Costco Wholesale Corporation
Costco Wholesale Corporation
Costco Wholesale Corporation opened its first store under the brand name Price Club in 1976. The company at the time operated from a repurposed airplane hangar with its founder Sol Price targeting membership of small enterprises. James Sinegal and Jeffery Brotman established the first Costco store in1983. By 1986, Costco had business premises in 22 locations, boasted 3.2 million members, and had over 7,000 employees. Carden and Courtemanche (2014) claim that the company became the first in history to make over $3 billion in sales within a six-year period. Costco and Price Club adopted the name Price Costco after merging in 1993, later incorporating to Costco Wholesale Corporation in 1997. Since then, Costco has grown into the largest membership-only warehouse club and has come third, behind Wal-Mart and Amazon, in rankings of the biggest retailers in the U.S.
Costco has managed to maintain a competitive advantage in the dwindling brick-and-motor retail industry through the charismatic leadership of its CEO Craig Jelinek. Jelinek has climbed the company’s hierarchical ladder since entering the company as a warehouse manager in 1984 to securing his current position in 2012 (Gabler, 2016). His managerial insight was instrumental in the company’s rapid expansion over the years, including its recent entry to the East Asia market. The CEO often credits his emphasis on customer retention strategies to have helped the company sustain its high membership renewal rates, which currently stand at 90% despite fierce competition for online shopping platforms. Jelinek management often involves unconventional practices such as favoring word of mouth over media advertisement at a time when retailers are investing heavily in marketing campaigns.
Sol Price established FedMart with a capital injection of $50,000. His leadership skills helped to grow the Southern California-based discount chain into one of the leading retailers in the region. The entrepreneur looking to expand from a regional to a national chain sold the business and used the proceeds to create Price Club (Costco Wholesale, 2017). The company targeted small businesses, which benefited from buying products more cheaply than obtaining them from wholesalers. The realization that incorporating non-business members would enhance buying influence played a critical role in fuelling the growth of the warehouse club industry (Gabler, 2016). Price’s revolutionary approach to the warehousing concept allowed the chain to expand and grow its income rapidly. Such success led to the erection of numerous other businesses that adopted Price Club’s warehouse-retail distribution strategy. A mentee of Sol Price, Sinegal and appeal storeowner Brotman joined forces to establish Costco that grew into one of the most successful clones of Price Club.
Costco’s entrepreneurship philosophy focuses on the execution of six core concepts, namely the right merchandise, time, price, place, quality, and condition. The chain concentrates on selling products that boast high quality and provides e an assortment of brand name merchandise predominately sourced from local dealers (Carden & Courtemanche, 2014). The notion of time entails the company’s concerted efforts to exploit technology across the distribution and sale process, thus removing redundancies and accelerating service delivery (Gabler, 2016). Costco’s encourages volume buying practises to ensure customers receive the lowest prices possible while employing a rotation strategy for placement of products on the sales floor to give customers a renewed experience when visiting the store.
Costco Wholesale has a variety of corporate social responsibility (CSR) initiatives that center on protecting and advancing the interests of stakeholders. While some of the largest retailers nationwide profess their achievements in adopting energy saving lighting or donating to environmental causes, Costco’s has focused its CSR programs on catering to the wellbeing of its workers. Since the company’s establishment, Costco’s philosophy on compensation has emphasized paying workers above-average salaries and providing a positive workspace environment. In an industry where employee turnover rates are exceptionally high, Costco has managed to retain most of its workers by offering them attractive health benefits and job satisfaction.
Sol Price, the inventor of the warehouse club retailing, opened the first store of what later became Costco Wholesale Corporation after his company merged with its clone Costco in 1993. Price Club became a public company in 1983 with an initial share offering of $25 while Costco listed its stock for the public at $10 in 1985 (Costco Wholesale, 2017). The merger not only boosted their share prices but also combined their assets to create an enterprise boasting 195 warehouses located in three countries and revenue increment to $16 billion per year. Presently, the warehouse chain has stores across the globe, including the U.S., Canada, Mexico, and Australia. The company has consistently generated sales above $100 billion each year throughout the 21st century with sales transitions per day totaling 2.3 million and membership clients estimated at 80 million (Costco Wholesale, 2017).
Costco has expanded its dominant presence in the American warehouse club industry to the international market with its revolutionary retail approaches generating a cult-like following among local and overseas customers. The company’s aggressive pursuit of a global footprint has led it to establish over 200 warehouses in 10 different countries while maintaining close to 500 stores in the U.S and 100 in Canada (Costco Wholesale, 2017). With a market capitalization value of $96.3 billion and membership growth of 18.4% in the last six months, the company is expected to maintain its leadership position in the retail industry and continue to experience exponential growth in share value.
Carden, A., & Courtemanche, C. (2014). Competing with Costco and Sam’s Club: warehouse club entry and grocery prices. Southern Economic Journal, (3), 565-586.
Costco Wholesale. (2017). Costco Wholesale Corporation MarketLine Company Profile (pp. 1– 27).
Gabler, N. (2016). The Magic in the Warehouse. Fortune, 174(8), 182–189.