The business model of using a membership to allow customers to avail significant discounts has helped Costco to maintain a loyal client base. The retailer is famous for offering unparalleled discounts and promotes a “treasure hunt” shopping environment. This strategy involves offering large discounts on certain items which will be available for a short period of time, and as such increases turnover by volume. Expansion by Costco to foreign countries is giving a boost to their sales and allowing them to benefit from economies of scale and better inventory management. Aggressive expansion plans to increase the number of warehouses to 1,000 in the next ten to twelve years (Audited Financial Statement 2011, 4) will help the company to improve upon its market share.
Despite the large discounts, Costco is known to offer a catalogue that offers a limited range of products, mainly high end, high value products and certain private labels. Unavailability of certain items might force customers to abandon Costco as a preferred retailer.
Costco's business model has the potential to be successful in foreign countries, and the company should further expand its warehouses in foreign countries to tap potential markets. Also the company should look towards increasing its product catalogue and further enhance its online shopping experience to increase turnover and customer satisfaction and retention.
Threats Since Costco is in competition with the world's largest retailers like Walmart, Target and Kohl's, the company faces threats from significant changes and sales strategies that these chains might use to dent Costco's market share. At the same time, Costco's business model of high turnover faces risks from a sluggish economy. Accounting Distortions A company's financial statement is a document that records and reports the business performance of the company over the current fiscal year. However, there are a number of accounting principles and policies that the company can use to structure the financial statements and have material effects on transactions and closing balances in certain accounts. These differences in accounting methods that lead to different results in financial statements are known as accounting distortions. The accrual method of accounting involves recording a financial transaction as it occurs, regardless of the final cash settlement. This method of accounting is favored by Generally Accepted Accounting Principles (GAAP), which is the accounting system used by Cotsco. This means that it is probable that out of the $87 billion sales recorded by Costco in