1. Inception, Customization and
Benchmarking of COSTCO
ANKITA MOHAPATRA
NIKITA JOHNSON

2. Introduction
 Founded in 1983
 Fifth largest retailer in the U.S.
 As of 2012, 573 warehouses in 40 states and 7 countries
 Fastest growing company in the history among
American businesses

3. Costco
 Only company to achieve $6 billion in sales from zero in six
years
 Founder Jim Sinegal coined as the inventor of the wholesale
Club concept
 Philosophy is to “keep members coming in to shop by wowing
them with low prices.”
 Does not engage in extensive advertisements or sale
campaigns
 Five Guiding Principles
 Obey the law
 Take care of members
 Take care of employees
 Respect suppliers
 Reward shareholders
Creative Exposure Consulting

4. Product Diversification
 Core - Costco Wholesale
 Warehouse Clubs and Superstores
 Premium private-label products
 Specialty - Consumer Services
 Travel
 Optical
 Automotive
 Financial Services
 Loans
 Insurance

5. Benchmarking

6. • Benchmarking is the process of comparing one's
business processes and performance matrices to
industry bests or best practices from other industries.
Dimensions typically measured are quality, time and
cost.
• In this way, they learn how well the targets perform
and, more importantly, the business processes that
explain why these firms are successful.

7. The comparison is made
between Costco and
Walmart
1 ) lower operating margin
2) advertisement
3) Policy of James D. Sinegal ,co-founder and
former COE of Costco
4) Costco doesn’t concentrate on volume
5) Turnover
6) Shrinkage/Employee theft

8. 1 ) Costco has a lower
operating margin
Costco keeps around a 3% operating margin,
which means for every dollar in sales they get 3
cents of profit before things like interest and taxes.
Walmart’s operating margin is around 6%, and
target’s is almost 8%.

9. 2) Costco don’t advertise
In addition costco don’t advertise in that way
saves 2 percent a year in costs.

10. 3) Policy of James D. Sinegal
,co-founder and former COE
of Costco
Mr. Sinegal’s elbows can be sharp as well. As most
suppliers well know, his gruff charm is not what lets him
sell goods at rock-bottom prices – it’s his fearsome
toughness, which he rarely shows in public. He often
warns suppliers not to offer other retailers lower prices
than Costco gets.
When a frozen-food supplier mistakenly sent Costco an
invoice meant for Wal-Mart, he discovered that Wal-
Mart was getting a better price. “We have not brought
that supplier back,”

11. 4) Costco doesn’t
concentrate on volume
A typical Costco store stocks 4,000 types of items,
including perhaps just four toothpaste brands, while
a Wal-Mart typically stocks more than 100,000 types
of items and may carry 60 sizes and brands of
toothpastes. Narrowing the number of options
increases the sales volume of each, allowing
Costco to squeeze deeper and deeper bulk
discounts from suppliers.

12. 5) Turnover
Costco’s practices are clearly more expensive, but they
have an offsetting cost-containment effect: Turnover is
unusually low, at 17% overall and just 6% after one year’s
employment. In contrast, turnover at Wal-Mart is 44% a
year’close to the industry average. In skilled and semi-skilled
jobs, the fully loaded cost of replacing a worker who leaves
(excluding lost productivity) is typically 1.5 to 2.5 times the
worker’s annual salary. To be conservative, let’s assume that
the total cost of replacing an hourly employee at Costco or
Sam’s Club is only 60% of his or her annual salary. If a Costco
employee quits, the cost of replacing him or her is therefore
$21,216. If a Sam’s Club employee leaves, the cost is $12,617.
At first glance, it may seem that the low-wage approach at
Sam’s Club would result in lower turnover costs. But if its
turnover rate is the same as Wal-Mart’s, Sam’s Club loses more
than twice as many people as Costco does: 44% versus 17%.
By this calculation, the total annual cost to Costco of
employee churn is $244 million, whereas the total annual cost
to Sam’s Club is $612 million. That’s $5,274 per Sam’s Club
employee, versus $3,628 per Costco employee.

13. 6) Shrinkage/Employee
theft
For example, it had extremely low employee
shrinkage. While the industry average was
somewhere between 2 and 4 percent, Costco’s
was less than 0.02 percent. Managers believed that
their good wages and benefits were the reason
that employee theft was so low.

14. Creative Exposure Consulting