Old school way still works!

Costco’s business strategy has really not changed over a period of time.  I still enjoy their $1.50 hot dog/soda combo or their $1 churros.  They still work on mostly cash-only transactions and you have to bring your own bag or pick up one of those used boxes from bins around the store for your items.

Costco has utilized focused low-cost provider strategy combining capped profit margin that barely brought profits to the bottom line and limited market niche to club memberships or allowing consumers with annually paid membership dues to shop.  The focused low-cost strategy “aims at just meeting the needs of buyers in a narrow market segmet” (Thompson, Peteraf, Gamble, & Strickland, III, 2013,p. 138).  Costco limits its product offering to 3,600 and focuses on moving products fast.  Each store general manager is regarded as an entrepreneur with the ability to decide which products are big hits for their markets and thus are given the authority to identify which products to would sell in their stores.  Costco has also supplemented its product offerings with private-label products “Kirkland Signature”, which are of equal or better quality than nationally-leading brands.

The strength of the company lies in its proven methodologies that never changed throughout time, that is providing low-cost, high quality items to its membership base, taking good care of its employees, top management that does not inhabit greed, and being responsible corporate citizens.  It’s CEO embodies Level 5 Executive leadership, which “channel their ego needs away from themselves and into the larger goal of building a great company” with the leader’s ambition that is “first and foremost for the institution, not for themselves” (Collins, 2001, p. 21).  Level 5 leadership is a fusion of personal humility and professional will.  Founder and former CEO Jim Sinegal, the Steve Jobs of retail market, was known to answer his own telephone and had kept a meager salary constantly for many years.

The company has plenty of opportunities to grow with its solid track record.  Employees are happy and turnover is very low.  Customers are also happy with the value and quality of products they get.  Shareholders are getting their rewards and there are many opportunities to expand operations domestically and internationally.

Costco continues to hire from colleges and this is a good practice as it captures current knowledge and education in business and entrepreneurship.  Talents from other retailers or warehouse clubs can be captured, so that the company can understand the trends of the competition, their strategies, and how to stay competitive.  The old way has worked for many years, but without a vision to adapt to the challenges lurking around, Costco might find itself in a precarious situation when members see a competitor that offers the same or even better products at a better location with cheaper or no membership fee at all.

Lesson learned:  Find your leadership philosophy, test it over a period of time, and when effective, stick to it while keeping an eye on the changing environmental conditions.

References:

Collins, James. (2001). Good to great.  New York, NY: HarperCollins.

Thompson, A., Peteraf, M., Gamble, J., & Strickland, III, A. J. (2013). Crafting and executing strategy: The quest for competitive advantage. Concepts and cases. New York, NY: McGraw-Hill

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