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Business 11th Edition by William Pride,Robert Hughes ,Jack Kapoor
Edition 11ISBN: 978-1111526207Business 11th Edition by William Pride,Robert Hughes ,Jack Kapoor
Edition 11ISBN: 978-1111526207 Exercise 3
Behind the Scenes at Costco
More than 20 years after Costco opened its first warehouse club store in Seattle, Washington, the company's philosophy can still be summed up as "pile' em high, price' em low." Costco stores are anything but fancy. In fact, the first store was located inside a warehouse. Yet 56 million consumers and small-business owners pay an annual membership fee so they can save on everything from mayonnaise, mattresses, and movies to laptops, lighting, and luggage. Each store (and the Costco retail Web site) carries a broad and varied merchandise assortment, all priced low to move quickly. In all, the retailer sells $600 million worth of fine wines, $1.4 billion worth of prescription medicines, 45 million hot dogs, and 60,000 carats of diamonds every year.
Customers never really know what products they will find each time they visit one of the 567 Costco warehouse stores around the world. Surprises are all part of the shopping experience at Costco. "The art form of our business is intuition," says the CEO. His buyers must choose carefully, because the typical Costco carries less than 10 percent of the number of products displayed in a Walmart store.
Moreover, Costco aims for a profit margin of no more than 14 percent, which means inventory must sell quickly. If products sell slowly, they will tie up precious cash that could be better spent on newer or more popular merchandise. Therefore, Costco's buyers watch for particularly hot products and product categories. Well-known manufacturers' brands share shelf space with Kirkland Signature, Costco's private brand. Members may walk past stacks of best-selling books on the right, color printers on the left, and racks of baked goods straight ahead as they push their shopping carts down the aisle. This variety enhances the store's appeal, says the CEO: "Our customers do not drive 15 miles to save on a jar of peanut butter. They come for the treasure hunt."
Among the treasures they might find: an $8,000 Suzuki grand piano, a $6,000 100-CD Wurlitzer jukebox, and a seven-carat diamond ring for $125,000. Such items now comprise 5 to 10 percent of Costco's sales. Despite the low prices, Costco offers a generous return policy. Customers can return anything at any time. If dissatisfied with their membership, they can even get a full refund on that.
The exception is electronic products, which cannot be brought back after 90 days. To help customers set up and use their new televisions, computers, and other electronics items, Costco offers free technical support by phone.
No receipt? No problem at Costco. Customers have ample opportunity to exchange or return items because they visit the stores frequently. Research shows that, on average, members visit Costco stores more than 11 times a year and spend $94 on each visit. Each U.S. Costco store rings up, on average, $139 million worth of merchandise annually, and its average sales per square foot is a whopping $797. Costco's members are quite loyal, with a renewal rate of 86 percent, and they have a median income of $72,000.
In recent years, Costco has continued its growth by offering new consumer and business services at low prices. For example, members can log on to the retailer's Web site (http://www.costco.com) and apply for a mortgage, buy life insurance, search for concert tickets, hire a Web site designer, arrange for payroll service, or price a vacation trip. The company has also expanded its retail footprint, including opening new stores in urban areas such as New York City. Costco adapts its assortment for each store, based not only on the size of the warehouse but also on the needs of local shoppers. Downtown stores are typically smaller, because city locations are so costly, but every Costco store carries an ever-changing array of merchandise, reflecting the treasure hunt that brings customers back again and again in search of that next unexpected bargain. 18
How do you think physical distribution affects Costco's ability to satisfy its customers?
More than 20 years after Costco opened its first warehouse club store in Seattle, Washington, the company's philosophy can still be summed up as "pile' em high, price' em low." Costco stores are anything but fancy. In fact, the first store was located inside a warehouse. Yet 56 million consumers and small-business owners pay an annual membership fee so they can save on everything from mayonnaise, mattresses, and movies to laptops, lighting, and luggage. Each store (and the Costco retail Web site) carries a broad and varied merchandise assortment, all priced low to move quickly. In all, the retailer sells $600 million worth of fine wines, $1.4 billion worth of prescription medicines, 45 million hot dogs, and 60,000 carats of diamonds every year.
Customers never really know what products they will find each time they visit one of the 567 Costco warehouse stores around the world. Surprises are all part of the shopping experience at Costco. "The art form of our business is intuition," says the CEO. His buyers must choose carefully, because the typical Costco carries less than 10 percent of the number of products displayed in a Walmart store.
Moreover, Costco aims for a profit margin of no more than 14 percent, which means inventory must sell quickly. If products sell slowly, they will tie up precious cash that could be better spent on newer or more popular merchandise. Therefore, Costco's buyers watch for particularly hot products and product categories. Well-known manufacturers' brands share shelf space with Kirkland Signature, Costco's private brand. Members may walk past stacks of best-selling books on the right, color printers on the left, and racks of baked goods straight ahead as they push their shopping carts down the aisle. This variety enhances the store's appeal, says the CEO: "Our customers do not drive 15 miles to save on a jar of peanut butter. They come for the treasure hunt."
Among the treasures they might find: an $8,000 Suzuki grand piano, a $6,000 100-CD Wurlitzer jukebox, and a seven-carat diamond ring for $125,000. Such items now comprise 5 to 10 percent of Costco's sales. Despite the low prices, Costco offers a generous return policy. Customers can return anything at any time. If dissatisfied with their membership, they can even get a full refund on that.
The exception is electronic products, which cannot be brought back after 90 days. To help customers set up and use their new televisions, computers, and other electronics items, Costco offers free technical support by phone.
No receipt? No problem at Costco. Customers have ample opportunity to exchange or return items because they visit the stores frequently. Research shows that, on average, members visit Costco stores more than 11 times a year and spend $94 on each visit. Each U.S. Costco store rings up, on average, $139 million worth of merchandise annually, and its average sales per square foot is a whopping $797. Costco's members are quite loyal, with a renewal rate of 86 percent, and they have a median income of $72,000.
In recent years, Costco has continued its growth by offering new consumer and business services at low prices. For example, members can log on to the retailer's Web site (http://www.costco.com) and apply for a mortgage, buy life insurance, search for concert tickets, hire a Web site designer, arrange for payroll service, or price a vacation trip. The company has also expanded its retail footprint, including opening new stores in urban areas such as New York City. Costco adapts its assortment for each store, based not only on the size of the warehouse but also on the needs of local shoppers. Downtown stores are typically smaller, because city locations are so costly, but every Costco store carries an ever-changing array of merchandise, reflecting the treasure hunt that brings customers back again and again in search of that next unexpected bargain. 18
How do you think physical distribution affects Costco's ability to satisfy its customers?
Explanation
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Customers are attracted to Costco for th...
Business 11th Edition by William Pride,Robert Hughes ,Jack Kapoor
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