Costco Code Of Ethics Essay
Costco has built a reputation of being a caring corporation1 with a low cost structure in the discount services sector. Their founder, Jim Sinegal, believed in building a business on strong ethics while offering a wide selection and great value. Costco’s vision is expressed in its code of ethics which contains five key tenets by which the company operates: Obey the law, take care of our members, take care of our employees, respect our suppliers & reward our shareholders.2 With this vision Costco has built the third largest retailor in the United States.
By looking closely at the code of ethics it becomes possible to see it has built in strengths and weaknesses. The five principles themselves are all strengths; with each having a clear meaning
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Keeping costs low allows for the deeper discounts that attract their members. Costco has avoided placing stores in high rent areas such as near malls and it keeps cost down by offering a no frills shopping experience with concrete floors and no unneeded decor. Another cost saver is limiting store hours of operation. All of this supports the goal of “take care of our members”.
In fact, while the code of ethics has five precepts much of the business appears to be based on the single idea of taking care of customers. Costco merchandise has little markup compared to a traditional retailer. Looking at Costco financials the markup appears to be just enough to cover operating expenses and taxes.
According to Exhibit 1 in the text Costco’s 2011 net sales were $87.048 billion and an additional $1.867 billion in membership fees. This calculates to total revenue of $88.915 billion. Exhibit 1 also states that the net income for the year was $1.462 billion. By dividing the 2011 net profit by that year’s total revenue we find that Costco’s net profit margin for 2011 was only 1.64%. Note that net income was less than the membership fees. The net profit margin indicates the business itself would make little or no money. Even when adding in the membership fees the net profit margin is very
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