other branded products. About 25% of Costco’s sales profit comes from Kirkland.

Expansion (Physical-branch) :Key Weakness

Although Costco now has extended their stores to many countries around the world, it is still carefully considering about open another new store in different places. High geographic concentration of stores makes Costco doesn’t gain extra profits from other countries since other rivalries have more branches worldwide then Costco. According to the survey, about 30 % of Costco’s sales came from California in the U.S.

6.5.2 Intangible strategies analysis

No advertising: Superfluous Strength

Costco doesn't have advertising so as to cut down the advertising cost. They through member's mouth advertising to marketing. If their members have a good shopping experience in Costco, Costco hopes their member recommend their friends to come to store.

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Co-branded: Superfluous Strength

Starbucks on KIRKLAND Signature blend house coffee. Furthermore, KIRKLAND is now trying to work with Kimberly-Clark to have own-branded diaper.

Membership: Key strength, Zone of Irrelevance

Membership model - membership fee: Key strength

The concept of membership model let Costco become successful clubs. Costco through membership system to create the exclusivity and aim to their target customer groups who approve Costco's value to make Costco effectively communicate with their members and increase consumer loyalty. In the store, Costco's member can not only have a one-stop shopping experience, but enjoy the service which Costco make an effort on to add the value of membership.

Costco has 91% renewal rates in USA and average 80% renewal rates in the world, it means their members generally approve Costco's membership value and consider that it is worth to be Costco's member and pay the annual fee.

Membership model-limited market: Zone of Irrelevance

Membership model will select their customer who support and approve Costco's core value and Costco can efficiently communicate with their members. But at the same time, Membership model will limit their market and consumer who just buy fewer products or small package products.

Diversified Service: Superfluous Strength New and Fun Offerings Increase Stickiness

Costco has multiple ancillary products and services, from pharmacies to gas stations. They offer a wider array of services that cannot be replicated online, such as optical, pharmacy, food court and so on. They boost the perceived value of club membership and consider that it is worth to be Costco's member and pay the annual fee.

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Return and Refund Policy: Key Strength Guarantee and Refund

If consumers are not satisfied with the goods, Costco can let their member return and refund until the last day become overdue.

Website- online shopping: Key Weakness

Nowadays, E-commerce is rising and is a kind of trend. In 2016 financial report, Costco earn just 4% of its overall revenues through e-commerce sales and the result of online shopping is also under the expectation. Take the Costco’s private label for example; the online sale of Costco for Kirkland is much lower than Amazon. And the figure is indicated that Costco still relies and focus on its in-store sales.

Figure 26 The Percentage of E-commerce Revenue for Costco

Figure 27 The Sales of Kirkland by Online Retailer

Check the Bill Efficiently: Superfluous Strength

數據

Figure 49 Inventory turnover and gross margin profit of retail stores in U.S. .... 92  Figure 50 Amazon growth rate compared to e-commerce sales growth in U.S
Figure 4 Gold star member includes household card
Figure 6 Average sales per ware-house (sales in millions)
Table 1 Capital of Each Retail Store in Taiwan
+7

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