Costco Swot Analysis Essay

The strategic objective of Costco is based on the concept of offering members very low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories while producing high sales volumes and rapid inventory turnover. This rapid inventory turnover, when combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self service warehouse facilities, enables Costco to operate profitably at significantly lower gross margins than traditional wholesalers, discount retailers and supermarkets. (1)

Costco’s business model is focused on producing high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of national name brands and select private-label products in a wide range variety. Costco is focused in low-cost strategy is concentrated on a narrow buy segment and out competing rivals by having lower costs, therefore being able serve a niche consumers at a lower price. (Gamble, John and Thompson, Arthur (2009)

While there may be low bargaining power of suppliers, the bargaining power of consumers is extremely high. The rise of the Internet has led to an unprecedented transparency of prices within retail. It is now significantly easier to find the different prices offered at the various discount stores in the U.S. Thus in order to keep customers from the other 23,000 discount retailers in the united states, Dollar General must appease their customers at all costs in order to remain successful.

Costco is a club card organization. Everyone wants to join. Joining Costco gives people access to great things that they must offer. Costco offers high wages, benefits and opportunities for growth. They offer the best wages around. They reward they employees not only with incentives but with bonuses. Employees can grow with the company because they promote within. Costco has some of the best top suppliers, PepsiCo, and Kraft Heinz. Having some of the best suppliers gives the company to bargain with their prices. A new competitor would find it hard to match Costco products and prices. Five Forces that outline Costco are rivalry among competitors. Rivalry among the company is high. Costco and Walmart are the top two in retail. Their or others, Best Buy and Target which are well known for holding their power. Retailers are competing against each other with whom can give lower prices to customers. The treat of substitute products and service is another force. This force is important because it is a technique to take customers away. They try to take customers away from other retailers by carrying items in one size with the best brands at a low price. Potential new competitors is down because competing with Costco and Walmart is hard. Power of supply. Costco does not spend that much on supplies because they buy in bulk keeping the

“When I started, Sears, Roebuck was the Costco of the country, but they allowed someone else to come in under them,” he said. “We don’t want to be one of the casualties. We don’t want to turn around and say, ‘We got so fancy we’ve raised our prices,’ and all of a sudden a new competitor comes in and beats our prices,” he says.[10] Costco’s dedication to low prices has yielded impressive financial results. During December, Costco Wholesale Corporation reported a 9 percent sales increase as opposed to the projected 5 percent; an extraordinary 14 percent improvement compared to the same period last year.[11]

The business model of Costco’s is simply to generate high sales volumes and rapid inventory turnover by offering its members low prices on a limited selection of nationally branded and selected private-labeled products in a wide range of merchandise categories. The company’s business model is appealing in today’s market because of the economic downturn we are experiencing. Everyday American’s are looking to make their dollar stretch and Costco’s provide them with a great way to buy in bulk and stretch the consumer dollar to the max!

Analyzing the supply chain operations at Costco wholesales, in line with the business focus while limiting to it’s

Costco Wholesale is the second largest retailer in the U.S behind Walmart. Costco is kown for its pricy $55 a-year membership fee, but this doesn’t stop consumers from coming to its massive warehouse of consumer goods. “Costco’s sales have grown 39 percent and its stock price has doubled since 2009” (Stone, 2013, p.1). That is a clear fact that Costco is doing well. This is during a period where other retailers struggled significantly.

Next, the threat of new entrants which I believe is weak. Since Costco is a large warehouse store they have aggressive pricing that is difficult for smaller retailers to duplicate. Costco has their private Kirkland brand that makes entering this market more difficult and hard to duplicate unless new entrants have sufficient capital that is needed. As well marketing and advertising is very costly to gain new customers and keep current customers. Another factor making the threat of entry weak is the unappealing market growth in the industry which is small and as well as the

Costco is a billion dollar warehouse club, and a global retailer working in eight countries. Through hard work and great business ethics, Costco is in the top three companies in Washington announced by the Washington CEO Magazine. In 1976, the company opened under Price Club serving only small business owners. Price Club was the first membership warehouse in the world. Jim Sinegal, was the vice president of merchandising, distribution, and marketing in Price Club who helped Price Club being into a successful retailer in worldwide and other retail chains. In addition, in 1983, Costco’s warehouse was created in Seattle with Jeff Brotman who was an executive of an oil company. However, 1993 was a significant time period when Costco and Price Club joined and combined their company into one as PriceCostco with 206 locations of the company and $16 billion in sales.In 1999, the company changed its name from PriceCostco to Costco Wholesale Corporation. Costco’s strategies of low pricing and availability of different products for consumers has made Costco one of the top 25 best companies in United States with weakness that needs to be turned in opportunities for success in the future as well.

Costco’s business model is focused on producing high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of national name brands and select private-label products in a wide range variety. Costco is focused in low-cost strategy is concentrated on a narrow buy segment and out competing rivals by having lower costs, therefore being able serve a niche consumers at a lower price. (Gamble, John and Thompson, Arthur (2009).

The first of Porter’s Five Forces that impact Costco is the threat of new entrants. The threat of new entrants into the wholesale and membership retail space is low. There are several reasons why the threat of entrants into the market is low. The leading reason why the threat of entry is low is because an emerging company will struggle to have the volume necessary to compete with Costco. Costco is the sixth largest retailer in the U.S. As a major retailer, Costco has the highest discounts on a majority of its

Potential new entrants into the market are a low threat for Costco. We have the advantage of economies of scale and having learned by doing. Our economies of scale come from better management coordination of processes, long term relationships with our suppliers, and enhanced employee performance with low turnover (Pearce et al., p. 100). The cost for a new entrant would be significant given the capital investment required to start up a warehouse business. Any

Many of Costco’s strengths are held with their low prices, limited selection, and their employees. Costco prefers to hire from within and focused on career longevity and development for their employees. It was company policy to fill at least 86 percent of its higher-level openings buy promotions from within; in actuality, the percentage ran close to 98 percent, which meant that the majority of Costco’s management team members were home grown (Gamble & Thompson Jr., 2009, p. 226). Even with their many strengths, Costco still had some weaknesses. Their warehouses appeared to be very industrial, with concrete floors and merchandise displayed on wooden pallets. Costco also relied heavily on word-of-mouth advertisement, which saved the

Customer’s bargaining power: The bargaining power of customers is medium. There a huge number of customers, not well organized to defend their interests. Additionally, the