Microeconomics CIA 1.

By

Akhilesh K 2123502
What is trade off?

Trade off is a type of decision that has to be made by a company which involves losing a quality
or quantity of the firm’s property in return for gains.
An economical example for this is investing in the stock markets, while there is a huge risk in
investing money into stocks there is also a great amount of return if one has invested in the right
stock.

What is opportunity cost?

Opportunity cost is defined as the potential benefits gained by an investor whilst missing out on
another alternative.
For example if I decide to not go to the movies and complete my assignments, I lose out on the
luxury of going out to the movies and complete my assignment instead.
 Costco Wholesale

Costco Wholesale Corporation is an American company which functions by membership only

policy, this means a person should be a member of the company only then they are allowed to
shop. Costco is the fifth largest retail company in the world as of 2020. In 2021, the
multinational giant was ranked number 10 on the fortune 500 rankings.

Trade Offs Faced by Costco Wholesale

The warehouse chain had to scrape off some of its signature elements of its shopping experience
which set itself apart from its competitors like free samples and half sheet cakes at the bakery
section.

The pandemic has revolutionized the way that consumers shop, the customers of Costco
Wholesale have ditched categories like apparel in the favor of categories like food which has
brought down the sales and revenue for Costco significantly.

Costco's famous food court is now only allowing take outs and is operating on a limited menu
basis.

Costco Wholesale had to cut down on working hours in all their warehouses in order to maintain
social distancing and minimise the spread of covid as a result they could make only limited sales.

The company saw $281 million dollars on covid expenses mainly spent on sanitizing their stores
and giving employees bonuses, the amount was higher than what was told to the investors in
June 2020.

Damage Control

Due to the surge in demand for essential goods during the lockdown Costco saw sales increase
during this period. People were stocking up items and were panic buying during this time which
played in Costco’s favor.

The pandemic which has driven a surge in shopping as a result Costco’s profits were lifted up to
$4 billion dollars which was a record profit.
Costco’s revenues rose 12.4% to 53.38 billion dollars in the quarter ended Aug 30 2020 which
was way more than what wall street had expected.

Costco partnered instacart to offer home delivery, but the company wasn't convinced that online
was the way to go for themselves and continued with their traditional warehouse type shopping.
 Croma
Infiniti Retail, Croma is a subsidiary of the TATA group, it runs Croma Stores which is a retail
chain for consumer electronics and consumables.There are a total of 190 stores in 32 cities in
India. The Infiniti Retail firm acquired the retail business of Woolworths for $35 million dollars
or 200 crores. Woolworths was tied up with TATA since 2005 providing external support in the
electronics retail market

Trade Offs Faced by Croma

Croma is being aggressive even though with the covid crisis. They plan to add 100 new stores by
the end of the next fiscal year. This aggressive strategy comes as a result of the reduction in
prices of real estate due to the lockdown and many small businesses vacating complexes. The
Croma chief marketing officer said “Also, it is now possible to get good locations due to the
shutdown of several stores at good prices” he added. The chain plans on adding 193 new stores
with 16 more to start and 75 more for the financial year 22.

Croma faced high demand during the lockdowns as everyone was home and the demand for
home appliances, phones and tablets soared.

Croma started to go online by also offering a 3 hour delivery concept on their behalf. Customers
could order goods from the comfort of their homes from the croma website and they would get it
delivered within 3 hours to which the customers have responded well.

Closing of stores: Due to lockdowns croma had to close down a large chunk of their stores
because many customers were restricted from visiting, croma had no other options and they had
to do this in order to save costs.
 Demand

Costco Wholesale:

The demand for Costco was relatively high during the initial stages of the pandemic because
when there were lockdowns imposed on people, everyone rushed to their warehouses to stock up
supplies for themselves. This eventually drove sales and profits high for the company which
became an advantage for them. Their grocery and fresh food categories were booming. Their
online sales jumped about 86%, meanwhile the revenue in their memberships which is most of
their business rose upto 7%. With this came high costs into play, they spent almost $281 in covid
expenses.

Croma:

The demand for Croma was high during the lockdown when everyone had to stay home and they
had to buy electronics and home appliances to survive at home. This resulted in a significant
uprise in the sales for croma in their online stores although they had to close down a lot of their
stores because customers couldn’t visit due to lockdowns

The above diagram shows the outward shift when there was an increase in the demand for
groceries and electronic appliances
 Supply

Costco Wholesale
They have been facing supply issues since the start of the pandemic. CFO Richard Galanti stated
that the company is seeing higher increases in demand for some products including exercise
equipment, certain major appliances, housewares and small electric items. The company has
been working on tackling this issue, if they do they will be able to manage to make more sales
than they are right now.

Croma

During the initial stages of the pandemic there were major problems to be tackled in terms of
supply, there was a sudden spike in demand for home appliances and electronics. Every
household wanted to have their orders delivered as soon as possible, due to heavy covid
restrictions imposed by other countries. Logistics was a huge challenge to overcome. In the
present day many businesses have been in the recovery mode and the procurement of goods has
been easier than before.

The inward shift in the graph shows the decrease in the supply of goods.
 Conclusion and Summary

The COVID-19 pandemic has affected companies in every industry and some are still recovering
from their losses. There has been an increase in demand for both electronics and groceries. Both
companies have enjoyed great sales during the lockdowns, due to the problems in the supply
chain companies couldn't fulfill the demands of the customers. There were also problems of extra
costs and overheads such as regularly sanitising their stores and warehouses, providing extra
salaries for those affected by covid. Companies have faced trade-offs and both of them have been
trying to cope up and recover from them.
 References and Links

https://www.businessinsider.in/retail/news/7-ways-the-coronavirus-has-changed-costco/slidelist/
76733892.cms
https://www.forbes.com/sites/andriacheng/2020/03/05/this-is-what-coronavirus-fears-have-done-
to-costcos-business/?sh=a9ee79158d9a
https://fortune.com/2020/09/25/costco-covid-cost-business-expenses-coronavirus/
https://www.thehindu.com/business/retailers-face-large-scale-closures-amid-covid-19-alert/articl
e31111364.ece
https://www.livemint.com/companies/news/croma-plans-to-add-100-stores-by-end-of-next-finan
cial-year-11608635176847.html
https://www.timesnownews.com/business-economy/industry/article/reliance-retail-tata-croma-ot
hers-to-go-ahead-with-mega-expansion-plans-despite-raging-covid/746871
https://timesofindia.indiatimes.com/business/india-business/shop-safely-this-summer-with-croma
s-cool-life/articleshow/81969952.cms
https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/costco-exp
ects-supply-chain-constraints-to-continue-into-early-2021-8211-cfo-61665158