Fluent Essays

Answered the Yellow Questions from the word file. Total 4 questions. I have attached the case and case instructions file.  Due in 18 hours Case Project: Costco Wholesale October 15, 2021 Table of Contents Page What is Costco’s business model?...................................................................................................2 What are the chief elements of Costco’s strategy?.......................................................................2-3 Do you think Jim Sinegal was an effective CEO?...........................................................................4 What core values did Jim Sinegal stress at Costco?........................................................................5 What is competition like in the North American wholesale club industry?....................................6 What key factors will determine a company’s success?..................................................................7 What does a SWOT analysis of Costco reveal?...............................................................................8 Which of the five generic competitive strategies discussed in Chapter 5?......................................9 How well is Costco performing from a financial perspective?......................................................10 Is Costcos financial performance superior to that at Sam’s Club?................................................11 Does the data in case Exhibit 2 indicate that Costco’s expansion outside the U.S.?.....................12 How well is Costco performing from a strategic perspective?......................................................13 Are Costco’s prices too low?.........................................................................................................14 What do you think of Costco’s compensation practices?..............................................................15 What recommendations would you make to Costco?....................................................................16 Reference…………………………………………...…………………………………………………...17 What is Costco’s business model? Is the company’s business model appealing? Why or why not? Costco’s business model is to generate high sales volumes and rapid inventory turnover by offering their members ultra-low prices on limited selection of nationally branded and Costco’s private-label Kirkland Signature products in a wide range of merchandise categories. Big sales volume and rapid inventory turnover combined with Costco’s low operating costs has enabled the company to operate profitably at significantly lower gross margins compared to other traditional wholesalers. Costco’s business model is appealing because they’re able to offer a wide selection of products but at the same time their prices at ultra-low prices. When they are pricing their products unlike other companies Costco’s tries to find ways to lower their prices rather than raise them. Many people question why Costco still keeps their prices low after being around for so many years. CEO, Sinegal tries to explain that they are trying to build an organization that will be here 50 years from now. Sinegal also adds that if the company did try to raise its prices they would make it easier for competitors to come in and beat their prices. Costco has proven that their business model has worked by continuing to grow its company and generating greater revenue. What are the chief elements of Costco’s strategy? How good is the strategy? Costco has a combination of three chief elements that it tries to feature in their day to day operations. These chief elements are as follows: 1. ultra-low prices on a limited selection of nationally branded and Costco’s private-label Kirkland Signature products in a wide range of merchandise categories 2. very good to excellent product quality 3. intriguing product selection that included both everyday items and ongoing special purchases from a big variety of merchandise suppliers that turned shopping at Costco into a money-saving treasure hunt By keeping prices very low on name brand prices compared to their competitors Costco is able to attract more customers. The way Costco initiates this strategy is by capping the margins on name brands around 14\% to 15\% where the competitor’s markup their prices around 25\% and higher. The store only carries 3,800 active products; these products are always priced at bargain levels which lead to significant savings for their customers. Another thing the company does with their products is selling it in one size. It’s more efficient to only sell one size rather than having multiple sizes of one product. Of the 3,800 products Costco sells 20\% to 25\% are considered their treasure hunt products. These products are sold at incredibly low prices attracting the customers and they know to stock up on these items because these items might not be available next time they come in. Another reason for this strategy is to attract customers to come into the store more rather than just when they need to stock up. These treasure hunt items are always changing and the company wants the customers to become bargain-hunting shoppers that come into Costco more frequently just in the search of these deals. Overall, the strategy Costco is implementing is working for them and they are able to continue to expand while setting great examples for their competitors. Do you think Jim Sinegal was an effective CEO? What grade would you give him in leading the process of crafting and executing Costco’s strategy? How well is Craig Jelinek performing as Sinegal’s successor; what grade would you give him so far in leading the process of crafting and executing strategy? What support can you offer for these grades? Refer to Figure 2.1 in Chapter 2 in developing your answers. Yes, I believe that Jim Sinegal was an effective CEO. I think he is the one who really mastered the idea of a warehouse and accomplished it effectively. Jim paid strong attention towards all the details and aspects of the business and showed special care towards the employees as employees are an integral part of the business growth. Despite the companys turnover being small he always tried to support employees in giving them benefits. For instance, he gave health care coverage to 94\% employees including full time and part time. Jim made sure that he got the best deals on the supplies and kept great relationships with the company’s stakeholders. His commitment towards employees is shown when the company made no profit, he still maintains employee’s regular benefits and salaries. I would give Jim an A grade for leasing the process and executing Costco’s strategy. His main strategy was to care for the people who care for us as if you show care for the employees, they will also in return show more care for the company. He strongly believed for a company to make long term profits we need a team which is like a family who treat the company like theirs. He always stood with the employees in tough times and showed them affection and care for the work they are putting in. Company’s success of it’s vision and mission depends upon the relationship you maintain with everyone around you- suppliers, buyers, employees, and other stakeholders. Jim was great in having that knowledge, implementing into strategy, and executing it effectively. I think Craig Jelinek has been able to successfully lead in the process of crafting and executing strategy. He has learned a lot from Jim and has done a great job in continuing shaping and crafting strategies. He strongly believes in selling quality products at great prices. He has also proved that if you treat customers and employees with dignity great things will happen to business. What core values or business principles did Jim Sinegal stress at Costco? Sinegal had a total of five simple principles that he wanted corporate to follow and imbed into their culture. Those principles are as follows: 1. Obey the law 2. Take care of their members 3. Take care of our employees 4. Respect our suppliers 5. Reward the shareholders Each one of these principles are important in its own way. However, throughout this case study it seemed like Sinegal’s focus was on trying to take care of its members and of his employees. Even after Costco became so successful Sinegal made sure pricing stayed reasonably low for the customers and put a cap on how high you could price items. Costco’s employees are their most important asset to them. While trying to keep their members happy, Costco also provides their employees with competitive wages, great benefits, career opportunities, etc. These two principles are heavily stressed throughout the company and have led Costco through its success over the years. (In the event you have covered Chapter 3) What is competition like in the North American wholesale club industry? Which of the five competitive forces is strongest and why? Use the information in Figures 3.4,3.5, 3.6, 3.7, and 3.8 (and the related discussions) in Chapter 3 to do a complete five-forces analysis of competition in the North American wholesale club industry. In 2010, the almost 125 billion discount warehouse and wholesale club industry consisted of three main competitors which are Costco, Sam’s, and BJ’s. The competition amongst these businesses is very high as they all focus on selling bulk quantities with low prices possible. They have huge economies of scale, with no distributor these businesses are able to bargain from the supplier with huge discounts on items in bulk. As these warehouses have so much in common they try to differentiate from each other in different ways. Costcos main focus is to sell quality goods at a low cost which usually leads to a small profit margin, but they have made this an effective strategy working from them in the long run. BJ’s has been to secure second position in leading, establishing and sustaining warehouse business and is the only warehouse to admit coupons. They also were able to see some success in customer service by implementing express checkout lanes. Sam’s club has multiple stores across the United States and focuses on achieving a greater shopping experience for the customers at a great value. The five competitive forces are: threat of new entry, threat of substitute, competitive rivalry, supplier power, and buyer power. A description of these five are shown in Figure A. Of the five forces I would have to say that competitive rivalry is the strongest because competitors can casually compete with any profits and perhaps even create price wars that can cause damage to industry’s profitability. What key factors will determine a company’s success in this industry in the next 3-5 years? Arlene What does a SWOT analysis of Costco reveal about the overall attractiveness of its situation? (Jas) Which of the five generic competitive strategies discussed in Chapter 5 most closely fit the competitive approach that Costco is taking? What type of competitive advantage is Costco trying to achieve? (Jas) How well is Costco performing from a financial perspective? Do some number-crunching using the data in case Exhibit 1 to support your answer. Use the financial ratios presented in Table 4.1 of Chapter 4 (pages 85-87) to help you diagnose Costco’s financial performance. The financial and operating summary in case Exhibit 1 shows that Costco’s financial performance during the 2000-2008 period has been great. Net sales increased from $31.6 billion in fiscal 2000 to $71.0 billion in fiscal 2008, equal to a respectable compound average growth rate of 12.3\% since 2000. Total revenues including membership fees increased from $32.2 billion in fiscal 2000 to $72.5 billion in fiscal 2008, also equal to an average annual compound rate of 12.3\% from 2000 through 2008. Net income increased from $631 million in 2000 to $1.1 billion in 2006, compound average growth rate of 9.76\%. Diluted earnings per share have increased from $1.35 in 2000 to $2.30 in 2006, a compound average growth rate of 9.3\%. 2008 2007 2006 2005 2000 Merchandise costs as a \% of net sales 89.5 89.5 89.5 89.4 89.6 Selling, general, and administrative expenses as a \% of total revenues 9.6 9.7 9.5 9.5 8.6 Operating income as \% of total revenues 1.8 1.7 1.8 2 2 Net income as a \% of total revenues (net profit margin) 1.8 1.7 1.8 2 2.0 Return on equity (net income as a \% of stockholders equity) 14 12.6 12.1 12 14.9 Return on assets (net income as a \% of total assets) 6.2 5.5 6.3 6.4 7.3. Current ratio 1.1 1.09 1 1.22 1.0 Days of inventory 29.0 31.5 31.6 31.6 32.3 Selling, general, and administrative expenses increased since 2000. Operating income as a \% of total revenues and net income as a \% of total revenues have both eroded slightly since 2000, but the 2008 figures are better. Return on equity decreased from 14.9\% in 2000 to 12.0\% in 2005 and then has increased back to 12.1\% in 2006, 12.6\% in 2007, and 14.0\% in 2008. Return on assets also dropped from 7.3\% in 2000 to 5.5\% in 2007 before increasing to 6.2\% in fiscal 2008. The company’s liquidity is adequate, as indicated by the slightly above 1.0 levels in the past 3 years. Days of inventory at Costco has improved since 2000, indicating that Costco management has done a good job of inventory control. Overall, while Costco’s net income profits increased during the 2000-2008 period, the company’s overall profitability is not as good in 2008 as it was in 2000. Yet, fiscal 2008 was a better year in terms of profitability than was fiscal 2007. Based on the data in case Exhibits 1 and 4, is Costco’s financial performance superior to that at Sam’s Club and BJ’s Wholesale? (Jas) Does the data in case Exhibit 2 indicate that Costco’s expansion outside the U.S. is financially successful? Why or why not? Ravdeep Based on the data in Exhibit 2, it indicated that Costco’s expansion outside the U.S. is financially because the number of warehouses, operating income, total revenue keeps increasing since Costco went global. Costco had been aggressive in opening new warehouses and entering new geographic areas. As of December 2000, the Company operated a chain of 349 warehouses in 32 states (251 locations), 9 Canadian provinces (59 locations), the United Kingdom (11 locations, through an 80 percent-owned subsidiary), South Korea (four locations), Taiwan (three locations, through a 55 percent-owned subsidiary) and Japan (two locations), as well as 19 warehouses in Mexico through a 50 percent joint venture partner. Ten years later, in December 2010, Costco was operating 585 warehouses in 42 states (425 locations), 9 Canadian provinces (80 locations), Mexico (32 locations), the United Kingdom (22 locations), Japan (9 locations), South Korea (7 locations), Taiwan (6 locations), and Australia (1 location). Since then, Costco had opened an additional 165 warehouses and entered 2 more states and 3 additional countries. In 2017, Costco opened 28 new warehouses, including its first ones in Iceland and France. Costco expected to open 20 to 25 new warehouses and relocate up to six warehouses in fiscal year 2018 beginning September 4, 2017. Exhibit 4 shows that the total revenue of Costco from international areas including Canada increased from $9,887 in 2005 to $35,136 in 2017 The data in case Exhibit 2 indicates that Costco’s expansion outside the U.S. is financially successful. Revenue, warehouses and operating income have steadily increased since Costco went global. The revenue to warehouse ratio has also increased. How well is Costco performing from a strategic perspective? Does Costco enjoy a competitive advantage over Sam’s Club? Over BJ’s Wholesale? If so, what is the nature of its competitive advantage? Does Costco have a winning strategy? Why or why not. (Jas) Are Costco’s prices too low? Why or why not? Arlene What do you think of Costco’s compensation practices? Does it surprise you that Costco employees apparently are rather well-compensated? Arlene What recommendations would you make to Costco top management regarding how best to sustain the company’s growth and improve its financial performance? Arlene Reference 1 MBA279 – Kuhtz Fresno State University OVER-> CASE 4 • Case Assignment & Questions Costco Wholesale Corp. in 2018: Mission, Business Model, and Strategy The purpose of the case analysis project is to study the current practices of a company in implementing the theories and concepts of strategic management. You will be required to read and answer the following case questions thoroughly. The specific guidelines will be discussed in class. Student teams will be assigned prior to assigning the class case. The corporate case analysis will be prepared as a team and will constitute a real and live company. CORPORATE CASE NOTES The purpose of the written case assignment is to help you become proficient in analysis-based decision making. Each recommendation should be supported by facts disclosed by your analysis of the case. Suggestions regarding the preparation of written case assignments are discussed in “A Guide to Case Analysis” posted after Chapter 12 in the eBook. (pg. C-1) • Format your paper consistent with APA guidelines. All written cases are to be typed (double-spaced) and should incorporate correct form, spelling, grammar, sentence structure, and communication skills. • A minimum of 4 resources (including the case) must be cited and used to support your answers. • The quality of typing and absence of spelling and/or grammatical errors will have a favorable impact on the report’s grade and vice versa. • Late projects will not be accepted and are due on the assigned date and time posted on Canvas. • The case grade will depend on its comprehensiveness and proposal justification. There is no minimum page quantity or word count and all 12 questions must be answered. • Grading for the various case analyses will occur after ALL groups have completed a specific project or assignment, in order to ensure evaluation uniformity, as well as, uniformity in the application of the expected levels of quality standards relative to each other. GRADING CRITERIA All assignments (Corporate Case Analysis) will be graded by using the CSB Writing Rubric found on Canvas and the project is worth a total of 200 points. The criteria for grading written case presentations include: • Identification of key problems/strategic issues. • Evidence that the use of appropriate analytical tools and techniques presented in the chapters were used in identifying strategic issues. • Evidence of adequate preparation, pride of workmanship, and display of professional attitude and approach. MBA279 – Kuhtz Fresno State University OVER-> • Presenting realistic, workable, well-supported recommendations for action. • Use of good communication skills—failure to use good grammar, spelling, and other written communication skills will result in a full one-letter grade reduction. • Papers which, in the opinion of the instructor, employ disproportionately poor grammar and poor quality written communication skills will be assigned a grade that is a full one-letter lower than would otherwise be assigned. Assignment Questions 1. What is Costco’s business model? Is the company’s business model appealing? Why or why not? 2. What are the chief elements of Costco’s strategy? How good is the strategy? 3. Do you think Jim Sinegal was an effective CEO? What grade would you give him in leading the process of crafting and executing Costco’s strategy? How well is Craig Jelinek performing as Sinegal’s successor; what grade would you give him so far in leading the process of crafting and executing strategy? What support can you offer for these grades? Refer to Figure 2.1 in Chapter 2 in developing your answers. 4. What core values or business principles did Jim Sinegal stress at Costco? 5. (In the event you have covered Chapter 3) What is competition like in the North American wholesale club industry? Which of the five competitive forces is strongest and why? Use the information in Figures 3.4,3.5, 3.6, 3.7, and 3.8 (and the related discussions) in Chapter 3 to do a complete five-forces analysis of competition in the North American wholesale club industry. 6. What key factors will determine a company’s success in this industry in the next 3-5 years? 7. What does a SWOT analysis of Costco reveal about the overall attractiveness of its situation? 8. Which of the five generic competitive strategies discussed in Chapter 5 most closely fit the competitive approach that Costco is taking? What type of competitive advantage is Costco trying to achieve? 9. How well is Costco performing from a financial perspective? Do some number-crunching using the data in case Exhibit 1 to support your answer. Use the financial ratios presented in Table 4.1 of Chapter 4 (pages 85-87) to help you diagnose Costco’s financial performance. MBA279 – Kuhtz Fresno State University OVER-> 10. Based on the data in case Exhibits 1 and 4, is Costco’s financial performance superior to that at Sam’s Club and BJ’s Wholesale? 11. Does the data in case Exhibit 2 indicate that Costco’s expansion outside the U.S. is financially successful? Why or why not? 12. How well is Costco performing from a strategic perspective? Does Costco enjoy a competitive advantage over Sam’s Club? Over BJ’s Wholesale? If so, what is the nature of its competitive advantage? Does Costco have a winning strategy? Why or why not? 13. Are Costco’s prices too low? Why or why not? 14. What do you think of Costco’s compensation practices? Does it surprise you that Costco employees apparently are rather well-compensated? 15. What recommendations would you make to Costco top management regarding how best to sustain the company’s growth and improve its financial performance? Costco Wholesale in 2018: Mission, Business Model, and Strategy aoonnedr Arthur A. Thompson Jr., The University of Alabama S ix years after turning the leadership of Costco Wholesale over to then-president, Craig Jelinek, Jim Sinegal, Costco’s co-founder and chief exec­ utive officer (CEO) from 1983 until year-end 2011, had ample reason to be pleased with the company’s ongoing revenue grovvth and competitive standing as one of the world’s biggest and best consumer goods merchandisers. Sinegal had been the driving force behind Costco’s 35-year evolution from a startup entre­ preneurial venture into the third largest retailer in the United States, the seventh largest retailer in the world, and the undisputed leader of the discount warehouse and wholesale club segment of the North American retailing industry. Since January 2012, when Craig Jelinek took the reins as Costco Wholesale’s president and CEO, the company had prospered, growing from annual revenues of $89 billion and 598 membership warehouses at year-end fiscal 2011 to annual revenues of $126.2 billion and 741 membership warehouses at year-end fiscal 2017. Costco’s growth continued in the first nine months of fiscal 2018; 9-month rev­ enues were $95.0 billion, up 12.0 percent over the first 9 months of fiscal 2017, and the company had opened four additional warehouses. As of June 2018, Costco ranked as the second largest retailer in both the United States and the world (behind Walmart). COMPANY BACKGROUND The membership warehouse concept was pioneered by discount merchandising sage Sol Price, who opened the first Price Club in a converted airplane hangar on Morena Boulevard in San Diego in 1976. Price Club lost $750,000 in its first year of opera­ tion, but by 1979 it had two stores, 900 employees. 200,000 members, and a $ 1 million profit. Years ear­ lier, Sol Price had experimented with discount retail­ ing at a San Diego store called Fed-Mart. Jim Sinegal got his start in retailing at the age of 18, loading mat­ tresses for $ 1.25 an hour at Fed-Mart while attending San Diego Community College. When Sol Price sold Fed-Mart, Sinegal left with Price to help him start the San Diego Price Club store; within a few years, Sol Price’s Price Club emerged as the unchallenged leader in member warehouse retailing, with stores operating primarily on the West Coast. Although Price originally conceived Price Club as a place where small local businesses could obtain needed merchandise at economical prices, he soon concluded that his fledghng operation could achieve far greater sales volumes and gain buying clout with suppliers by also granting membership to individuals-a conclusion that launched the deep-discount warehouse club industry on a steep growth curve. When Sinegal was 26, Sol Price made him the manager of the original San Diego store, which had become unprofitable. Price saw that Sinegal had a special knack for discount retailing and for spotting what a store was doing wrong (usually either not being in the right merchandise categories or not sell­ ing items at the right price points)—the very things that Sol Price was good at and that were at the root of Price Club’s growing success in the marketplace. Sinegal soon got the San Diego store back into the black. Over the next several years, Sinegal continued to build his prowess and talents for discount merchan­ dising. He mirrored Sol Price’s attention to detail and absorbed all the nuances and subtleties of his mentor’s Copyright ©2019 by Arthur A. Thompson. All rights reserved. C-18 PART 2 Cases in Crafting and Executing Strategy Style of operating—constantly improving store opera­ tions, keeping operating costs and overhead low, stocking items that moved quickly, and charging ultra- low prices that kept customers coming back to shop. Realizing that he had mastered the tricks of running a successful membership warehouse business from Sol Price, Sinegal decided to leave Price Club and form his own warehouse club operation. Sinegal and Seattle entrepreneur Jeff Brotman founded Costco, and the first Costco store began operations in Seattle in 1983—the same year that Walmart launched its warehouse membership for­ mat, 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 company, 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 bUlion. Jeff Brotman, who had functioned as Costco’s chairman since the company’s founding, became vice chairman of PriceCostco in 1993 and was elevated to chairman of the company’s board of directors in December 1994, a position he held until his unexpected death in 2017. In January 1997, after the spin-off of most of its non­ warehouse assets to Price Enterprises Inc., PriceCostco changed its name to Costco Companies 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 Style Sinegal was far from the stereotypical CEO. He dressed casually and unpretentiously, often going to the office or touring Costco stores wearing an open-coOared cot­ ton shirt that came from a Costco bargain rack and sporting a standard employee name tag that said, sim­ ply, “Jim.” His informal dress and unimposing appear­ ance made it easy for Costco shoppers to mistake him for a store clerk. He answered his own phone, once tell­ ing 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?” Sinegal spent considerable time touring Costco stores, using the company plane to fly from location to location and sometimes visiting 8 to 10 stores daily (the record for a single day was 12). Treated I celebrity when he appeared at a store (the news “ r * * in the store” spread quickly), Sinegal made a * greeting store employees. He observed, “The ees know that I want to say hello to them I like them. We have said from the very beginn^^^ ‘We’re going to be a company that’s on a first-n basis with everyone.’”^ Employees genuinely see2 to like Sinegal. He talked quietly, in a commonsens” cal manner that suggested what he was saying wa no big deal.^ He 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 merchan­ dising displays or the position of certain products in the stores, commenting on any aspect of store opera­ tions that caught his eye, and asking 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 tremen­ dous merchandising savvy, demanded much of store managers and employees, and definitely set the tone for how the company operated its discounted retail­ ing 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 intention to step down as CEO of the company effective January 2012. The Board elected Craig Jelinek, President an Chief Operating Officer since February 2010, to suc­ ceed Sinegal and hold the titles of both President an CEO. Jelinek was a highly experienced retail executive with 37 years in the industry, 28 of them at Costca where he started as one of the Company s first war house managers in 1984. He had served in 6^®^^ major role related to Costco’s business merchandising activities during his tenure, vv stepped down as CEO, Sinegal retained his pos on the company’s Board of Directors and, ^ of 79, was re-elected to another three-year ter Costco’s board in December 2015; he 2Q\i- Costco’s Board at the end of his term in Janua F CASE 4 Costco Wholesale in 2018: Mission, Business Model, and Strategy C19 COSTCO WHOLESALE IN 2018 2018, Costco was operating 750 membership ^Tnuses, Including 520 in the United States and Rico, 98 in Canada, 38 in Mexico, 28 in the d Kingdom, 26 in Japan, 14 in South Korea, 13 ^ Ta^iwan, 9 in Australia, 2 in Spain, 1 in France, and jceiand. Costco also sold merchandise to mem- ^ at websites in the United States, Canada, the jnited Kingdom, Mexico, South Korea, and Taiwan. Over 90 million cardholders were entitled to shop at ostco as of January 2018; in fiscal year 2017, mem­ bership fees generated over $2.85 billion in revenues or the company. Headed into 2018, on average, traf- ic at Costco’s warehouse locations averaged 3 million members per day. Annual sales per store averaged about $170 million ($3.3 million per week) in 2017, over 70 percent higher than the $99.2 million per year and $1.9 million per week averages for Sam’s Club, Costco’s chief competitor. In 2014, 165 of Costco’s warehouses generated sales exceeding $200 million annually, up from 56 in 2010; and 60 warehouses had sales exceeding $250 million, including two that had more than $400 million in sales.* In 2018, Costco was the only national retailer in the history of the United States that could boast of average annual revenue in excess of $ 170 million per location. Exhibit 1 contains a financial and operating summary for Costco for fiscal years 2000, 2005, and from 2014 through 2017. EXHIBIT 1 Selected Financial and Operating Data for Costco Wholesale Corp., Fiscal Years 2000,2005, and 2014-2017 ($ in millions, except for per share data) Fiscal years ending on Sunday ciosest to August 31 Selected Income Statement Data 2017 2016 2015 2014 2005 2000 Net sales Membership fees Total revenue Operating expenses Merchandise costs Selling, general and administrative Preopening expenses Provision for impaired assets and store closing costs Total operating expenses Operating income Other income (expense) Interest expense Interest income and c Income before income 1 Provision for income ta) income *^luted net income per l^vldends per share (nc special dividend of $7 ‘^017 and $5.00 in 20 ^ions of shares used share calculations $126,172 $116,073 $113,666 $110,212 $51,862 $31,621 2,853 2,646 2,533 2,428 1,073 544 129.025 118,719 116,199 112,640 52,935 32,164 111,882 102,901 101,065 98,458 46,347 28,322 12,950 12,068 11,445 10,899 5,044 2,755 82 78 65 63 53 16 42 7 124,914 115,047 112,575 109,420 51,460 31,126 4,111 3,672 3,624 3,220 1,474 1,037 (134) (133) (124) (113) (34) (39) 62 80 104 90 109 54 4,039 3,619 3,604 3,197 1,549 1,052 1,325 1,243 1,195 1,109 486 421 $ 2,714 $ 2,350 $ 2,377 $ 2,058 $ 1,063 $ 631 $ 6.08 $5.33 $5.37 $4.65 $2.18 $ 1.35 $ 1.90 $1.70 $1.51 $1.33 0.43 ■ 0.00 440.9 441.3 442.7 442.5 492.0 475.7 {Continued) C-20 PART 2 Cases in Crafting and Executing Strategy 2017 2016 2015 2014 2005 2000 Balance Sheet Data Cash and cash equivalents $ 4,546 $ 3,379 $ 4,801 $ 5,738 $ 2,063 $ 525 Merchandise inventories 9,834 8,969 8,908 8,456 4,015 2,490 Current assets 17,317 15,218 16,779 17,588 8,238 3,470 Current liabilities 17,485 15,575 16,539 14,412 6,761 3,404 Net property and equipment 18,161 17,043 15,401 14,830 7,790 4,834 Total assets 36,347 33,163 33,017 33,024 16,514 8,634 Long-term debt 6.573 4,061 4,852 5,093 711 790 Stockholders’ equity 10,778 12,079 10,617 12,515 8,881 4,240 Cash Flow Data Net cash provided by operating activities $ 6,726 $ 3,292 $ 4,285 $3,984 $ 1,773 $ 1,070 Warehouse Operations Warehouses in operation at beginning of year® 715 686 663 634 417 292 New warehouses opened 28 33 26 30 21 25 (including relocations) Existing warehouses closed (including relocations) (2) (4) (3) (1) (5) (4) Warehouses at end of year 741 715 686 663 433 313 Net sales per warehouse open at year-end (it\ millions) $ 170 $ 162 $ 166 $ 166 $ 120 $ 101 Average annual growth at warehouses open more than a year (excluding the impact of changing gasoline prices and foreign exchange rates) 4\% 4\% 7\% 6\% 7\% 11\% Members at year-end Businesses, including add-on members (000s) 10,800 10,800 10,600 10,400 5,000 4,200 Gold Star members (000s) 38,600 36,800 34,000 31,600 16,200 10,500 Total paid members 49,400 47,600 44,600 42,000 21,200 14,700 Household cardholders that both business and Gold Star members were automatically entitled to receive 42,600 42,600 40,200 34,400 n.a. n.a. Total cardholders 90,300 86,700 81,300 76,400 — ° At the beginning of Costcos 2011 fiscai year, the operations of 32 warehouses in Mexico that were part of a 50 percent-owned joint ven­ ture were consolidated and reported as part of Costcos total operations. Note: Some totals may not add due to rounding and to not including some line items of minor significance in the company’s statement of income. Sources: Company 10-K reports for fiscal years 2000, 2005, 2015, 2016, and 2017. CASE 4 Costco Wholesale In 2018: Mission, Business Model, and Strategy C-21 n - COSTCO’SMISSION, business MODEL, AND STRATEGY Costco’s stated mission in the membership warehouse business was: “To continually provide our members with quality goods and services at the lowest possible prices.”^ However, in a “Letter to Shareholders” in the company’s 2011 Annual Report, Costco’s three top executives-Jeff Brotman, Jim Sinegal, and Craig Jelinek—provided a more expansive view of Costco’s mission, stating: The company will continue to pursue its mission of bringing the highest quality goods and services to mar- ||; ket at the lowest possible prices while providing excel- ■ lent customer service and adhering to a strict code of K ethics that includes taking care of our employees and t members, respecting our suppliers, rewarding our share- P holders, and seeking to be responsible corporate citizens I and environmental stewards in our operations around h the world.”^ In the company’s 2017 Annual Report, Craig Jelinek elaborated on how environmental sustainabil­ ity fit into Costco’s mission: Sustainability to us is remaining a profitable business while doing the right thing. We are committed to less- l ening our environmental impact, decreasing our carbon footprint, sourcing our products responsibly, and work­ ing with our suppliers, manufacturers, and farmers to i preserve natural resources. This will remain at the fore­ front of our business practices. ’ The centerpiece of Costco’s business model was a powerful value proposition that featured a combi­ nation of (1) ultra-low prices on a limited selection of nationally branded and Costco’s private-label Kirkland Signature products in a wide range of mer­ chandise categories, (2) very good to excellent prod­ uct quality, and (3) intriguing product selection that included both everyday items and ongoing special purchases from a big variety of merchandise suppli­ ers that turned shopping at Costco into a money­ saving treasure hunt. Ever since the company’s founding, Costco management had strived diligently to ensure that shopping at Costco delivered enough value to keep existing members returning frequently to a nearby warehouse and spur membership growth every year, thereby generating high sales volumes and rapid inventory turnover at each warehouse and cre­ ating opportunities to open new warehouses. Big sales volumes and rapid inventory turnover— when combined with the low operating costs achieved by volume purchasing, efficient distribution, and reduced handling of merchandise in no-frills, self- service warehouse facilities—enabled Costco to oper­ ate profitably at significantly lower gross margins than traditional wholesalers, mass merchandisers, supermarkets, and supercenters. Membership fees were a critical element of Costco’s business model because they provided sufficient supplemental rev­ enues to boost the company’s overall profitability to acceptable levels. Indeed, Costco’s revenues from membership fees typically exceeded 100 percent of the company’s net income, meaning that the rest of Costco’s worldwide business operated on a slightly below breakeven basis (see Exhibit 1)—which trans­ lated into Costco’s prices being exceptionally com­ petitive when compared to the prices that Costco members paid when shopping elsewhere. Another important business model element was that Costco’s 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 mer­ chandise vendors, even when vendor payments were made in time to take advantage of early payment discounts. Thus, Costco was able to finance a big percentage of its merchandise inventory through the payment terms provided by vendors rather than by having to maintain sizable working capital (defined as current assets minus current liabilities) to enable timely payment of suppliers. Costco’s strategy The key elements of Costco’s strategy were ultra- low prices, a limited selection of nationally branded and top-quality Kirkland Signature products cov­ ering diverse merchandise categories, a “treasure hunt” shopping environment that stemmed from a constantly-changing inventory of about 900 “while- they-last specials,” strong emphasis on low operating costs, and ongoing expansion of its geographic net­ work of store locations. Pricing Costco’s philosophy was to keep custom­ ers coming in to shop by wowing them with low prices and thereby generating big sales volumes. Examples of Costco’s 2015 sales volumes that con­ tributed to low prices in particular product cat­ egories included 156,000 carats of diamonds, meat sales of $6.4 billion. Seafood sales of $1.3 billion. C-22 PART 2 Cases in Crafting and Executing Strategy television sales of $1.8 billion, fresh produce sales of $5.8 billion (sourced from 44 countries), 83 million rotisserie chickens, 7.9 million tires, 41 million pre­ scriptions, 6 million pairs of glasses, and 128 million hot dog/soda pop combinations. Costco was the world’s largest seller of fine wines ($965 million out of total 2015 wine sales of $1.7 billion). For many years, a key element of Costco’s pric­ ing strategy had been to cap its markup on brand-name merchandise at 14 percent (compared to 25 percent and higher markups for other discounters and most supermarkets and 50 percent and higher markups for department stores). Markups on Costco’s private- label Kirkland Signature items were a maximum of 15 percent, but the sometimes fractionally higher mark­ ups still resulted in Kirkland Signature items being priced about 20 percent below comparable name-brand items. Except for Walmart, Costco’s prices for fresh foods and grocery items ranged 20 to 30 percent below of the leading supermarket chains. Aside from being lower-priced, Costco’s Kirkland Signature products— which included vitamins, juice, bottled water, coffee, spices, ohve oil, canned sahnon and tuna, nuts, laundry detergent, baby products, dog food, luggage, cookware, trash bags, batteries, wines and spirits, paper towels and toilet paper, and clothing—were designed to be of equal or better quahty than national brands. As a result of its low markups, Costco’s prices were just fractionally above breakeven levels, produc­ ing net sales revenues (not counting membership fees) that exceeded all operating expenses (mer­ chandise costs + selling, general and administrative expenses + preopening expenses and store relocation expenses) by only $1.0 billion to $1. 2 billion in fiscal years 2017, 2016, and 2015 and by just $400 million to $800 million dollars in fiscal years 2014, 2005 and 2005. As can be verified from Exhibit 1, Costco’s revenues from membership fees accounted for 69 to 75 percent of the company’s operating profits in fis­ cal years 2014 to 2017 and exceeded the company’s net income after taxes in every fiscal year shown in Exhibit 1 except for fiscal year 2000—chiefly because of the company’s ultra-low pricing strategy and prac­ tice of capping the margins on branded goods at 14 percent and private-label goods at 15 percent. Jim Sinegal explained the company’s approach to pricing: We always look to see how much of a gulf we can cre­ ate between ourselves and the competition. So that the competitors eventually say, “These guys are crazy. We’ll compete somewhere else.” Some years ago, we were sell­ ing a hot brand of jeans for $29.99. They were $50 in a department store. We got a great deal on them and could have sold them for a higher price but we went down to $29.99. Why? We knew it would create a riot.* At another time, he said: We’re very good merchants, and we offer value. The tra­ ditional retailer will say: “I’m selling this for $10.1 won­ der whether we can get $10.50 or $11.” We say: “We’re selling this for $9. How do we get it down to $8?” We understand that our members don’t come and shop with us because of the window displays or the Santa Claus or the piano player. They come and shop with us because we offer great values.’ Indeed, Costco’s markups and prices were so fractionally above the level needed to cover company­ wide operating costs and interest expenses that Wall Street analysts had criticized Costco management for going all out to please customers at the expense of increasing profits for shareholders. One retailing analyst said, “They could probably get more money for a lot of the items they sell.”® During his tenure as CEO, Sinegal had never been impressed with Wall Street calls for Costco to abandon its ultra-low pric­ ing strategy, commenting: “Those people are in the business of making money between now and next Tuesday. We’re trying to build an organization that’s going to be here 50 years from now.’’ He went on to explain why Costco’s approach to pricing would remain unaltered during his tenure: When I started. Sears, Roebuck was the Costco of the country, but they allowed someone else to come in under them. We don’t want to be one of the casualties. We don’t want to turn around and say, “We got so fancy we’ve raised our prices, and all of a sudden a new com­ petitor comes in and beats our prices.” Product Selection Whereas typical supermar­ kets stocked about 40,000 items and a Walmart Supercenter or a SuperTarget might have 125,000 to 150,000 items for shoppers to choose from, Costco’s merchandising strategy was to provide members with a selection of approximately 3,800 active items that could be priced at bargain levels and thus provide members with significant cost savings. Of these, about 75 percent were quality brand-name products and 25 percent carried the company’s private-label Kirkland Signature brand. The Kirkland Signature label appeared on everything from men’s dress shirts to laundry detergent, pet food to toilet paper, canned CASE 4 Costco Wholesale in 2018: Mission, Business Model, and Strategy C-23 foods to cookware, olive oil to beer, automotive prod- ^cts to health and beauty aids. According to Craig Jelinek, “The working rule followed by Costco buyers is that all Kirkland Signature products must be equal to or better than the national brands, and must offer a savings to our members.” Management believed that there were opportunities to increase the number of Kirkland Signature selections and gradually build sales penetration of Kirkland-branded items to at least 30 percent of total sales—in 2017 Kirkland-brand sales exceeded 27 percent of total sales. Costco exec­ utives in charge of sourcing Kirkland Signature prod­ ucts constantly looked for ways to make all Kirkland Signature items better than their brand name coun­ terparts and even more attractively priced. Costco members were very much aware that one of the great perks of shopping at Costco was the opportunity to buy top quality Kirkland Signature products at prices substantially lower than name brand products. Costco’s product range covered a broad spectrum—rotisserie chicken, all types of fresh meats, seafood, fresh and canned fruits and vegetables, paper products, cereals, coffee, dairy products, cheeses, fro­ zen foods, flat-screen televisions, iPods, digital cam­ eras, fresh flowers, fine wines, caskets, baby strollers, toys and games, musical instruments, ceiling fans, vacuum cleaners, books, apparel, cleaning supplies, DVDs, hght bulbs, batteries, cookware, electric tooth- brashes, vitamins, and washers and dryers—but the selection in each product category was deliberately limited to fast-selling models, sizes, and colors. Many consumable products like detergents, canned goods, office suppUes, and soft drinks were sold only in big- container, case, carton, or multiple-pack quantities. In a few instances, the selection within a product category was restricted to a single offering. For example, Costco stocked only a 325-count bottle of Advil-a size many shoppers might find too large for their needs. Sinegal explained the reasoning behind limited selections: If you had 10 customers come in to buy Advil, how many are not going to buy any because you just have one size? Maybe one or two. We refer to that as the intel­ ligent loss of sales. We are prepared to give up that one customer. But if we had four or five sizes of Advil, as most grocery stores do, it would make our business more difficult to manage. Our business can only succeed if we are efficient. You can’t go on selling at these margins if you are not.^ In the last several years, organics had become a fast-growing category in both the fresh produce section and the grocery items section, and Costco buyers were devoting increased attention to growing the selection of organic items. In the fresh meats cat­ egory, Costco was pursuing increased vertical inte­ gration, constructing a meat plant in Illinois and a poultry plant in Nebraska. The approximate percent­ age of net sales accounted for by each major category of items stocked by Costco is shown in Exhibit 2. Costco had opened ancillary departments within or next to most Costco warehouses to give reasons EXHIBIT 2 Costco’s Sales by Major Product Category, 2005-2017 2017 2016 2010 2005 Food (fresh produce, meats and fish, bakery and deli products, and dry and institutionally packaged foods) 35\% 36\% 33\% 30\% Sundries (candy, snack foods, tobacco, alcoholic and nonalcoholic beverages, and cleaning and institutional supplies) 20\% 21\% 23\% 25\% Hardlines (major appliances, electronics, health and beauty aids, hardware, office supplies, garden and patio, sporting goods, furniture, cameras, and automotive supplies) 16\% 16\% 18\% 20\% Softlines (including apparel, domestics, jewelry, housewares, books, movie DVDs, video games and music, home furnishings, and small appliances) 12\% 12\% 10\% 12\% Ancillary and Other (gasoline, pharmacy, food court, optical, one-hour photo, hearing aids, and travel) 17\% 16\% 16\% 13\% Source: Company 10-K reports, 2005, 2011, 2016, and 2017. C-24 PART 2 Cases in Crafting and Executing Strategy to shop at Costco more frequently and make Costco more of a one-stop shopping destination. Some loca­ tions had more ancillary offerings than others; 2015 2010 2007 Warehouses having stores with Food Court 680 534 482 One-Hour Photo Centers 656 530 480 Optical Dispensing Centers 662 523 472 Pharmacies 606 480 429 Gas Stations 472 343 279 Hearing Aid Centers 581 357 237 Note: The company did not report the number of ancillary offerings for its warehouses at year-end 2016 and 2017, but the company did increase the number of gas stations to 508 in 2016 and to 536 in 2017. …  ( 10/20/21, 11:23 PM ) ( Topic: Why is it recommended to learn algorithms as a software developer if most developers say that knowing algorithms doesn’t hel … ) ( 1 /2 ) This is a graded discussion: 100 points possible Why is it recommended to learn algorithms as a software developer if most developers say that knowing algorithms doesn’t help much? 4 4 (https://code.quora.com/Why-is-it-recommended-to-learn-algorithms-as-a-software- developer-if-most-developers-say-that-knowing-algorithms-doesn-t) It is recommended to learn because it will help you be a better developer in general. And, most developers will say it doesnt help because they are dealing with other issues in their field. Ill try to explain. If you want to be a good software engineer its absolutely essential. It adds to your tool bag of solutions to solve problems you may find when writing pieces of a program. You can write an application that works for your immediate need. But, without knowing algorithms you might not have written something that works under all other intended uses. Maybe failed to account for the amount of memory or time to process required as input grows. Additional recommendations for a developers tool bag is learning patterns. It is important to learn that many frameworks and libraries are already applying these patterns. It will help understand how to correctly extend functionality of existing solutions and when to write new one. Mathematical theorems and other engineering principles are also important. But, going into too much detail is out of the scope of this question. All of that can seem like a lot. Especially if your job usually deals with mostly writing front end. Where its not easy to immediately see how algorithms can be a benefit. Or, maybe youre simply putting together different libraries and frameworks that simply require some configurations. However, you will still run into things that are supposed to work out of the box, yet dont exactly do what was needed. Most of the times this will lead to a hacked together solution that works in the short term. Instead of a algorithmic proven long term solution. Immediate results then to be awarded more. The only time algorithms dont really help is when youre dealing with certain work environments. Places that spend too much time trying to measure your worth with rigid output metrics. The amount of lines you write a day. The amount of time spent on a task regardless of its complexity. Essentially places that equate random metrics over actual contribution. Im places like this, higher ups will always remember you fondly for coming up with quick solutions, even if it causes an issue later. The same higher ups will remember you as a problem if the task is complex and will take you longer to solve. This is why you will have developers who simply hack things together, some who engineer them and both can end up at odds with each other. Each developer will give widely different estimates based on their assumptions and/or understanding of a task. Then decision makers will often be tempted to take the shortest estimate as the correct one. You might be surprised about how many places can turn it to be this way. 1. How has this explanation helped you understand the role of algorithms? 2. Can you give an example of what you learned that would apply to this?