The name of the company being analyzed in this paper is Costco which is a membership based warehouse that offers its customers a wide range of merchandise based products. The various categories of products the company offers include appliances, auto products, baby products, beauty, bed and bath, computers, electronics, home décor, food and wine, furniture, hardware, health products, office products, jewelry, pet products, sports, funeral, instruments, house ware, books, CDs, DVDs, toys and games. The company sells products to its customers with a low price strategy and has followed this strategy since the time of its inception which is the main cause of a very large membership base.
Costco offers three types of memberships to its customers which are business, Gold Star and executive memberships. The business membership of the company is offered to licensed businesses, farmers, nonprofit organizations, government agencies and ranchers at an annual fee of $50. The Gold Star membership is offered to people who cannot meet the requirements of a licensed business at a similar rate of $50 per year. The highest level of membership is the executive membership which can be obtained on an additional payment of $50 on business and Gold Star memberships.
The company was established in 1976 with the name of Price Club in San Diego where an airplane hangar was converted into company premises. The company was initially formed to cater to small businesses but the management soon realized that the non business people made up a large customer base and the company also started selling products to people without businesses as well. As the business grew with time the company started expanding and opened its first warehouse location in Seattle. The company witnessed phenomenal growth in its initial years and achieved total revenue of $3billion within 6 years of establishment. In 1993, Costco and Price Club merged to form a new company PriceCostco which now had 206 stores with overall annual sales of $16 billion (Costco Wholesale).
Costco Wholesale had 550 locations throughout the United States of America, United Kingdom, Mexico and other parts of the world in 2008 and the registered office of the company is situated at 999 Lake Drive Issaquah, Washington. The shares of Costco Whole sale are listed on NASDAQ under the stock symbol COST. The company was founded by James Sinegal and Jeffrey H. Broman who are also on the board of directors of the company which includes a total of 14 directors. The members of the board of directors are listed below (Costco Wholesale).
- Jeffrey H. Brotman – Chairman of the Board
- James D. Sinegal – President and Chief Executive Officer
- Richard A. Galanti – Executive Vice President and Chief Financial Officer
- Richard D. DiCerchio Senior – Executive Vice President
- Dr. Benjamin S. Carson – Director
- Susan L. Decker – Director
- Daniel J. Evans – Director
- William H. Gates – Director
- Hamilton E. James – Director
- Richard M. Libenson – Director
- John W. Meisenbach – Director
- Charles T. Munger – Director
- Jeffrey S. Raikes – Director
- Jill S. Ruckelshaus – Director
Costco is a member of the discount and variety store industry which includes giants like Wal-Mart and Target with Wal-Mart being the industry leader with a market capitalization of $197.55 billion as compared to Costco which ranks third and has a market capitalization of only $25.43 billion. The other prominent companies in the industry include Target Corporation, Dollar Tree Inc., and Big Lots Inc., Family Dollar Stores Inc., Fred’s Inc., Price Smart Inc. and 99 Cents only stores (Yahoo Finance).
The mission statement of Costco according to its annual report is “To continually provide our members with quality goods and services at the lowest possible prices” (Costco Wholesale). The management of the company has followed this mission since the time of its inception which enabled the company to grow significantly in a very short period of time and as described previously it grew rapidly in the first six years of its operation to reach an annual sales level of $16 billion.
Costco belongs to the retail and wholesale industry with a lot of competitors including giants like Wal-Mart, Target and several other companies which strongly compete to enlarge their customer base. There are no immediate restrictions of entry and exit into the retail and wholesale industry which proves as a threat to current industry members. The companies can set prices up to an extent and cannot increase prices of products above a specific level due to heavy competition in the industry. There is a considerable amount of product differentiation as the products sold by Costco Wholesale are also sold by other companies in the industry but the quality and brand of these products may vary from company to company. There is a considerable amount of non price competition in the industry as companies apply several strategies in attracting customers other than pricing such as offering free gifts, celebrating several occasions and promoting products related to these occasions and several other strategies. It is concluded from the analysis and comparison of these economic features that Costco Wholesale operated in a monopolistic competition economic environment.
Works Cited
Costco Wholesale. Annual Report. Annual Report. Issaquah: Costco Wholesale, 2008.
Why Become a Costco Member. 2009. Web.
Yahoo Finance. Costco Wholesale Corporation. 2009. Web.