Costco Wholesale Corporation operates an international chain of membership warehouses, mainly under the “Costco Wholesale” name, that carry quality, brand name merchandise at substantially lower prices than the merchandise typically found at conventional wholesale or retail sources. The warehouses are designed to help small-to-medium-sized businesses reduce costs in purchasing for resale and for everyday business use. Individual consumers may also purchase for their personal needs.
Costco’s business model depends on high sales volume coupled with quick inventory turnover. Costco operates as a membership warehouse that is based on the concept of offering members the lowest prices on a limited selection of national brands and select private-label products that cover a broad and wide range of categories. This business model is very appealing and appropriate for this type of chain and has many benefits. For one, quicker inventory turnover combined with efficient inventory management systems reduce Costco cost of selling goods. Quick inventory turnover combined with high sales volume allows Costco to sell and receive cash for goods before it has to pay for any of its merchandise, this allows Costco to finance a large percentage of its inventory through the payment terms provided by its vendors rather than having to maintain a sizeable working capital to pay for its merchandise . These saving in its operation enable Costco to pass these saving on to the consumer in the form of low prices. Another reason it’s appealing is because Costco targets high end products thus bringing in high-end consumers into its stores.
Demographics and its product selection could be damaging for Costco. Costco’s main product selection choice is made up of large volume single size packaging such as canned goods, soft drinks are only sold in these large container quantities. This combined with its main demographic of individual members who are more affluent customers in the discount retailing sector could be a potential problem. Competitors like Sam’s Club and BJ’s Wholesale offer goods or various degrees and varying sizes of products allows for more customers to want to shop at their stores to buy goods cause not everyone wants to buy a luxury item or a bulk sizes. The solution might be to offer more products at smaller quantities. This will allow more buyers in who previously might not have shopped a Costco because they are divorced or have a smaller family or just single.
Another are Costco could improve on is its direct buying relationships. As mentioned earlier Costco could ensure a stocking of certain items on their shelves so they can avoid stock outs and lose sales. To help its profit margin and reduce dependence on other manufacturers it could increase its brand Kirkland private brand products beyond to current 600 products. A final suggestion is that Costco could consider additional international expansion. They could place more warehouses in Canada. This is where they have been well received. It is the second largest revenue stream behind that of the United States.
Costco’s internal environment can be analyzed to establish the core competencies to exploit market opportunities and avoid possible threats. Costco must combine this with the external environment factors to secure a successful long-term strategy. By analyzing their capabilities, using above methods Costco can determine their strengths. Many sight changes on external could have huge blow to Costco. For example, Suppliers can change the cost of inputs, such as when a strong union sets a high wage for a particular craft. If Costco allows the organic produce famers more power, then the farmers could force terms on Costco. This dependence increases if Costco does not have many other sources to supply the produce.
Simple SWOT analysis may explain internal and external scan situation. Here are few point observed from Costco’s SWOT analysis. They seem to have great reputation in local neighborhood;
customers tend to return to store,
no big direct competition,
lots of choice and great locations,
Weaknesses would include:
a lack of strong management team,
handling perishable items
The opportunities to develop a unique position in organic catering and to grow the business are examples of the opportunities available for Costco. Threats include some of the following:
state of the economy
dealing with perishable items
weather including natural disasters
Costco’s External environment strategies are based on firm’s ability to foresee future business environment and trends based on industries, economy, and political factors. External environment analyze is key for any company to execute its strategies to meet its performance and profitability. “Despite the uncertainty and dynamic nature of the business environment, an assessment process that narrows, even if it does not precisely define, future expectations is of substantial value to strategic managers” (Pearce II & Robinson , Jr, 2009).
In today’s society a business needs to be unique and offer a one of a kind value to keep its customers coming in and purchasing its products. An industry such as retail can experience at times high growth what sets Costco apart from its competitors to gain an competitive advantage is its three components of the company’s strategy that were mentioned earlier, low pricing, limited selection and treasure-hunt merchandising. Is this enough to ensure that future prospects will purchase items at your store? Costco’s main competitors are Sam’s Club and BJ’s Wholesale and both are similar to Costco’s way of doing business. Costco is exceeding both Sam’s Club and BJ’s in terms of net sales and market share. Nevertheless, Sam’s Club has recognized its market share and is aggressively launching new initiatives to grow its sales and market share.
One way they plan to increase its market share is by emphasizing new products for the home instead of products for small businesses. They also are using national TV ads to make consumer more aware of their stores. They also are attracting a new group of prospective buyers by setting up a collegiate membership. BJ differentiates its self from both Costco and Sam’s Club by offer a wide range of items in fact 7,300. Another way they differ from the competition is they offer aisle markets and express lanes, and low cost video-based sales aids to help make the shopping experience better.
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