Question

1. What core values or business principles did Jim Sinegal stress at Costco?

2. (In the event you have covered Chapter 3) What is competition like in the North American wholesale club

industry? Which of the five competitive forces is strongest and why? Use the information in Figures 3.4,

3.5, 3.6, 3.7, and 3.8 (and the related discussions) in Chapter 3 to do a complete five-forces analysis of

competition in the North American wholesale club industry.

3. How well is Costco performing from a financial perspective? Do some number-crunching using the data in

case Exhibit 1 to support your answer. Use the financial ratios presented in Table 4.1 of Chapter 4 (pages

85-87) to help you diagnose Costco’s financial performance.

Answer 1

Two key values seem to emerge from Jim Sinegal’s words. First, delivering value to customers in the form of low prices and second, treating employees with the best of standards. Sinegal’s message in the presented case seem clear, he is dedicated to instilling these values as part of Costco’s culture

Competitive pressures associated with rivalry and substitutes are certainly the strongest two of the competitive forces. Competitive pressures from the other 3 competitive forces are weak. On a whole, the competitive pressures confronting the wholesale clubs are “normal” or “reasonable”- not so strong as to unduly crimp profit margins but certainly strong enough to prevent wholesale clubs from earning well-above average profits and attracting outsiders to enter the industry. The competitive market success of the wholesale club is a function of keeping its costs to buy goods and operate its stores low enough to be able to charge “bargain prices”, attract new members, and continue to achieve acceptable profitability