THE STATES’ VERY OWN SUPERMARKET
Although in terms of prominence and revenue generation, the great retail giants such as Amazon, Kroger company, and companies such as Walmart come to mind. But, though hailing from the States they are not as closely associated on the ground level with the US households and as exclusively largely operate in the US as Costco does. It is the 3rd largest humble and greatest retailer in the US. Hence it would be safe to brand Costco as ‘The supermarket where the US shops at’. Let’s know ‘When was Costco Founded?’
Costco is a members-only retail giant which operates by the warehouse club system and is famously known to supply quality products at the best value. It majorly provides services such as merchandise, cash and carries, warehouse club, filling stations, etc., and revenue from operations sitting at 166.76 billion US dollars with an employee workforce of 2,73,000 as of 2020.
Costco has expanded its reach to 804 locations including the countries – Australia, New Zealand, France, South Korea, Japan, Taiwan, Canada, Iceland, Mexico, Spain, and the United Kingdom. But the financial figures remain loyal to the US market as 80% of sales come from the United States. The business is divided into three geographical segments – The US operations, Canadian operations, and international operations.
THE FOUNDING AND HISTORY OF COSTCO
– Costco’s history dates back to 45 years ago when the company’s history began with Sol Price and his son opening the first club warehouse ‘Price club’ in the year 1976, July the 12th in San Diego, California. Sol Price, a Bronx-born attorney who in many ways is known to have pioneered the concept of warehouse club retail model more than 2 decades before starting Price club.
– Price opened FedMart, selling goods at a low margin and charging a membership fee. Sam Walton, the founder of Walmart got ideas for his company from Sol’s Fedmart. Later in the year 1959, Fedmart went public.
– James Sinegal and Jeff Brotman, the co-founders of Costco took the company public in 1985 December. James Sinegal spent many years working with price at both FedMart and Price club. And, Jeff’s an American lawyer, who was interested in commercial business, his father influenced his decision to create Costco. Costco’s revenue from sales scaled up to 3 billion dollars in 6 years.
– Costco grew out of a merger of 2 retailers with similar business models. Price Club and Costco merged in the year 1993 and were named Price Costco. In 1997, they renamed it to just Costco. After the merger, the sales hyped up exclusively in 1993, in 2019 the revenue went up to 115 .5 billion dollars.
– Costco achieved many milestones down the line, it became the first company to grow from 0 to 3 billion dollars in sales in under 6 years. it was named as the 5th largest retailer in the world. In 2016 it was branded as the world’s largest retailer of choice and prime beef, organic food, rotisserie chicken, and wine. Costco ranked 10 on the’ Fortune 500′ of the largest US corporations by total revenue.
THE BUSINESS MODEL BEHIND THE COMPANY’S SUCCESS
According to Morgan Stanley, Costco has the best business model. And indeed it has helped hype up its financials exponentially and it is the reason they have always been on the rise. Costco is a members-only retail warehouse club. It has 55 million members and 90% of them renew their membership each year. It has 4 sorts of membership subscriptions – Gold star (60 dollars), gold star executive (120 dollars), business and business executive If a person wants to shop at Costco he needs to be a member as the subscriptions are mandatory. It receives a significant portion of its revenue from membership fees, it raises its membership fees every year as a part of its policy but in no way has it affected the foot traffic due to its commendable business model and providing value to customers.
THE WAREHOUSE LAYOUT DESIGN
Costco has a smart and peculiar layout design at its stores, which adds up as a reason for the surge in sales. It is a part of a business model that has saved the company from falling prey to its competitors such as Walmart, Target, whole foods, Amazon, etc.
Costco deliberately maintains the items having inelastic demand, essentials, and necessities in the nook and corner of the stores or at the other ends of the stores so that the customers walk through the aisle scanning other products they come across on the way.
It is a deliberate attempt to lure customers into buying other things apart from what they have come for. The Costco stores change the place of the item every once in a while frequently, so that they create a scenario where customers are constantly hunting for treasure. This way customers bypass and learn what they sell and discover new products on the way which in turn indirectly increases the sales.
They also maintain a sample of the products on the side counters of their store for the customers to relish a pinch of experience of their products.
INVENTORY MANAGEMENT
Costco has very efficient management of inventory systems, they also rotate the products frequently in and out of the store’s inventory which leads to impulsive buying on the part of the customers. As the customers know that the same product wouldn’t remain on the shelf for too long they buy it immediately to avoid losing the product.
Costco unlike the other supermarkets and retail stores does not provide zillion options of brands for a product, it only provides 2 or a maximum of 3 brands. This helps in avoiding confusion whilst shopping for products and helps reduce inventory costs and save time and money for the company. Costco chooses the best of brands, this also helps increase Costco’s margin in dealership, as the suppliers are willing to pay more to get their product placed on Costco’s shelf. As there are only a few brands to select from, there is a high probability that the supplier’s product would get chosen.
Otherwise, there is a prevailing uncertainty in the case of other retailers as the supplier’s brand may or may not get sold. But as Costco has high foot traffic and only 2 brands to choose from there is a virtual certainty that the supplier’s products would get sold. This is why the supplier strives to place their product brand on the shelves of Costco, it is a fair deal for them.
KIRKLAND – THE HOUSE BRAND
Costco chooses the best products for low prices, if any product’s wholesale price is too high they refer to another stock. In case if they don’t like any product they make their product under their in-house brand – ‘Kirkland signature’.
Kirkland Signature is Costco’s trademark private label brand. The name was inspired by Costco’s original headquarters in Kirkland, Washington. The consumer report places Kirkland signature 6th overall in the nation.
THE WORKFORCE AT COSTCO
Costco has a simple policy – Treat the workers well with flexibility in schedule and decent pay and benefits. If workers are happy they perform better at work and provide quality services to their customers, if the customers are treated well the sales increase. If the sales increase the company’s cash flow increases and help it remain relevant in the times to come.
The workers are paid 29 dollars per hour and 25 dollars per hour on average, they are required to work for 5 days a week for 24 hours part-time per week.
VALUE TO CUSTOMERS
Providing value to customers is a fundamental objective of every company, and Costco has been deliberating measures to provide value to customers through the following policies –
– Costco provides added benefits with every membership subscription, it provides 2% cash back rewards of up to 1000 dollars a year, savings on travel, identity protection, automobile insurance, home insurance, and services like bottled water delivery.
– It offers technical support to its customers and asks for customers’ feedback on the products they sell.
– No regular item is marked up more than 14% and Kirkland item more than 15%. It provides the best products at low margins, which increases the purchasing power of its customers.
THE BOTTOM LINE
During the pandemic, the company’s figures suffered due to the fall in sales. Costco isn’t as online and e-commerce friendly as its major competitor Amazon. Costco needs its customer to come to its physical location to shop as the entire substantial part of Costco’s business model only makes sense and adds numbers to its financials if customers shop offline.
Costco has adopted a reactive strategy to the change in the environment in the year 2020 by making online deliveries of supplies through its websites, Costco.com for the US and Costco.ca for Canada. Costco also acquired Innovel solutions, a transportation company to supply its products.
Costco has been a successful company and on the rise ever since its inception, despite the existence of big giants such as Amazon, the company is thriving and has known to manage to increase its membership even during the crisis of 2008. Looking at the records of the company the future looks bright, and ironically enough the company did not have a PR department, talk about confidence! And yet it managed to win over its customers and hopefully it will continue to do so in the foreseeable future.