Costco: The Pinnacle of Value

Insight into the retailer and lessons for those considering elements of the

warehouse club model

INTRODUCTION

Summary 

Verdict’s Retail Innovations case studies are new for 2010. Each profile provides an evaluation of a company that stands

out due to a set of unique characteristics, or a particular strategic initiative. In this case study, we examine the US

warehouse retailer, Costco Inc. Since its launch in 1983, Costco has provided its customers, or members, with bulk

packaged low-priced goods from an extensive range of product categories, and has become one of the leading retailers in

the warehouse club sector, and across the whole retail industry. By 2009, Costco had overtaken Home Depot and Target to

become the third largest US-based retailer in revenue terms, and also the largest members’ only warehouse club in the US.

 

• This brief will examine Costco’s operations, including all aspects of the warehouse club business model it

has adopted. It also provides recommendations on best practice strategies for companies wishing to pursue

this business model, or attractive aspects of it.

• In its examination of the company’s operations, this brief will focus upon the following key areas: company

background; its operations in terms of countries, store numbers and selling space; sales and sales growth;

and an in-depth look at the business model, including information on its supply chain, store locations,

product range, services, pricing and membership, as well as future expansion plans.

Strategic Action Points inspired by Costco

 

STRATEGIC ACTION POINTS INSPIRED BY COSTCO

Costco exhibits a number of strengths that other retailers can learn from 

 

Provide club membership for certain services

• Although many retailers will be averse to operating an exclusive, members only business model, many

retailers should consider the feasibility of club membership options for certain services. E-commerce opens

up the opportunity to offer a paid membership or loyalty scheme, whereby members are provided with

benefits such as free delivery, quicker delivery and product previews. Many internet pureplays currently

have such options, including Amazon with its Prime service and ASOS with ASOS Premier.

Offer selected branded products for a limited period of time

• Retailers should consider offering selected branded products for a limited period of time, akin to Costco’s

treasure hunting strategy. This excites customers, encouraging repeat visits and creating loyalty, as well as

generating a sense of urgency among consumers to purchase the goods. Such a strategy also works well

for Lidl, which, through a newsletter and on its website, advertises special offers on non-food products that

will be available in-store for a limited period of time. Often, these products center on a key theme, such as

cycling or electronic beauty equipment………………………………………

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