Introduction
Costco wholesale is a multinational corporation that deals with discount stores called warehouse clubs where a large quantity of commodities is sold at a reasonably low price to the individuals who contribute annual membership subscription. It is located in America, Canada, and other parts of the world. The business operates on a membership basis whereby individuals have to register in order to have Gold Star membership at $60 annual or Business affiliation that covers people majorly with sales license at $60 yearly or Executive Gold Star at $120, or a person can subscribe to the free household cards that can be renewed after every six months. All the affiliates have the freedom to use their cards in all warehouses in all parts or locations across the world. Whoever applies for the affiliations will have to pay a renewal fee at the end of the year.
The Costco warehouses deals in retailing, discount stores, supermarkets, and warehouse clubs. Their merchandises consist of fresh foods such as deli and meat, and it offers food and sundries to their customers like snack foods, candy, packaged foods, and alcoholic beverages. They also provide pharmacy, soft lines, and hardline, including electronic devices, health, and beauty aids.
Costco Wholesale Financial Plan
Financial plan is a clear indication of the business’s current financial position, goals, and possible strategies for reaching the goals. It enables the company to reduce downswings of money and carry on with the operations of the organization.
Operations as of August 2020 Amount ($, ‘000’)
Sales………………………………………………………………………………63000
Operating income………………………………………………………………. 5,435
Membership fees………………………… ………………………………………3,541
Total assets………………………………………..…………………………………….. 55,556
Stockholder’s equity……………………………………………………………… 18,284
Long term debts…………………………………………………………………………. 7,514
Cash flow………………………………………………………………..………… 1,147
Net property and equipment…………………………………………………………21,807
Costco Warehouse Business Case
Date…………………………22/4/2021
Project name…………………Omnichannel
Submitted by………………..Head of Sales Department
Date approved………………
Summary
The increasing adoption of the omnichannel focus by many retailers has prompted consumers to prefer buying commodities online or in stores and can reach them easily offline. Customers use various electronic devices to search for the products, do some research concerning the usage, and compare with other retail shops (Velenturf & Jopson, 2019). Based on the corporation’s operation, where the members pick their goods at the warehouse at a lower price, they do not meet the current consumers’ expectations and changes in the business sector. This puts the whole business at risk of losing some of the valued memberships to the competitors who might have installed the omnichannel program. When the corporation initiates the use of the latest method of conducting commerce, the click and mortar, members’ satisfaction will be fully guaranteed. They will be able to access online and offline services that are getting goods on the website and the storeroom.
Problem
The project will help the business keep and even attract more members as it will provide fast online services and offline transactions. Furthermore, the organization will compete with the competitors in the market that have already implemented the omnichannel experience to their customers. The online reach by the customers will enable the sales team to identify most of the commodities that consumers prefer, and therefore, the corporation can add them into the accurate stock.
Finances
The company needs capital to develop the system of operation that has been adopted by most of the related corporation. The money will enable the wholesale to acquire the equipment and other complementary resources that makes the process complete and successful.
Sources of finance
The Costco wholesale head of management may decide to get either short-term financing or long-term source. The long-term financing includes;
Equity financing, this involves the selling of the corporation shares, the common stocks and the company’s preferred stocks in order to raise capital needed. The financing is more suitable as it does not affect the business’ cash flow.
Corporate Bond, this is a unique type of security issued by the company to enable it acquire money to grow the operational activities. The lenders give the company some money which the business will pay later on the maturity date agreed.
The other category of funding is short-term sources they are;
Promissory Note, this is where the corporation makes a promise through writing to the payee that they will refund back the money at agreed terms.
Asset-based Loan, when getting this loan, the organization have to use its assets as collateral or as security, other short term sources are, Repurchase agreement, letter of credit, etc. Being that the project requires development of anew whole system, it will be more appropriate for the company to secure long-term loans (. (Vitolla et al., 2020). This will give the organization room for any necessary adjustment that may arise through the stages involved. (Vitolla et al., 2020).
Risks Associated with the Sources of Funds
The equity financial is good though the company will have to give the investors or whoever bought the shares part of the business. When it comes to the organization’s gains, the business must share the profits in the agreed ratio this will lower the income for the industry. Furthermore, the industry cannot make decision without engaging the members who bought the equity, this might hinder some vital decisions that requires urgency in operation. Therefore, the management should prefer the use of corporate bond as it is less risky compared to other sources. It will enable the business to collect good amount of finances without much worries like transfer of ownership.
The Current APRs
Product period Interest Rate APRs
10/1 ARM rate 3.28% 3.99%
15 years fixed rate 2.43% 2.68%
20 years fixed rate 2.97% 3.15%
Profit and Loss Account For Costco Wholesale
After the project had been initiated, there is a progressive increase in the gross profit from year 1 at 7.85%, year 2 at 9.06%, and year 3 at 10.11%. It is, therefore, evident that the omnichannel method is beneficial; the company will make good profits.
References
Velenturf, A. P., & Jopson, J. S. (2019). Making the business case for resource recovery. Science of the Total Environment, 648, 1031-1041.
Vitolla, F., Salvi, A., Raimo, N., Petruzzella, F., & Rubino, M. (2020). The impact on the cost of equity capital in the effects of integrated reporting quality. Business Strategy and the Environment, 29(2), 519-529.