Costco, a discount retailer, became third biggest retailer in the U.S. and world market. They started business with a different strategy than others. They lowered markups and sold fewer choices in their. First of all, nobody believed that this kind of strategy would work because there weren’t varieties that people like when they go to a store. However people are still discussing how efficient the Costco’s strategy is. While trying to sell cheap products with low costs, the company offer high benefits to employees which brings really high costs. Because of the low markups, their yearly income rate is around 4-5%. So they believe that the only way they could survive is to keep the average receipt amount higher than previous years. However Wall Street people always have concern about the strategy. They say high compensations to employees and low markup will make the company unable to compete with other competitors in long period of time.
Problem Statement
What people discuss about Costco’s strategy is that they have really low markups. Mr. Sine gal rejects Wall Street's assumption that to succeed in discount retailing, companies must pay poorly, or must increase prices to meet Wall Street's profit demands. Every company focuses on different consumer groups. Costco, instead of targeting different consumer groups, prefer providing quality goods and services at the lowest prices. And they think this strategy for many people from different income levels. But the main issue here is that while applying low price strategy, company has costs that increase overall spending such as high employee benefits. These costs may hit the company revenues during a depression in the economy when they can’t sell as much product as they sell now. People will prefer buyi ...