Costco: The Pinnacle of Value
Insight into the retailer and lessons for those considering elements of the
warehouse club model
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………………………………………