Lesson #2: Keep Your Costs Low and Your Quality High
Lesson #2: Keep Your Costs Low and Your Quality High
Costco has a unique business model that has enabled it to set itself apart from the rest. The first secret is in carrying a low amount of in-store stock. While the average Wal-Mart carries more than 100,000 items, Costco stocks no more than 4,000, one quarter of which are always changing. This leads to what Sinegal refers to as a treasure hunt. “One time [customers] may come in and see that we have some Coach handbags and they come in the next time and the Coach handbags aren’t there, but perhaps there are some Fila jackets,” he says. “The attitude is that if you see it, you have got to buy it because it may not be there next time.”
Of those 4,000 products that Costco stocks, all of them are high-quality goods. This has helped Costco attract a wealthier customer, the average of which earns an income of $74,000. Sinegal says that the “hallmark of our business is that we have developed such a high-end clientele with a high-end product selection and assortment.” So, while Costco might not carry as many products as its competitors, it carries the best two or three brands of a product and does more sales in terms of volume per unit.
To this end, Sinegal also keeps his profit margins on each item as low as possible, refusing to mark things up more than 14 percent. What Costco might lose in margins, Sinegal says it makes up for in volume. And, that volume is tremendous. In 2004, Costco sold over 26 million rotisserie chickens, $16 million worth of pumpkin pies in the holiday season, and more than 90,000 karats of diamonds. Costco has also become the largest seller of fine wines anywhere in the world.
Costco is able to keep its profit margins so low because Sinegal has also become a stickler for keeping his costs as low as possible. The fact that customers walk on concrete floors and sell goods from steel racks is no coincidence. “We’re low-cost operators, and it would be a little phony if we tried to pretend that we’re not and had all the trappings,” says Sinegal. Costco is meant to be a no-frills shopping experience so that those savings can be transferred onto the customer.
In the last few years, Costco has been attempting to increase its international presence, expanding into countries like Canada all the way over to Japan. And, while very country is different, Sinegal says, “The one constant is value. Value is appreciated no matter where you go.” It is by keeping his costs low and the quality of his products high, that Sinegal has continued to expand the value that is offered by Costco.
Lesson 2 Keep Your Costs Low and Your Quality High
Like this article? Share it with your friends
“We only have one bullet in our gun,” says Sinegal, “the right product at the right price.” It seems to be a simple formula for success, but how has Costco managed to master it better than the rest? How has Sinegal been able to keep his company’s costs low, wages high, and sales even higher for the over ten years it has been in business?
Costco has a unique business model that has enabled it to set itself apart from the rest. The first secret is in carrying a low amount of in-store stock. While the average Wal-Mart carries more than 100,000 items, Costco stocks no more than 4,000, one quarter of which are always changing. This leads to what Sinegal refers to as a treasure hunt. “One time [customers] may come in and see that we have some Coach handbags and they come in the next time and the Coach handbags aren’t there, but perhaps there are some Fila jackets,” he says. “The attitude is that if you see it, you have got to buy it because it may not be there next time.”
Of those 4,000 products that Costco stocks, all of them are high-quality goods. This has helped Costco attract a wealthier customer, the average of which earns an income of $74,000. Sinegal says that the “hallmark of our business is that we have developed such a high-end clientele with a high-end product selection and assortment.” So, while Costco might not carry as many products as its competitors, it carries the best two or three brands of a product and does more sales in terms of volume per unit.
To this end, Sinegal also keeps his profit margins on each item as low as possible, refusing to mark things up more than 14 percent. What Costco might lose in margins, Sinegal says it makes up for in volume. And, that volume is tremendous. In 2004, Costco sold over 26 million rotisserie chickens, $16 million worth of pumpkin pies in the holiday season, and more than 90,000 karats of diamonds. Costco has also become the largest seller of fine wines anywhere in the world.
Costco is able to keep its profit margins so low because Sinegal has also become a stickler for keeping his costs as low as possible. The fact that customers walk on concrete floors and sell goods from steel racks is no coincidence. “We’re low-cost operators, and it would be a little phony if we tried to pretend that we’re not and had all the trappings,” says Sinegal. Costco is meant to be a no-frills shopping experience so that those savings can be transferred onto the customer.
In the last few years, Costco has been attempting to increase its international presence, expanding into countries like Canada all the way over to Japan. And, while very country is different, Sinegal says, “The one constant is value. Value is appreciated no matter where you go.” It is by keeping his costs low and the quality of his products high, that Sinegal has continued to expand the value that is offered by Costco.
Lesson 2 Keep Your Costs Low and Your Quality High
Like this article? Share it with your friends
| |||
 |
good
Commented on Lesson 2 Keep Your Costs Low and Your Quality High. |
||
|
I enjoy ever bit of information, since i am a start up person i know some day people will read my story
Commented on Lesson 2 Keep Your Costs Low and Your Quality High. |
||
|
Leave Your Feedback | ||
|
|||
 Increasing Profits By Decreasing Clients
| |||
| How do you set your company up as the only choice for your clients, and increase your profits at the same time? |
|||
|
"Quality" Franchise Opportunity
| |||
|
If you are interested in a franchise opportunity, with the profitable revenues, spend some time learning about Quality Connections. Quality Connection is a family friendly direct mail publication business sta... |
|||
|
Discounting Prices: How Low is Too Low?
| |||
| Setting prices can be quite a challenge for any business person. Whether you are a new business or you've been in business for a long time, it can be difficult to know where to set your prices. After all, prices tha... |
|||
|
When to Press Your Printing Needs
| |||
| Process, Spot, Laser, Inkjet, photocopy … have you confused? Choose the right printing option and get a great result at the best price. Choose the wrong option and pay big bucks for sub-standard quality. Read abou... |
|||
|
Lesson #2: Keep Your Costs Low and Your Quality High
| |||
 “We only have one bullet in our gun,” says Sinegal, “the right product at the right price.” It seems to be a simple formula for success, but how has Costco managed to master it better than the rest? How has Sinegal ... |
|||
| |||
Bernard ReberBack in late 1992, MS Access hit the streets. About that time the company I managed needed new software to handle their growing client base and I decided to try this new product. I had little difficulty writing and adapting a database to suit us and discovered a hidden talent for programming. A business was born. With business studies and 25 years of management experience in three different countries under my belt, I could offer a unique combination of skills and my customers agreed. From these humble beginnings my software 'invoiceit' emerged in 1999 and has since been taken to 49 states (hello Wyoming, won't you join us?), all across Canada and more than 70 other countries. From the very beginning the program included cashbook accounting, the simplest form of keeping financial business records. The Dictionary.com defines 'cashbook' as "A 'book' in which to record money received and paid out". For 'book' substitute 'simple software' and that's what I'm about. Now I have published Simple Accounting, an inexpensive spreadsheet solution which even you can master. For just $14.95 it costs less than a takeout meal! More at http://www.scrambled-card.com/simple_accounting_main.htm - Visit Bernard Reber's Website |
|||
|
To learn more about the Evan Elite Author Program please contact us. | |||
|
 |
| Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media |
 |
 |
| Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details. |
 |
 | ||
 |
||
 |
||
 |
||
|
| ||
|
|
|
Get advice & tips from famous business owners, new articles by entrepreneur experts, my latest website updates, & special sneak peaks at what's to come!
|
|
|
 |
 Optimus Performance Joint Ventures ebook Breakdown, Breakthrough ACES Research Report Acronym Soup |
|
 | ||
 |
Top 50 Niche Blogs 2009
Top 50 Niche Blogs 2009 | |
 |
Top 50 Social Media Blogs
Top 50 Social Media Blogs | |
| ||
 |
|
|
|
|
||||||||||||||||||||||||
 |
|
|
||||||||||||
