Costco Wholesale Corporation: Company Analysis

Introduction

Management is the function of planning, organizing, leading, and controlling any company’s current situation to meet its challenges. In this paper, Costco Wholesale Corporation has selected to analyze current situation according to managerial views, which is now operating international chain of membership warehouses for carrying quality, merchandising brand name at lower prices than other warehouses. The Costco Corp. has analyzed its current situation according to some aspects, like business environment, globalization’s effects, diversification, and ethical issues. The paper would also discuss about the corporate social responsibilities, leadership challenges, motivational factors, or teamwork. The current situations have focused in terms of these aspects, advantages, disadvantages, and challenges have recommended in proper way.

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Costco Wholesale Corporation

Costco Wholesale Corporation, also known as Costco, is the largest warehouse club chain in United States. In 2009, it has listed as fourth largest retailer in US and ninth in worldwide. In 2007, it is also familiar as largest retailer of fine wine in international market. This corporation is helpful for small to medium sized businesses to reduce costs for purchasing because of resale and business uses. Costco began its operational activities with warehouse in 1983 in Seattle, Washington. The main target of this corporation is to offer low prices on limited selection of nationally branded and private label products in merchandised categories with no frills, facilitation of self-services etc. It buys merchandise from manufacturers, and cross docking consolidation point or warehouses. It is also receiving container-based shipments from manufacturers and reallocating products for shipments to its individual warehouses within 24 hours. Costco is using very few marketing and promotional activities, like new warehouse openings, occasional direct mail to potential new members and direct market programs.

Costco; Join the Club

Categories of Management Skill

The CEO of Costco, James Sinegal had drawn three management skills upon the visits of local warehouses of Costco, which are flat, flexible & fast.

The world is changing in continuous manner, not different in terms of merchandising organizations. James is making these management skills to adjust these changes by every local warehouse. The local CEOs are giving power in terms of rapid and merchandising decisions based on customers’ demands on products and services, which is flexible in managerial skill. To make fast as managerial skills, Sinegal is also giving power to lower level employees to make decisions based on Costco’s mission and values. As implementing flat as management skill, James is developing highly trained and knowledge driven workforce, discussing with warehouses managers, and solving sales related problems within workforces. It creates flat organizational level in Costco. Therefore, these three issues are managerial skills developed by CEO of Costco.

Transition of Costco’s Business Model

Costco is moving from high-end merchandising through treasure hunt, as stores as new workforces for Costco’s employees and managerial level as new business model. The CEO of Costco is emphasizing less on command and control model, than following new aspects, which are coaching, motivation and empowerment, which used in new workforce model in Costco.

Maintaining Low Prices with High Worker Retention

Costco is maintaining motivational management approach for its employees as paying high retention, like wages and benefits to reduce maintenance costs of warehouses and other operations. Every employee is paid $17 as average hourly wages, including 92% health insurance premiums. These high retention programs are decreasing turnover, but increasing high performances from its employees, which results low prices of products and services in Costco.

James Sinegal’s View on The Conscience of A Corporation

James Sinegal, the CEO and president of Costco, who is imposing positive influences, which are being very important for succession planning of Costco in worldwide from 1993.

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Safety of Working by Motivations & Personality Traits of James Sinegal

James Sinegal, CEO of Costco, is ensuring safety of working by adopting motivational and personality traits, which are:

  • Identifying Global Trends and providing Ethical Leadership
  • Developing Effective Corporate Cultures
  • Managing Various Operational Environment

Without these traits, James could face severe problems, like knowing the demand of consumers, conflicting situation within employees, and showing lack of responsibilities o shareholders and stakeholders. With the continuous changes of global world should be identifiable, employees should treat with ethical leadership, not with autocratic leadership. Corporate cultures should also develop for effective organizational operations and its environments. Therefore, James has all the traits to manage safety environment for workforces and other factors related with Costco.

Evaluating Corporate Social Performances by Code of Ethics

There are five code of ethics followed by Costco and implemented by James Sinegal. These ethical standards have maintained by Costco to evaluate corporate culture of the corporation itself. These ethical issues are vibrant contents of enforcing values and beliefs of customers, employees, suppliers and shareholders, and overall the Government. Thus, Costco is going to stick with these standards to maintain and evaluate corporate social performances, otherwise to generate maximum profits of it.

Corporate Cultures of Costco

There are four types of corporate cultures, which described best as Costco:

  • Obeying Law, take Caring of Customers,
  • Take Caring of Employees, and
  • Respecting Suppliers

These guidelines have maintained in corporate cultures of Costco, which is generous to employees and other stakeholders related to corporation. Sinegal had developed generous compensation strategies for employees to maintain high performances of Costco. Sinegal also believed that, people should pay fair living wages to give high performances to its work places. Therefore, by this strategy, Costco is being high pay wages to its first line employees to warehouse managers comparing with other organization.

Costco Turns 500

Costco is opening 500th warehouse in California with other warehouse locations in worldwide.

Future Expansion by Strategy Formulation Tools

Costco is facing challenges to maintain chain retail business with 500 stores in United States. It is also having threats from outside forces for more growth opportunities of business. Previously, Costco has followed by “Big Box” concept as strategy formulation tools. However, with 500 warehouses, now it is being complicated to manage this concept according to unions, local government, and anti- globalization groups of people. To select new process of strategy formulation, Costco should focus on appropriate course of actions to accomplish organizational goals. Here, SWOT analysis used as strategy formulation tools for Costco, which are briefing in below:

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Strengths:

  • Focus on long-term growth plan and provide quality goods and services with lowest possible prices.

Weakness:

  • Failure of Concept of Big box;
  • Enlarging amount of stores,

Opportunity:

  • Having huge expansion opportunities worldwide;

Threats:

  • Threats from external forces, like unions, local governments, governmental rules, anti- growth forces etc;
  • Problems to expand big box concepts,

Selection of Test Markets of Warehouses

Costco is selecting warehouses sites with strategic planning efforts and careful identification to maintain cooperation and connectedness among different levels planning and strategies of Costco. In the test markets, Costco is mainly focusing on revenue generation and demographic locations of customers. These matches needed to maintain good fit within Costco and environment. Most of the stores of Costco were targeting sub urban locations to open new branches, because theses groups of people are favoring to have all products within one store. It is also making uniqueness by providing all facilities, from tires to diamonds, comparing with sub urban stores, rather than high classed stores in cities.

Recounting of Costco’s History

The roles of corporate cultures are supporting organization’s strategy and performances by recounting of Costco’s history with early photographs of warehouses at the meeting of managers. This would used for developing the continuous creative strategies for the business of Costco worldwide.

Costco’s Generous Pay Yields Generous Profits

Sacrificing to Pay Employees’ Higher

Costco is popular with loyal and productive workforces, which is one of the major success factors of its business. From earlier part, it is clear that, Costco is paying higher to its employees comparing with other retail stores in United States. However, these compensation systems have to cut great expenses of Costco, which is 70% of operating costs of organization. These benefits have generated from increasing expenses of shareholders’ prices. This sense good showering benefits to employees, than to shareholders.

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Benefits and Drawbacks of Internal Promotion

Costco is using most promising and controversial human resources management system, by promoting from existing employees, not by hiring from outsides. The corporation is following lifetime workforces, which is benefited and harmful for Costco, which are:

Benefits:

  • Minimizing human resources management costs.
  • Managing of low budget operations;
  • Developing loyal and empowered work forces;
  • Reducing train up costs

Drawbacks:

  • Lack of innovative and new workforces;
  • Does not give chance to outsiders;
  • Lack of flexibility in maintaining human resources,

Diversification among Management

Costco is managing 98% of managerial position by internal promotion, comparing with other positions of corporation. In reality, most of upper level managers of Costco were working in lower level in Costco in the early period of their jobs. Costco should take some appropriate steps to foster greater diversity among its managerial level, which are:

  • Maintaining official policy to promote managers by internal promotion;
  • Developing loyalty and future hope of warehouse employees, staffs, and managers about to being managers.
  • Recruiting such people, who has have knowledge about Costco.
  • If recruitment is from outsourcers, then talents, human skills, entrepreneurial love of merchandising, and smarts are hiring for management level.

Costco has now only 17% women in its managerial level, which considered as low to the CEO of Costco, and it has focused to enlarge women workforce in this level.

Providing Leadership in Bulk

Importance of Moral Leadership in Global Business

Moral leadership is exploring leadership relationships, interrelationships, and interdependence between top and low level management. Moral leadership is examining the concept of systems to think for determining relationships, support structures, and decisions made by leaders, which impacts on Costco, specially lower level management and community at large. In Costco, moral leadership is characterizing senior management to measure success in mission and financial terms. This leadership system is important in global business, which has seen by:

  • Demonstrating cultural and environmental sensitivity;
  • Merchandising bulk efficiencies with brand name of Costco;
  • Delivering high-quality products with lowest possible prices;
  • Occupying it as top merchant in worldwide

Types of Leadership to Lead Challenges

For leading global and regional challenges, Costco is taking “innovative leadership” to make changes with current situation. Costco’s management system is demonstrating innovative leadership in its extensions of private label enterprises. Many retailers are struggling to sell their private label brands with its national brands. However, Costco is being popular and successful to market its own brands within national level. For this reason, Costco is produced 4000 new brands in warehouses, which can save 20% more than national brands. These new brands are creating opportunities to meet their demands according to its reputation.

Motivational Impact on Employees in Mexico and Internationally

When Costco is proceeded its new store in Mexico, after two years, the new store is faced lots of challenges with the conflicts between anti globalization and senior management. Costco is having expansion of international level in Mexico; the government has occupied a site of hotel and casino, which is a strategic opportunity for Costco. However, within very few times, Costco has faced with human crisis in Mexico. For this reason, Costco is taking some motivational approaches on employees to expand its business not only in Mexico, but also in global market. These motivational aspects are bringing innovativeness and success in future prospects of Costco’s business in global market and Mexico also. Some impacts on motivational approaches have given below:

  • Promising new jobs and economic prosperity in Mexico;
  • Building cultural center and museum;
  • Preserving cultural heritages of country
  • Providing huge economic prosperity to Mexico;
  • Doing right things for its employees

These impacts are attracting new employees, satisfying current employees and providing huge benefits for retired employees in Costco. Therefore, these motivational impacts are affecting great on employees of not only in Mexico, but also internationally.

Costco’s Whopper of Fish Tale

Creating Culture of Performances and Quality by Salmon Story

In the continuous operations of Costco, it is using higher standard of quality and efficiencies with the help of old fish tale of Costco. Once, Costco was selling salmon fish without any impressive offers. However, to increase the sales of fishes, Costco’s senior management was offering same fish without bones and belly’s fat with same prices. This way is increased 20-30% of sales. Until now, Salmon’s success story is creating culture of performances and quality of philosophy of Costco’s corporate cultures. This of- recounted tales of salmon is mainly focusing on more to products’ quality, rather to lower its prices. This story is also driving Costco as value driven merchandising in global market.

Roles of Salmon Award Program

Salmon’s success story symbolized as operating philosophy of differentiation of business and its operating activities to control the system of business. Salmon Award program has given to focus on Costco’s corporate cultures and annual achievement programs. The main reason of Salmon Award is to focus more on quality of products, rather than to lower the prices of products.

Investment in Technologies to Reduce Operating Costs

Costco is reducing its operating expenses by technological investments to enable outside suppliers for managing inventories and ship orders directly to its customers. Costco is investing high in technologies to maintain relationship with its suppliers. The technologies have needed to manage order, transport, and inventories’ replenishment for creating links between Costco and its suppliers. These investments programs in high technologies are important for –

  • Reducing the problems regarding out of stocks;
  • Increasing the success of new product introduction in warehouses
  • Managing performances of each product;

When these problems would solve by investments in high tech programs, then operating costs of Costco will automatically reduced. The operating costs would reduced by accessing and securing current and detailed information of stocks, products, and inventories between suppliers and Costco. These investments are not only showing good results in past, but also having huge prosper of future business of Costco worldwide.

Recommendation

The success of Costco has not come so easily, it has managed three skills of management in its warehouses, which are fast, flexible, and flat. It is also improving its workplace by continuing motivational and empowerments approaches and gives high retention to its employees comparing to others. These successes have brought by founder and CEO of Costco, James Sinegal, who has unique personality and motivational traits, which prefer safety in working environment. The corporate culture of Costco has maintained by five codes of ethics and it creates itself as high performance corporation by maintaining corporate culture of it. To assess opportunities and threats of Costco, it is need to establish a strategy formulation, like SWOT analysis. To manage test markets of new locations, it is making tests of selecting new locations for new stores. It is also using warehouses photographs to maintain the success story of history to future prospects of success. As Costco is paying higher wages to its employees, it has to sacrifice of increasing operating costs of corporation. The company is also using internal promotion to keep loyal and empowered employees within organization and managers of it would diversify day by day. Therefore, Costco is very promising to maintain good relation with suppliers by technological investments and using previous success story o future outcomes. Therefore, Costco has great future with lots of prospects and opportunities in global market.

Conclusion

With very little product differentiation, employees’ performances, and many other channels, Costco has earned a success position that is better comparing to its rivals. Its strategic decision, focusing more on future and employees loyalty make it different from any other retail chain in market.

Works Cited

Sinegal, James. Costro Wholesale Corporation Part two: The Conscience of A Corporation. 2008. Print.

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