Costco Wholesale is the largest wholesale club operator in the United States. Costco stores offer discount prices on an average of about 4,000 products, ranging from alcoholic beverages and appliances to fresh food, pharmaceuticals, and tires, making it fall into other type of industry; Warehouse Clubs & Superstores. To shop at Costco, customers must be members — a policy the company believes reinforces customer loyalty and provides a steady source of fixed revenue (Hoover’s, Inc. 2012). Big box retail industry is highly competitive, based on factors such as price, merchandise quality, warehouse location, store hours, and customer service. One of Costco’s weaknesses is vendors may be unable to supply Costco with quality merchandise at the right prices in a timely manner or may fail to adhere to [its] high standards resulting in adverse effects on its business, merchandise inventories, sales and profit margins.
Costco depends heavily on its ability to purchase merchandise in sufficient quantities at competitive prices. It has no assurances of continued supply, pricing or access to new products, and any vendor could at any time change the terms upon which it sells to it or discontinue selling it. Because of its efforts to adhere to high quality standards for which available supply may be limited, particularly for certain food items, the large volume its demand may not be consistently available.
Costco’s suppliers are also subject to risks, including labor disputes, union organizing activities, financial liquidity, inclement weather, natural disasters, supply constraints, and general economic and political conditions that could limit their ability to timely provide us with acceptable merchandise precluding delivery of merchandise and may not be identified before it sells the merchandise to its members (Costco Wholesale Corp. , 2012). Costco has the buyer power in the big box industry.
When Costco is the primary obligor, is subject to inventory risk, has latitude in establishing prices and selecting suppliers, can influence product or service specifications, or has several but not all of these indicators, revenue and related shipping fees are recorded on a gross basis. Because of its high sales volume and rapid inventory turnover, it generally sells inventory before it is required to pay many of our merchandise vendors, even though we take advantage of early payment discounts when available.
To the extent that a greater percentage of inventories are financed through payment terms provided by suppliers rather than by its working capital (Costco Wholesale Corp. , 2012). Costco buys the majority of its merchandise directly from manufacturers and route it to a cross-docking consolidation point (depot) or directly to our warehouses. Costco’s depots receive container-based shipments from manufacturers and reallocate these goods for shipment to our individual warehouses, generally in less than twenty-four hours.
This process maximizes freight volume and handling efficiencies, eliminating many of the costs associated with traditional multiple-step distribution channels (Costco Wholesale Corp. , 2012). Making its operations more efficient and its members loyal to its rapid service. Facing competition from discounters that don’t charge a membership fee, Costco has been busy expanding and retrofitting its warehouses to accommodate fresh food sections and other ancillary units, such as gas stations, optical departments, pharmacies, and food courts (Hoover’s, Inc. 2012). Along with the expansion of products, Costco has expanded its premium private-label, Kirkland Signature, to differentiate the company’s offerings from intense competition. On the international front,