Costco Wholesale Corporation Mission Business Model And Strategy Case Study

Costco Wholesale Corporation: Mission, Business Model, and Strategy Case Notes:-Jim Sinegal, cofounder and CEO of Costco Wholesale-4th largest retailer in the US, 7 th in the world-CEO handles complaints personally  “if a customer’s calling and they have a gripe, don’t you think they kind of enjoy the fact that I picked up the phone and talked to them?”-CEO: “We’re going to be a company that’s on a first-name basis with everyone”-Employees genuinely liked Singegal-Sinegal had tremendous merchandising savvy-No-frills, self service warehouse facilities (enables them to operate profitably at significantly lower gross margins than traditional wholesalers, mass merchandisers, supermarkets, and supercenters.-High sales volume and rapid inventory turnover generally allowed it to sell and receive cash for inventory before it had to pay many of its merchandise vendors, even when vendor payments were made in time to take advantage of early payment discounts Competitive Advantage(s):

CASE±04±Costco Wholesale in 2016: Mission, Business Model, and Strategy C-27to location and sometimes visiting 8 to 10 stores daily (the record for a single day was 12). Treated like a celebrity when he appeared at a store (the news “Jim’s in the store” spread quickly), Sinegal made a point of greeting store employees. He observed, “The employees know that I want to say hello to them, because I like them. We have said from the very beginning: ‘We’re going to be a company that’s on a first-name basis with everyone.’”2Employees genuinely seemed to like Sinegal. He talked quietly, in a commonsensical manner that suggested what he was saying was no big deal.3He came across as kind yet stern, but he was prone to display irritation when he disagreed sharply with what people were saying to him.In touring a Costco store with the local store manager, Sinegal was very much the person-in-charge. He functioned as producer, director, and knowledgeable critic. He cut to the chase quickly, exhibiting intense attention to detail and pricing, wandering through store aisles firing a barrage of questions at store managers about sales volumes and stock levels of particular items, critiquing merchandising displays or the position of certain products in the stores, commenting on any aspect of store operations that caught his eye, and ask-ing managers to do further research and get back to him with more information whenever he found their answers to his questions less than satisfying. Sinegal had tremendous merchandising savvy, demanded much of store managers and employ-ees, and definitely set the tone for how the com-pany operated its discounted retailing business. Knowledgeable observers regarded Jim Sinegal’s merchandising expertise as being on a par with Walmart’s legendary founder, Sam Walton.In September 2011, at the age of 75, Jim Sinegal informed Costco’s board of directors of his inten-tion to step down as chief executive officer of the company effective January 2012. The board elected Craig Jelinek, president and chief operating officer since February 2010, to succeed Sinegal and hold the titles of both president and chief executive offi-cer. Jelinek was a highly experienced retail execu-tive with 37 years in the industry, 28 of them at Costco, where he started as one of the company’s first warehouse managers in 1984. He had served in every major role related to Costco’s business opera-tions and merchandising activities during his tenure. When he stepped down as CEO, Sinegal retained his ultra-low prices that kept customers coming back to shop. Realizing that he had mastered the tricks of running a successful membership warehouse busi-ness from Sol Price, Sinegal decided to leave Price Club and form his own warehouse club operation.Sinegal and Seattle entrepreneur Jeff Brotman (now chair of Costco’s board of directors) founded Costco, and the first Costco store began opera-tions in Seattle in 1983, the same year that Walmart launched its warehouse membership format, Sam’s Club. By the end of 1984, there were nine Costco stores in five states serving over 200,000 members. In December 1985, Costco became a public com-pany, selling shares to the public and raising addi-tional capital for expansion. Costco became the first ever U.S. company to reach $1 billion in sales in less than six years. In October 1993, Costco merged with Price Club. Jim Sinegal became CEO of the merged company, presiding over 206 PriceCostco locations, with total annual sales of $16 billion. Jeff Brotman, who had functioned as Costco’s chair since the com-pany’s founding, became vice chair of PriceCostco in 1993, and was elevated to chair of the company’s board of directors in December 1994, a position he continued to hold in 2016.In January 1997, after the spin-off of most of its non-warehouse assets to Price Enterprises Inc., PriceCostco changed its name to Costco Compa-nies Inc. When the company reincorporated from Delaware to Washington in August 1999, the name was changed to Costco Wholesale Corporation. The company’s headquarters was in Issaquah, Washington, not far from Seattle.Jim Sinegal’s Leadership StyleSinegal was far from the stereotypical CEO. He dressed casually and unpretentiously, often going to the office or touring Costco stores wearing an open-collared cotton shirt that came from a Costco bargain rack and sporting a standard employee name tag that said, simply, “Jim.” His informal dress and unim-posing appearance made it easy for Costco shoppers to mistake him for a store clerk. He answered his own phone, once telling ABC News reporters, “If a customer’s calling and they have a gripe, don’t you think they kind of enjoy the fact that I picked up the phone and talked to them?”1Sinegal spent considerable time touring Costco stores, using the company plane to fly from location

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