Category: Costco

Costco Wholesale Corporation: Analytical Essay on Mission, Business Model, and Strategy

What is Costco’s business model? Is the company’s business model appealing? Why or why not?

Businesses uses a Business Model to demonstrate the specific methods and approaches that are employed to realize revenue as per the business plan (Teece, 2010). Costco, like any other business has its model, which helps it achieve commendable success. The company’s model focuses on generating a high volume of sales and prompt inventory turnover (Gamble et al., 2014). Costco business achieves this by giving much lower prices on the selection of privately labelled and nationally branded products in a scope of stock categories. These products are offered to both gold star and two types’ members.

Costco’s business model is appealing since it provides a standard measure for testing its management to keep inventing new approaches and techniques that allow them catch new members while retaining the old ones. The two-way approach also minimizes the risk of losing discontented members, who may fail to renew their subscription. Thus the business model focuses the company towards quality management.

What are the chief elements of Costco’s strategy? How good is the strategy?

Strategy can be defined as a company’s pre-selected approach for attaining the set objectives while attentively focusing on the future and current outside conditions. Costco Company’s strategy has the following chief elements; Low prices, has less product selection and lines and treasures hunt shopping atmosphere. First, Costco follows cost-leadership, which is excellent since the company can favorably compete with its competitors by maintaining low prices.

Second, limited product lines and selection allows the company to offer 4000 items, while its competitors offer unlimited products. The strategy allows Costco capture new markets for its existing products. Third, the treasure hunt shopping setting provides lesser prices for the products to the members believed to be absent in the subsequent visit. The strategy seduces the maximally utilize the opportunity, which leads the company to make volume sales. Finally, the company does not sell all sizes of products as this could decrease their efficacy.

Do you think Jim Sinegal was an effective CEO? What grades would you give him in leading the process of crafting and executing Costco’s strategy? What support can you offer for these grades? How well is Craig Jelinek performing as Sinegal’s successor? Refer to Figure 2.1 in Chapter 2 in developing your answers.

Jim Sinegal was an effective CEO. In his attempt to craft and execute Costco’s strategy, Sinegal led the company from its simple single store to world’s fourth largest retailer company. He established a tactical vision of delivering to Costco’s members’ high quality products and services at lower prices. Sinegal aimed at quick inventory turnover since he believed that such a turnover would enable Costco to make profits at low gross margins compared to its competitors.

Additionally, Sinegal crafted various strategies, which included lowering the prices, limiting the product selection, ensuring a hunt shopping setting. By implementing the strategies, he focused on large purchases, effective distribution, and minimized stock handling at the warehouses. Consequently, Costco’s products sail through low prices and attract more members. Finally, his crafted strategy of maintaining a hunt shopping atmosphere could allow mailing the members of the company, while at the same time targeting new unseen members, which would be projected into volume sales. Therefore, based on the above facts, Sinegal was an effective CEO for the company and I would rate him a good manager.

On the other hand, his successor Craig Jelinek if following the foot prints of Sinegal. The strategies developed by the former CEO of Costco are much esteemed and followed, no wonder the company progressively succeeds in its operations. Today, Costco still holds a top position in the world’s retail businesses ranking.

What core values or business principles did Jim Sinegal stress at Costco?

Jim Sinegal had a deep meaning for Costco values and lived by them. Today, his grooming mostly includes apparels sold at the company, for instance his socks and shirts. In everything he does, Sinegal takes pride in it and doesn’t hesitate to crown Costco at any point. His heartfelt commitment has immensely contributed to the success achieved by this company. Sinegal has credibly impacted Costco’s business ethics, for instance, he insists that the company must know its customers and understand why they choose to engage in business. He is also convicted each team player must remain focused on business. According to Small Bizz Bee, 2009, Sinegal states that for a business model to succeed, it should not be “be too much to too many”.

Additionally, Jim Sinegal holds unto values that have tremendously influenced Costco Company. Obviously, his values have not impacted the organization without first reaching his employees and influencing them positively. Thus, Sinegal has been a source of motivation to the employees, one of the things that has kept Costco scaling up. Additionally, he not only shaped the employees for his company but also made them efficient for hire by other companies. However, the Costco’s stockholders feel jealous and see it’s a threat since they often think that Sinegal usually treat his employees too good.

Through paying the workers relatively high wages compared to the other companies, the stockholders often think of lack of transparency concerning the profits realized. Additionally, the stockholders believe that the huge amounts of money used to pay employees devalue their stock. The issue has created conflicts severally and criticisms by the stockholders, but all the same, Sinegal remained adamant of the complaints and promises to treat his employees nice.

Based on the data in case Exhibits 1 and 4, is Costco’s financial performance superior to that at Sam’s Club and BJ’s wholesale?

BJ’s wholesale and Sam’s club are efficient stores but Costco Company rides the competition, considering the number of warehouses in its member countries. Costco’s wholesale financial performance can be assessed using the analysis of financial ratio. The financial ratio analysis strategy allows an opportunity to calculate and compare ratios obtained from a company’s financial statements. According to the data provided on current financial statements, Costco’s has a wholesale ratio of 1.07 which indicate its ability to meet t current liabilities. The profitability ratios indicate sales returns, and according to the data, it stands at 1.8% showing a low sales profit margin. The low profit margin explains its strategies for offering commodities at low prices.

Additionally, the Return on Assets is 6% signaling that Costco utilizes its assets in wise manner. Significantly, the Asset turnover ratio stands at 3% indicating company’s efficiency in assets utilization. All these financial ratios explain the financial position of Costco, which is generally good. The company has more than half, 53% share of wholesale club sales throughout Canada and the USA while its competitors Sam’s has about 37% while BJ’s wholesale has about 10% shares (Gamble et al., 2014). Even though Costco’s profit margin is low compared to Sam’s Club and BJ’s wholesale, its sales volume is higher than that of the competitors and also has a strong membership base. Therefore, Costco is performing better than its competitors.

Does the data in case Exhibit 2 indicate that Costco’s expansion outside the U.S. is financially successful? Why or why not?

Costco has spread out of USA, which has amounted to much success. According to the data in case exhibit 2, Costco’s expansion is financially successful, since there has been a steady growth over years. The total sales and warehouse operation income of the branches outside the USA have amounted to the steady growth. Additionally, there has been significant and constant share warehouses operation income of warehouses outside the USA. Finally, the ratio of revenue to number of warehouses is significantly increasing over time.

How well is Costco performing from a strategic perspective? Does Costco enjoy a competitive advantage over Sam’s Club? Over BJ’s Wholesale? If so, what is the nature of its competitive advantage? Does Costco have a winning strategy? Why or why not?

The company has been successful and effective in the wholesale industry as seen from business strategies. Primarily, Costco’s members enjoy a limited choice of nationally branded products while selecting privately labeled products from a wide scope of stock categories. The company combines its steady inventory turnover with other warehouse operating efficiencies to conduct business operations at a profit and with lower gross profit margins (Gamble et al., 2014). Consequently, Costco uses the sales volume advantages and quick inventory turnover, hence enjoying early payment discount from stock suppliers. The increased volume of sales and quick inventory turnover allows the company to create enough cash.

For instance, Costco has progressively slowed its cardholder’s growth rate towards end of the year and opening of warehouses in the recent years. The company has a significant competitive advantage over its competitors, BJ’s Wholesale and Sam’s Club in a few stores owned. Currently, the winning and reliable strategy for this company is declining, as seen from the examples mentioned above. Even though Costco has 59% market share, and its strategy well suited for the company’s condition, the declining strategy in growth indicates a loss in competitive power in the industry.

Analytical Essay on Costco: Event Identification, Risk Assessment and Risk Response

Risk 1: Increase in production cost

Costco has a supplier diversification strategy for its supply chain management area of operations management. However, the company’s supply chain management is focused on quality and low prices which is in line with the Company’s mission. If the production cost increases, Costco may have to supply items at a lower quantity to be able to sell the products at a given price.

Risk Event: Trade War

The Trade War has affected many states in the US mainly because it has become more expensive to import goods from China which results in some economic factors such as increase unemployment and interest rate in the US and decrease in consumer confidence index.

The Trade War is expected to affect Costco’s production cost significantly since Costco imports manufactured goods from China. Based on Costco’s analysis, if the 25% tariffs go into effect this year on two segments, travel goods and furniture, consumers would have to pay $6 billion more nationwide. Moreover, the plan to levy tariff of 300 billion worth of goods like footwear, apparel and electronics can cause Costco higher production cost since that’s mostly where the majority of consumer spending is.

Although Costco’s main source of revenue is its membership, the members will then buy Costco’s goods in bulk at the best price. This will in turn affect Costco’s production cost as they will rely on their suppliers.

However, Costco still sees strength in patio furniture even with certain tariff price increases. Trade war could also result in an increase of Producer Price Index [PPI].

Key Risk Indicators: Producer Price Index [PPI] and Consumer Price Index [CPI]

The Producer Price Index measures the average changes in prices received by domestic producers for their output. Its importance is being undermined by the steady decline in manufactured goods as a share of spending.

In this case, the Producer Price Index triggers the Consumer Price Index to go up. This causes product prices to increase, demand to decrease which in turn decline the profit. s.

If selling price is not increased, demand will be the same, profit margin decrease s.

Risk Response:

Before deciding if Costco should continue to import goods made from China, Costco can use the key risk indicators that would determine if rise in production costs would affect its profit margin.

If production cost continues to increase to the extent that it affects Costco’s budget, if any; since Costco focuses on lower cost but high quality, Costco can choose to import similar manufactured goods of different brands from diverse range of countries that have lower or no tariffs or the ones that are cost-efficient for the company.

Risk 2: Decreased profit due to exchange rate loss

Risk Event: Strengthening of US Dollar

As a multinational corporation, the strength of the USD, domestic currency of Costco, could adverse the profitability of the company.

Although Costco is a major wholesaler, the strength of the USD may not affect the cost of their product as more than a third of their product sales come from their private label, Kirkland Signatures as well as most of the others being major US retail brands. Their private labels may be sourced from places outside of the US, but Costco could leverage on the volume of import to negotiate lower prices as well as choosing to import from markets with weaker currencies.

Despite Costco being able to circumvent high product costs, as it is a variable cost, Costco is not able to control their profit loss due to exchange rates easily, as it is a fixed income from their overseas operations. With Canada alone attributing to 35% of operating income and having more than 30% of its store overseas as well as their plan for rapid expansion in their international operations to achieve a 50/50 split of domestic and international sales, Costco has to make sure they can predict future market volatility to be well prepared to overcome profit loss.

As the 2019-nCOV hit the Asia-Pacific Market which makes up 8.54% and Brexit which will affect the UK Market which makes up 3.7%, these currencies could weaken against the US dollar. With the stronger than expected US economy in 2019 and optimistic economic growth in the US which is in addition to the phase one US trade deal and the Fed appearing to be likely to stay hold, the USD could further appreciate against all the other currencies.

Key Risk Indicator: Simple Cross-Section Regression Crisis Index

The main key risk indicator Costco can use to analyse future market volatility is using the Simple Cross-Section Regression Analysis.

The indicator is most constructive to serve as an early indicator for a currency crisis when the timing of the currency crisis is largely unpredictable. During a predictable currency fluctuation such as the US-China trade war, it is most straight-forward for companies to predict future currency trends, however, what is unfavourable is when the company is being caught off guard. Therefore, this indicator would serve an effective purpose.

As Costco serves mainly in the US-Canada-Mexico and the East Asian & Pacific Market. An examination of cross-section data of markets which includes US, Canada, Mexico, China, EU, Japan – key economies of the US-Canada-Mexico market and Indonesia, South Korea, Taiwan, Vietnam, Hong Kong, India, Thailand, Singapore and Malaysia – key economies in the East Asian & Pacfic Market could indicate the future volatility of the market’s that Costco operates in.

Comparing the past 5 years of data to the preceding 5 years of the weighted average of these 3 factors:

Growth in credit in credit to the private sector

Percentage of real appreciation in exchange rate of the past five years compared to the preceding 5 years

Level of international reserves relative to the M2

This shows the overvaluation of real exchange rate, weak banking system and low reserves, which is the perfect formula for a disaster.

With at least 21% variance of the data of both sets, it could indicate a currency crisis of the currencies that will affect Costco’s profitability. (Sachs et al., 1996)

Risk Response:

Upon maturity or expiration of previous hedging tools, Costco should use their Key Risk Indicators to estimate the future exchange rate fluctuation as well as the current position of exchange rates. Early in 2015, as the company rose it’s membership fees by 2.2% amid a 1% fall in sales, Costco’s share price has dipped by nearly 12%. Costco has attributed its performance decline to it’s the weakened profits from overseas operations amid the rising dollar. Therefore, for possible future foreign exchange translation losses, Costco should devise a more comprehensive hedging strategy by using tools such as forwards and options. A forward could be used when the US market is doing well and the USD is strong against other currencies, or when other markets, especially Canada, Europe and the expanding Asian market are weak. However, if the US market is currently gloomy, or when there is sign of a currency crisis, as indicated by the KRI, Costco can use options as a hedging tool against a declining USD or/and a potentially appreciating USD as well as in times of uncertainty.

• https://www.seattletimes.com/business/retail/costco-blames-disappointing-earnings-on-strong-dollar-other-one-time-issues/
• https://www.businessinsider.com/costco-has-a-massive-overseas-expansion-plan-2015-7?IR=T
• https://www.quora.com/Is-Costcos-Kirkland-Signature-brand-really-just-repackaged-brand-name-products
• https://www.wsj.com/articles/how-kirkland-signature-became-one-of-costcos-biggest-success-stories-1505041202

Risk 3: Decline in Costco’s members

Risk Event: Recession

Membership loyalty and growth are essential to Costco’s business. The extent to which they achieve growth in their membership base and sustain high renewal rates significantly impacts their profitability.

A recession arises when there is a marked decrease in consumer and business spending and this includes less demand for Costco’s membership and goods, leading to a drop in membership renewals and gross margin. Costco’s income from membership comprised 17% of their overall revenue in 2019.

When a recession occurs, general economic factors such as levels of unemployment, GDP growth, and reduced consumer confidence would have an adverse impact on the demand for their goods and services. Consumers and businesses alike could lose their membership in order to cut cost, going for other cheap alternatives such as Amazon where memberships are not required.

Due to Costco’s business model, which requires customers to pay for a membership card to shop at their warehouses, a decline in membership would similarly result in a decline in their sales revenue.

With the possibility of an oncoming recession, Costco’s could lose their increasing trend of memberships, and see a decline in their overall sales as well.

Key risk indicator:

The main key risk indicator the company should observe is the USA treasury yield curves. The company should be aware of when the Us yield curves become inverted as they are a closely monitored indicator for an oncoming recession. When the yield curves are inverted, it means that shorter-dated yields have become higher than longer-dated ones, implying a weaker growth in the future. It is a classic signal of a looming recession and has accurately predicted past recessions.

Risk response:

Before the onset of a recession, Costco should use Key risk indicators to estimate its arrival to restructure and cut costs before its impact. Early in the 2008 financial crisis, Costco had a forward-looking strategy of cutting costs in various areas. Costco had shifted from hard goods to more consumer staples and non-perishable goods to reduce inventory costs, limited the number of variations of goods in each category, especially branded products, in order to get bigger wholesale discounts, reducing its average Storage-keeping unit to 3,700. (A storage-keeping unit is a distinct type of item for sale)

For possible future recessions, the company should continue to effectively cut costs and be forward-looking in cutting costs through the investment in newer technologies such as digitizing its in-store experience. One effective way the company can reduce cost is to adopt Kroger’s digital price tags which digitally displays pricing and nutritional information, allowing the store to instantly and remotely update it. This tech runs on renewable energy, allowing Costco to effectively cut energy costs while improving customer in-store experience. Additionally, its environmentally-friendly nature could prove an added benefit to attract more customers.

Analytical Essay on Organizational Structure of Costco

Costco was established in 15 1983, Seattle Washington United states by James Sinegal and Jeffery H. Brotman. Costco is mainly vender company it comes into second position subsequently the Walmart. It is mainly co-operational with American intercontinental warehouse clubs. Unfluctuating, popular decline period, Value Bat and Costco Across-the-board retained on developing and develop, and in 1993, the two super retailers consolidated, making a skilled administration group that earlier long made Costco the world’s best stockroom club. The current CEO of Costco is W. Craig Jelinek. In present, Costco has 756 storerooms over the world. In the United States and Puerto Rico 540, 105 in Canada, 28 in Mexico, 28 in the United Kingdom, 24 in Japan, 13 in South Korea, 15 in Taiwan, 14 in Australia, two in Spain, one in Iceland, one in France, and one in China. Moreover, Costco has a 243400 workforce as part time and complete time world widely .

. (Canadian Grocer, 2020) They sale the products popular huge quantities on a smaller amount as compared to other stores. The foremost backbone of the Costco company lead by CEO and CO- founder is James singel’s. he is primarily believing in using the Commercial strategies besides processes management. After the long decade, Cost co maintains good financial position of sale the products on low prices. The main motive of the Cost co to compete the other stores. Because of recession time, he did not lay off their employees. Even he earned good profit and kept reduce price level of products, so the customer can attract towards. Costco provides good hours to their employees and health package. So, the workers can happy and loyal linked to their work. Employees are supplementary emotionally attached to CEO and the obligation of employees growth the administration’s profitability. Sinegal supposes pricing the belongings higher might lead to customers losing the trust on Costco. Hence, he never allows the items in the storeroom to be wholesaled more than 14-15% from the cost. He might take increase the price a little higher to improve profits. Costco should develop an improved advertisement strategy so that people would know about the discounts and other advantages given to customers. (Dagher, 2010) Every organization have organization structure. Organization structure refers to determine the structure of the group of association. The main perspective of the Organization to share the structure and follow the all Strategies. An organization chart is a diagram showing how employees and tasks are grouped and how the lines of authority and statement move in an organization. These graphs can look moderately different liable on uncommon factors. For example, is it a Mechanistic or an Organic type of organization; the nature and size of the business, the way it is departmentalized, pattern of delegation etc. there are dissimilar kinds of place to engage the workforces. All hire abilities depend on performance, assistance, and familiarity. Cost Co’s mainly following both communication structure Horizontal and vertical. They plays some specified tasks through Hierarchy.

Board of director: (cain, 2019), In Costco W. Craig Jelinek he is new president and board of director in 2020.Board of executive shows crucial indispensable and unbelievable character in this group. It focuses on taking the decision, to fulfill some responsibility and plans. The main motive of the CEO and manager of the company to give the vision, direction, mission statement and overall strategy. In Costco W. Craig Jelinek he is new chief, CEO, and board of director.

Chief financial officer: The main work of economics member of staff to analyze the fiscal position of the business. Annual report of the year, cash flow such that what comes in and what comes out. On that basis process will be start and done. He is responsible to maintain the accounting section.

Chief information: (varun, 2020) The main objective of the Costco’ s CEO to evaluating the valuable resources related to technology. It also helps to increase the customer service and to get the profit in the business. It also examines the Performance and turn over ratio of the industry.

Merchandising: It is also known as Supply chain of the Costco’s Organization. They maintain the all record of all products from Raw material to finished goods. For example, Kirkland. It also managing the Critical path, marketing production and handle supply control.

Chief operating officers and Distributors: The main goal of Costco’s organization design the business strategy. All operations should be implemented on time. Follows all policies. Distributing the stock on time. They do not follow any window dressing. The second command of the business is efficiency. It defines the relationship between Coordination and co-operates. They have communication between departments and coordination. Distributors refers to provide the stock to the retailers or final sales. It promotes the distribution of goods on time. They already connecting with manufacturers and customers. They also fulfill the needs and customer satisfaction.

Administration operations and Risk management: It refers to maintaining working on Environment, also handling communication, organizing, and attending the whole meetings of the Costco’s organization. There are variety of work including book-keeping, data entry and putting every data through systematic order. Risk management also a part of threats, consumer severity reputation and workers compensation. Costco have good technological workers who have deals to control the crime.

Human resources and reginal vice president: HR are a functional structure of the Organization. The main objective is HR to maintain the payroll, Planning and executive the work. He is a specialist for recruiting, selecting and interviewing with workers. The main Objective of Costco’s Manager to give the opportunities and hiring the people. Reginal vice president plays important role in Costco’s warehouse. He performed good attained work to maintain good communication with customers and sell quality of good stock. He is also known as a supervision of the company. Main motive of vice president to link between sales managers and sales teams to increasing the profit.

Manager and supervision: He are responsible for productivity and actions of taking by the organization. There is mainly accomplishment of several tasks like roles, authority and team-leading. The focus of Supervision to complete the work instead of performing directly. There are different types of position available for supervisors such as Counsellors, directors, and educators. The main thing is that he is always giving training to another person doing awesome work.

Warehouse floor work: the associates in the warehouse Costco wholesales take the process of receiving and loading of the products seriously, they stack their material into the store systematically as they do not want to face any type of problem in their process during shipment of the goods. One more noticeable thing at their warehouse is that, they store the material into a well-organized and neat way. It is the policy of the warehouse of Costco, they receive and ship the material onto the blue palates as it ensures more durance and provides more strength to hold the material. The employees store the products on floors as well as on the shelves to cover each corner of their space. In this way the warehouse floor works in Costco.

Ancillary department workers: in Costco, the organization take the health of their workers in their topmost priority. The primary work of the ancillary department is to provide health care to all the people working in the organization. The basic duties of the department are to assist with ambulance services and a disease-free environment, overall, all the things which come under health and relates to humankind.

• Goal: The main goal of Costco’s to provide good quality of inventory on a low price. They are mainly taking care of customer services.
• Mission: The main aim of Costco’s continuously invented stock and pay attention on our member . It is mainly set up for achieving the goals.
• Vision: It uses for analyzing the case study and maintain the good strategic objective of the business.

Conclusion

In the nutshell, Costco is an inventory store warehouse. They provide excellent good services to their clients. They are using horizontal and vertical vision to making connections with their employees. It is coming on the second position retailer store in Canada.

Costco Supplier Relationship

Introduction to Costco’s Business Model and Vision

Costco was established by American Businessman Jim Sinegal in 1983 in Seattle Washington, with a vision and mission “to continually provide members with quality goods and services at the lowest possible price point possible.” Their businesses key to success involved establishing a direct buying relationship with their suppliers which encourages and enables effective supply chain management, and allows them to buy high quantities of items at an incredibly discounted price. The hard work put in by its owners to establish numerous strong relationships with multiple suppliers allowed Costco to control all aspects of their supply chain from order placement to the acquisition of goods within their warehouses all put in one place in front of a large variety of customers to ensure they can afford to continually support Costco’s company vision.

Costco’s Competitive Edge and Membership Structure

Costco is officially the largest warehouse club in the world based on their volume of sales. Their business structure offers customers three levels of memberships and provides members access to a wide variety of products throughout store locations spread across 761 locations worldwide with their headquarters based in The United States, Washington. Because of their wide variety of products sold Costco also has to compete with a wide variety of brands. But their main competitors would be stores like Amazon and Walmart whomst also sell a wide variety of products at as cheap a price as possible. Their founder Jim Sinegal once defined his companies’ visions as “giving the best to the customer at the best value possible”. And this is Costco’s main driving force to customers offering large wholesale portions of all their products at a low price for the amount of product received. Because of this driving force it is vital that Costco manage the costs of their supply chain perfectly to ensure they can sell their products as cheap as possible to compete with their thousands of competitors. Costco also ensures its members remain satisfied with some of the most lenient return policies found in wholesale stores (an average of 90 days) and by offering cheap fast food options in store to increase customers perceived value for the money. Their business model emphases their low prices and volume purchases in order to accomplish profit at a low margin with their stores offering seasonal discounts on rotating products, these discounts are referred to as “treasure hunts” as they are not available for purchase throughout the year.

Their mass volume purchasing from their suppliers allows them to save millions a year in shipping and marketing. Quality products from low prices in limited selection ordered based on forecasting tends to result in a quick turnover of their inventory. This business modal of mass volume purchasing with annual membership fees is designed to help small and medium sized businesses lessen their bulk purchasing costs as well as support large families with goods packaged in bulk ranging in from typical fresh food produce, the latest electronics, office supplies, car tires, and alcoholic beverages. They even go as far to sell services such as real estate, home insurance and travel services to those with higher tier memberships. Costco’s target customer base are generally found to be overwhelming affluent, being able to afford to buy in bulk, but their age range and background can vary drastically amongst customers, this is likely due to the fact the Costco has grown to be one of the world’s largest companies with more and more members flocking in every year. And despite this Costco continues to grow seeing an almost 7% increase in net worth over the past year alone.

Supply Chain Management: Costco’s Strategic Approach

The focus of this assignment is to analyse the supply chain operations of Costco. I will be relating them to the business focus whilst also assessing its strategy on its ability to maintain a competitive edge, after that I will be evaluating Costco’s supply chains sustainability and providing techniques Costco could employ to further improve their sustainability. Since Costco’s goods are transported directly to the store grounds upon arrival and Costco does not manage their inventory but it is instead managed by vendors, the price of inventory and labour costs of handling products are largely nullified.

Costco’s Inventory and Vendor Management Techniques

For example in their fresh produce and meat sections they focus on low-price and high volume strategies, and because all of their products are sold by second-party vendors Costco itself has very limited storage for perishable products. This inventory management strategy means that all vendors must Forecast their product orders, having to estimate based on previous sales and environmental factors how much product they should order to meet customer needs perfectly. Costco’s inventory management structure gives them a huge advantage over their competitors such as Walmart who have been known to struggle with the issues of perishables. Costco has incredibly well documented buying relationships with many internationally famous brands and are able to be supplied to directly from suppliers through their numerous shipping distribution points throughout the US and in other established countries. Their partnerships with big brands have also resulted in numerous multi company projects. For example in 1999 they created a partnership with American Express working together to create a custom credit card called Costco-AMEX with specific in store discounts for Costco, helping both brands acquire more customers with promises of huge discounts. Costco has also made great strides throughout their supply chain by maximising their transportation efficiency.

One strategy that they implemented was the redesign of their product packages to maximise the amount of packages that can fit into an individual truck. They also practice the cross-docking of products by delivering some directly to Costco’s selling stores whilst the remaining products are kept in distribution centres saving both time and money through their supply chain. They also relay information between trucks and delivery points with an intricate setup of buzzers to indicate when trucks arrive, where their products need to be unloaded and their drivers remaining. Costco’s warehouses are intentionally established remotely to lower property costs. Costco’s department of information technology embellishes itself with its advanced connection of all warehouses to their central headquarters in Washington. They do this by using their EFIM system which can provide real-time information updates and gives them easy access to control the inventory of all warehouses at once. Costco employs the use of a partial vertical integration with a cross-dock distribution system. By establishing more control over its inputs and outputs by sourcing directly from suppliers they have much greater control over the delivery time and variations of products they receive. This elimination of middle men results in decreased costs which are ultimately transferred to the customers.

Evaluating and Enhancing Costco’s Supply Chain Sustainability

The measurement of supply chain performance can be measured in numerous ways. Businesses tend to measure success through their level of profits or market share, but whilst individualized experiences such as customer service and satisfaction can be hard to measure they are still absolutely vital part of Costco’s success. Costco aims to reduce unnecessary costs plastic shopping bags, excessive shop floor staff and expansion into areas with less selling power. And with the money they’ve saved from these things Costco has been able to focus on improving their buying power to allow for greater output. Because their inventory is turned over quickly, Costco can afford to offer suppliers fast tracked payment, this fast tracked payment is generally rewarded, as early and continuous payments can be heavily discounted. Their main costs are related to storage distribution, shipment, transportation and the sourcing of products from multiple geographically distant suppliers. However experts have noted that efforts can be made to improve Costco’s supply chain management, specifically by implementing a better supply chain integration program that takes into account to notion of avoidable costs such as packaging and storage locations.

Costco could partner with more service providers and suppliers for better operations flow as well as well as studying their competitions practices and applying some of their techniques (specifically in their marketing campaigns), which would likely lead to more long term success. More travel business services could be implemented throughout Costco stores, like money orders and currency transfers to attract customers with a different set of needs and potentially expand further into the travel industry than they already have. Greater awareness to customers through marketing campaigns would also be efficient as currently email messages seem to be the only way Costco advertises promotions and new products. All of these suggestions would likely result in a more established and effective means to lure customers into stores and expand their business to new revenue streams. Growth opportunities involving businesses entering the Asian and European markets have not been exploited by Costco. From current operation methods their high staff salary, and low margins maintenance need to be looked into and altered if they are to continue thriving in the future.

Future Prospects and Challenges for Costco

With their CEO coming to the end of his working days and with competition growing at record rates it is vital Costco keeps an eye on rising political threats especially involving the new sustainability laws rolling out in years to come. To best deal with these issues, it is vital that Costco takes time to assess issues such as their lead time management, products handling, quality, inventory management and transportation. Whenever available, Costco should have sales promotions to enhance their desired image of maximum value from products sold in bulk, this may temporarily reduce Costco’s short term profit margins but if managed properly the publicity created for the company should more than make up for all of the marketing expenses. Expansion into overseas markets is still a relatively untapped forced for Costco and with the rigid store structure and financial backing Costco can provide it would be likely to result in a tremendous increase in profit. The innovation of more private brands for a wider range of products, and an increased focus on customer loyalty programs would all be worth implementing as well, especially put in place of a business plan that needs to be established before the retirement of the CEO.

To further demonstrate the importance of good supply chain management in defining business performance and holding onto Costco’s competitive advantage, undertakings such as maximised volume purchasing, their package handing, product distribution, supplier implementation and customer marketing communication have each contributed to highlighting Costco’s numerous capabilities and level of performance with each section of their operations resulting in the unique advantages and disadvantages Costco is required to deal with. A continual review of their supply chain practices will continually ensure that management at Costco can continue to compete with competitors with supply chain requirements like lean management and forecasting. Just in Time resources planning distribution, replenishment procedures, and their optimization of transportation have all played had major positive impacts, but should be subject to continued review to ensure Costco retains their industry wide competitive edge.

Critical Analysis of Costco Wholesale Corporation: Supply Chain Analytics

Introduction

The research report is prepared on the title ‘Supply chain analytics’. It is a network including organization, individuals, resources, activities, technology and information in the creation and sale of product (Christopher, 2016). The key focus of the repot is on Woolworths and COSTCO. The report initiates by providing a brief introduction about the two recognized companies named as. The next section emphasizes on the supply chain implementation and comparison of both the companies. Lastly, to provide an effective understanding, it also focuses on the literature review of supply chain models. The key purpose of the report is to pour light on the managerial concepts and models. Additionally, it provides an opportunity to upgrades the knowledge with respect to both the organization.

Company overview

Woolworths

It is an Australian supermarket chain store founded in the year 1924 by Woolworths Group. It offers multiple products to its customers like furniture, jewelry and electronics. It follows ‘Franchisee business model’ (Maritz , 2019). It is studied that Woolworths has altered its business model. Its new operating model aims to change customer shopping experience and habits (Hall , 2019). It serves around 3 million customers per day (King , 2019). Its top supplier are Teys Australia and Red meat (Insidefmcg, 2019). Others include Perfection Fresh, Driscoll’s Australia and Kailis Brother as award winner suppliers (AFN, 2019). In order to make its supply chain effective, it has adopted better practices. This is because it aims at achieving competitive lead and sustainability through its supply chain implementation (Woolworths Group , 2019).

COSTCO

It is an American company founded in the year 1983. It is also a supermarket brand engaged in selling variety of products like groceries, vegetables and cosmetics. As per the research, it is examined that COSTCO relies on ‘Subscription business model’. It states that customers who want to shop at the COSTCO store must buy a membership to purchase. Globally, it has 98.3 million customers with Costco membership (Conway, 2019). It has high number of suppliers and they are called vendors. It is examined that it follows ‘high volume, low margin’ strategy in its supply chain. Its supply chain implementation is fine as it is called as one of the reason for its success (COSTCO , 2019).

Figure1: COSTCO total customers

Source: (Conway, 2019)

Comparative analysis

In order to gain knowledge, Woolworths and COSTCO are compared with respect to each stage in the Supply chain process. Following are the main components of its process:

Attaining resources: It is the first step that initiates the supply chain process. Woolworths obtains raw material from suppliers like Teys Australia and RED Meat. It emphasizes on specific indicators while obtaining raw material. It has developed ‘Woolworths Quality Assurance to check the standard of its raw material (Wowlink , 2019). COSTCO obtain its raw supplies from the farmers that follows sustainable activities in the farming practice. It lays prior attention on implementing organic farming to offer healthy products to its customers (COSTCO WHOLESALE , 2019).

Manufacturing commodities: In the manufacturing process, it lays prior attention on its manufacturers and producers to ensure that product met the quality standard (Woolworths Group, 2019). COCTCO only obtains its products from forests that has the certification of FSC and SFI. This is because, it aims at protecting the forest for upcoming period. To pack the manufactured products, it uses Fiber Based Packaging (COSTCO WHOLESALE , 2019).

Inventory control: To reduce wastage in the packaging, Woolworths uses FIFO method (First in, First out) (Farmsoft, 2019). It also has an inventory manager to control the process (Payscale , 2019). To avoid wastage and attain control over inventory, COSTCO has inventory control specialist (Indeed, 2019).

Conveyance and Control: This the last component in the process. Woolworths uses ‘Primary Freight’ as a ‘Transport management system’ to provide convenient transportation service facility (Wowlink , 2019). COSTCO relies on using conveyance method that uses low possible energy and emit low Harmful gases like carbon. It has adopted the use of electric vehicles and electric plugin shore power in its transporting vehicles (COSTCO, 2019).

As per the research and on the basis of above discussion, following points are analyzed:

• Similarity: Woolworths and COSTCO, both attains similarity as they both have appointed specialized individual for inventory control (Indeed, 2019).
• Logistic goal: In general, both attains a goal to minimize the inventory wastage in the supply chain process.
• Issue: Woolworths is facing issues of poor relation with suppliers and exploitation in its supply chain (Sit, 2018). Similarly, COSTCO has faced a lawsuit that can affect its supply chain transparency (Moote, 2017).

Literature review

Joseph Sarkis, Qinghua Zhu and Kee-hung Lai (2011), focuses on the significance of Green Supply Chain Management. According to the review, it is adoption of environmentally friendly practices in the business. It involves taking decisions that will assists in safeguarding the environment and sustaining the natural resources of the global world. According to them, these should be added to the daily practices of business operations. They state that it has gained an adequate attention in the industry as well as among the customer. They have emphasized on the benefits of green marketing. They suggest that it is practiced by certain organization. However, its implementation has not taken seriously by the business organizations. Thus, they emphasizes on the adoption of Green and Sustainable practices in the supply chain process as it is valuable for meeting the future demand (Sarkis, 2011).

Conclusion

From the above discussion, it is analyzed that Woolworths and COSTCO both operates in the form of supermarket stores. They are involved in similar business practices and offers alike products. However, they both differ in its supply chain implementation. It is assessed that among both, COSTCO is highly adopting the sustainable practices in its Supply chain process. Additionally, as per the literature review, it is analyzed that COSTCO is aligning with the sustainable practices that the review is focused on.

Hence, on the basis of Supply chain implementation and Literature review, COSTCO is consider to be healthier and better submarket brand.

Bibliography

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Analytical Essay on Costco: Competitive Analysis, SWOT Analysis, Porter’s Five Forces and Analysis of Strategies

Executive Summary:

Retailing industry becomes more globally however it has to compete with the domestic market as well (Minahan, et al., 2012). In this report, Costco wholesale corporation is chosen and to discuss its strategic approach in the retail industry. Porter’s five forces also labeled along with Costco. The contemporary strategic issue made by Costco also particularized in this article alongside alternate strategies of that organization elucidate. Costco Wholesale Corporation is an international chain of warehouses, began its operation in 1983 in Seattle, Washington (Costco Company Profile, 2019). Gradually Costco merged with The Price Company, which had pioneered the membership warehouse concept. Costco Wholesale Corporation provides a wide range of merchandise, it is mainly membership-only warehouse club. Costco Wholesale Corporation has a major market share in the retail industry and their rivalries are Target, Wal-Mart, and Sears (Corona, 2012). Wal-Mart and Target are the foremost players in retail industries. Wal-Mart is the largest retailing company according to 2008 sales and Costco is progressively growing for the last twenty-six years with business in seven countries (Corona, 2012).

Introduction:

In the modern era of a competitive domain of business sustain in market because of the finest strategic plan of an individual organization. Effectiveness of organization in sense of performance is determined by an optimum strategic proposal of top management (Baroto, Abdullah, & Wan, 2012). Retailing industry becomes more globally however it has to compete with the domestic market as well (Minahan, et al., 2012). In this report, Costco wholesale corporation is chosen and to discuss its strategic approach in the retail industry. Followed with Costco background also expounded with competitive analysis. Costco external factor and internal factor also considered as in SWOT analysis to have insight about power and softness. Porter’s five forces also labeled along with Costco. The contemporary strategic issue made by Costco also particularized in this article alongside alternate strategies of that organization elucidate. Finally suggesting our commended strategic for Costco wholesale corporation to the instrument.

Company Background:

Costco Wholesale Corporation is an international chain of warehouses, began its operation in 1983 in Seattle, Washington (Costco Company Profile, 2019). Gradually Costco merged with The Price Company, which had pioneered the membership warehouse concept. Costco Wholesale Corporation provides a wide range of merchandise, it is mainly membership-only warehouse club. It is the second-largest retailer in the United States and the seventh-largest retailer in the world. It offers exclusive product categories such as supplies, confectionaries, appliances, television and media, automotive supplies, tires, toys, hardware, sporting goods, jewellery, watches, cameras, books, housewares, apparel, health and beauty aids, furniture, office supplies and office equipment (Costco Company Profile, 2019). Under the symbol of “COST”, Costco Wholesale Corporation trades on NASDAQ global select market Hill, C., Schilling, Melissa A., author, & Jones, Gareth R., 2015). According to CNBC.com Costco has a huge profit in 2019.

Costco’s strategy is to provide a variety of high quality of products at the consistently lower prices than any of its competitors offer (Hill et al., 2015). Costco offers low prices on nationally branded and privately labeled products which in return produce high sales volume and massive turnover. Operating efficiency, efficient distribution and warehouse facilities collectively generate profit over a lower gross margin than any other traditional wholesalers or supermarkets. Costco limits specific items in each product line for fast selling (Hill et al., 2015).

Costco has direct manufactures thru which Costco purchases it’s all merchandise directly and reallocate goods from the respective depot. Costco’s product selection criteria are value, sales potential and product expansion categories and price (Hill et al., 2015). To face competition with Wal-Mart, Kmart and Target’s privately labeled products Costco offers its own privately labeled brand “Kirkland Signature” (Cascio, 2006). Kirkland signature products similar to or better quality than national brands which includes juice, cookies, coffee, nuts, housewares, luggage, appliances, clothing, and detergent. Costco offers individual, business add-on and executive membership (Hill et al., 2015). Costco does marketing and promotional activities to new warehouse openings, occasional mail to the new customer and direct mail to existing customers to promote particular products (Baroto, Abdullah, & Wan, 2012). Costco started its online operations in 1998 as Costco.com and ranks 17th amongst the online retailers.

Costco shares healthy employee relations and provides health benefit such as Costco pays 92% of employee’s health insurance premium (Hill et al., 2015). Even Costco’s wages have raised net income per employee. Costco follows employee-first philosophy and provides high wages, benefits, promotions, bonus, incentives, and opportunity for growth (Corona, 2012). Costco gives a lesson to think about long term action, reduce employee turnover and let the employees know that they matter (Hill et al., 2015).

Costco has major competition in the retail and supermarket industry. Kmart and Target also provide a variety of products, membership and other benefits (Lee, Atkins, Kim, & Park, 2006). The retail industry is rapidly growing. Looking forward to this, Costco has a major challenge of high performance. Moreover, Costco has a major challenge of an online retailer such as Amazon. Will Costco be needed new capabilities to sustain in changing and challenging environment?

Competitive Analysis:

Costco Wholesale Corporation has a major market share in the retail industry and their rivalries are Target, Wal-Mart, and Sears (Corona, 2012). At present most of the companies keen on invest in shape their brand among consumers, which help patrons to identify their product (Hu & Chuang, 2009). Among Wal-Mart, Target, and Costco they crucially play in pricing their product, choose a superlative position to place their product amongst the brand and implement their innovative ideas towards the retailing industry to hold their market share (Hu & Chuang, 2009). Wal-Mart and Target are the foremost players in retail industries. Wal-Mart is the largest retailing company according to 2008 sales and Costco is progressively growing for the last twenty-six years with business in seven countries (Corona, 2012). Target is another rivalry which competes with Costco in retailing and Target has a business model of bulky departmental store which aid customer to feel like a mall (Corona, 2012). Target focus on everyday low price on fashionables and necessity product. It recognized by their patrons’ as low price with the best quality product. Their brand acknowledged by best marketing approach with wide and gigantic store size. In Wal-Mart as well they recognized by their customer as save money and live a better life (Corona, 2012). Wal-Mart was also is known for their bad appearance like not treating employees well, awarding low pay, lack of equality and gender-biased, putting stress on supplier and product cheap in price associated with their quality as well (Cascio, 2006). Costco has a good public image like treating their employees well and their pay at best. They also treat employees as their owners and awarding them actual leave required without any gender bias. Civic approach about Costco is sharing equal responsibility and playing fare level of business compared with their rivalry.

SWOT Analysis:

SWOT analysis is commonly used for the strategic planning thru which organization gains insight for internal and external environment, which enables the organization to make strategic plans and decisions by analyzing and positioning organization’s internal and external factors (Phadermrod et. al, 2019). In below table Costco’s strength, weakness, opportunity and threat have been identified.

Internal factors

Strength

• Privately labled “Kirkland brand” offers high profit margin
• Low cost operations resulting in low price of goods and services
• Low employee turnover, approximate 6%
• Customer loyalty Weakness
• High geographical concentration depending on USA and Canada market
• Limited to membership only wholesale club
• No self-checkouts available
• Poor advertisement fails to reach range of customers

External factors

Opportunity

• E-commerce provides new digital platform
• Plans for significant expansion internationally
• Operations are mainly in countries where GDP is high
• Increase in membership
• Rapid growth in brand awareness Threat
• Intense competition as Sam’s club expanding aggressively
• Due to membership fees and bulk purchase, people below poverty line cannot afford Costco
• Currency fluctuation
• Poor geographical diversification, mainly depending on USA, Canadian market (Costco Wholesale Corporation SWOT Analysis, 2019)

Recommendations from SWOT analysis

Costco can expand its operations in e-commerce. E-commerce platform may provide customer loyalty and it could reach to the customers who are not in high GDP region. E-commerce will allow Costco to expand its operations outside USA and Canada and get its competitor’s customers. Costco can improve on marketing and advertisement. Even it can provide self-checkout options to its customers. Costco can reduce its membership fees and can attract people from below poverty line.

Porter’s Five Forces:

Michael Porter’s five forces framework is an in-depth assessment and analysis of competition and profitability for the industry (Dobbs, 2012). These five forces are competition in the industry, the potential of a new entrant in the industry, power of supplier, power of buyers and threat of substitute (Dobbs, 2012).

Competition in the industry

Wholesale club industry attracts its consumers by providing discounted prices on various products. Power of rivalry is very high due to competitive price and less profit margin. Consumers are price elastic and this creates pricing competition amongst the industry (Dobbs, 2012). Due to similar products and pricing rivalry differentiation is low which can be resulted in weak switching cost and due to which consumers can switch from one competitor to another.

Potential of new entrant into the industry

Due to large economies of scale and competitive but profitable prices, entry barriers are high in the industry. Costco is a well-known brand and has high sales volume which can be difficult for a new entrant to replicate. Even, Costco is established worldwide and to compete with it, a new entrant would require huge capital expenditure to create an image.

Power of suppliers

Suppliers are the manufacturer of the products which is sold by the wholesale club (Dobbs, 2012). Wholesale clubs sell products at a competitively lower price and they buy bulk products from their suppliers which increases price competition within the industry and resulting in price sensitivity. In this industry, while evaluating bargaining power, the wholesale club has higher bargaining power than the supplier.

Power of buyers

In the wholesale club industry, buyers are consumers or club members. Bargaining power and price sensitivity influence buyer’s power. The wholesale club sells bulk products at low prices. Customers are price sensitive. The wholesale industry has numerous buyers and all purchase in small quantities but there are many wholesale clubs’ options available and buyers are not well informed about industry cost. Due to which buyers have low bargaining power.

Threat of substitute

Wholesale club industry serves as a global wholesale retailer. Costco has several substitutes available such as Target, Walmart, and Amazon. None of the substitutes is wholesale club or membership only club. Even, Walmart has many locations and open for 24 hours as compared to Costco. Target offers discounts on purchase. Apart from this, Amazon provides special rewards to its prime members and two-day shipping and free streaming videos. This makes a threat of substitute high.

According to porter five forces, wholesale club industry has high competition, less threat of new entry, high in supplier and buyer power and the threat of substitute is also high.

Strategic Issue:

Strategy can be defined as formulation, implementation, and evaluation of cross-functional decisions which makes the organization to achieve its objective (David, 2016). Costco has strategic issues such as low-profit margin, price penetration, membership loyalty, online wholesale competition such as companies like Alibaba, Amazon, etc., customers are becoming more demanding due to which Costco has to offer diversified products. It is membership-only wholesale club thus it is challenging for the Costco to keep up lower membership costs. Costco’s strategy strives for the low-cost provider of products or services it offers to the customers.

Alternative Strategies:

Costco has a large number of customers due to its low-price strategy but it has some strategical issues as well. To improve strategically, Costco can focus on international expansion. Costco must expand its regional stores and put forward the customer-first strategy. Another financial strategy Costco can apply is to preserve cash to account for the maintenance of expenditure. Costco can focus on the new market. Costco has to set market segmentation it has to provide products for all generation and all age group people. Moreover, Costco can provide student membership as well. Further to market expansion, Costco can expand its business online by offering more products and providing online order, pick-up, and delivery near the store.

Costco can further apply five P’s strategy: Plan, Ploy, and Pattern, positioning and perspective. Costco is the low-cost leader in the wholesale market. Such extremely low price enables the company to pass on savings to its members. Marketing strategy of Costco is poor, it is only based on word of mouth. Costco can further develop a public relationship, advertisement, branding for its products and services. Costco can apply the 7-S strategic framework.

• Strategy: Costco provides low prices, provides a limited selection of nationally branded and privately products and emphasizes international and online expansion.
• Structure: Costco can apply for functional grouping characteristic support in the organization. And thus, Costco can implement new policies and strategies for all geographical regions.
• System: Costco’s wholesale strategy can involve quality control by providing training and development, and by providing “Kirkland” signature brand to indicate high quality.
• Shared Value: Costco has successfully rich culture developed by its values. Moreover, it can maintain its culture by enhancing values such as taking care of customers, follow the legal compliance, take care of employee welfare and practice the sale and make a profit out of it.
• Skills: To become competent and sustainable in the market, Costco must have employees with updated skills and this can only happen by providing training and development promptly. Thus, employees can be motivated and give superior performance.
• Style: Beneficial packages and training retain the hi-potential employees and it helps to minimize the turnover.

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Costco Wholesale Corporation: Market Expansion and Global Strategy Analysis

What are Costco’s competitive advantages and how can they leverage them to expand successfully?

Costco is one of the worlds leading global retailer with its presence in eight countries offering a diversified range of products and services. The company’s unique business model and global expansion strategies have led to its success. In spite of heavy competition in the retail industry, Costco has built a strong brand image by offering high-quality products at low prices with excellent customer service, along with other key factors.

Customer retention and loyalty: Costco’s membership warehouse model gave access to high-quality products at low prices to its customers. Customers paid a fixed amount yearly to gain memberships which allowed them to shop at Costco. Unlike other competitors in the market, Costco allowed its customers to cancel their membership any time of the year and also reimbursed the unused portion of the membership. While competitors set a cap on cashback, Costco’s no-cap cashback attracted more customers to be a part of a hassle-free shopping membership. This kind of flexible membership business model gave Costco an advantage to enjoy high customer retention and loyalty rate.

Leveraging in-house brand: Costco launched a wide range of premium quality products under the name of “Kirkland Signature”, as its home brand. These products were superior in quality, had higher margins and were 10-20% less expensive than other brands that the company offered. Products under the home brand give a quality parity with national brands and also cost fairly less to manufacture and distribute to customers (Private labels taking over supermarket shelves). Kirkland products were made available to a larget set of audience by utilizing third-party e-commerce platforms such as Google cart which contributed to an increase of market share. In global markets, these products attracted customers to try out “American products” and also helped to capitalize Costco’s image as a foreign retailer. With constant innovation and diversification of products under the company’s private label, Costco can continue to increase sales and grow as an international retailer in foreign markets.

Efficient operations and store layout: Costco’s unique business operations model focused on limiting the range of products and its SKUs and promoted sales of these products. This strategy benefited the company in many ways. Firstly, it allowed the company to dedicate larger areas to individual employees’ which increased productivity and overall profitability. By focusing on a limited range of products, Costco benefited by dealing with lesser suppliers with lower negotiation and enforcement costs which resulted in reduced transactional costs. These factors helped Costco in achieving higher inventory turnovers than its competitors. Just like its products Costco has a diversified range of suppliers. However, they majorly eliminated operational costs by procuring products directly from manufacturers and eliminating middlemen. The warehouse-style store layout with basic design contributed to the higher efficiency of operations by allowing ease of storing, handling products, maintaining inventory and reducing electricity costs.

Understanding local markets, customer service and marketing:

Costco strategically has entered into foreign markets by carefully understanding local market situations, requirements, risk factors and potential growth. In most countries, Costco has partnered up with local retail giants. This has helped in gaining an initial foothold of local markets. Tying up with local partners helps in overcoming government regulations, setting up local infrastructure and managing different types of risks in foreign markets. Costco has gained an advantage amongst its competitors’ by the process of localisation. The company has succeeded in most foreign markets by meeting local customer demands.

Complementing high-quality products at lower costs with excellent customer service is one of Costco’s key competitive advantage. Customer service included “no questions asked” return policy, anytime membership cancellation, no-cap cashback and multiple payment options. Features like these made customers happy and made Costco stand out amongst competitors. Happy and satisfied customers led to free and effective word-of-mouth advertising. Other than coupon promotions and direct email marketing, Costco kept its marketing costs very minimal.

Healthy employee relations: While Costco’s major competitors have had a poor reputation for employee management, Costco has been named one of America’s best employer. Costco’s great work culture, wages, collaborations and human resource policies have contributed to increased employee loyalty, job performance, productivity and better customer service.

What would be the best method for entry, based on existing barriers and culture and operational constraints in France, Iceland, China and India?

Costco’s has strategically expanded into countries with different entry modes depending on numerous factors that have an impact on the local market. Based on barriers and culture Costco will have to make important decisions with regard to the market size and scope for growth, government regulations, local infrastructure and cultural differences to choose the best entry mode.

France:

Challenges: The economy in France has been highly developed over the years with a free-market orientation. France is closely located to another strong economy, the United Kingdom allowing easy trade between both the countries. However, a critical political issue known as the ‘Brexit” has affected business relations and interests between the countries. With Costco already operating in 27 locations in the UK should consider this political barrier as it may be a potential risk of distribution channels, trade networks and movement of people between both countries. Opportunities: As mentioned above France is an economically developed nation with sophisticated customers. Manufacturing has declined over the years in the country, resulting in a requirement of imported products. As the French market is mature and sophisticated, there has been an increasing interest in American culture, consumer and food products giving Costco a great opportunity to dominate the French market. In addition, as there lies a huge potential of E-commerce in France, Costco can increase sales and revenue by creating a strong omnichannel for customers.

Mode of entry: As no players exist in the warehouse concept stores in France, Costco can gain the advantage of being a first-mover. Warehouse concept stores are to see a 113% growth rate in the current year. (Exhibit 1) By considering the above factors, the best mode of entry for Costco to enter France would be a wholly-owned subsidiary, as the company can have maximum control on operations and a high resource commitment in the French market.

Iceland:

Challenges: Firstly, Iceland is an island with a very low population. Secondly, due to poor climatic and geographical conditions, there lies a necessity for agricultural and fresh food products to be imported. However, high tariffs are applied and import restrictions are implied, respectively. This results in Costco having to depend on other suppliers in European markets. Lastly, due to the implementation of new economic policies, establishing a Joint Venture with a local company is challenging.

Opportunities: Iceland economy is stable with most of its consumers being innovators and early adopters, giving Costco an opportunity to introduce new Kirkland products suitable for the local market. As mentioned earlier, due to poor climatic conditions Iceland is highly dependent on imported products such as organic food and fresh food products.

Mode of entry: With the above-mentioned barriers and opportunities, it is ideal for Costco to enter the Iceland market as a wholly-owned subsidiary to access maximum control on operations and to procure fresh food products from EU suppliers.

China:

Challenges: Reports show that American companies in China face numerous problems with regard to government regulations, rising operations costs, increase competition, regulatory risks and an increase in non-tariff barriers. Foreign companies in China face day to day business problems due to delayed and opaque legalisation procedures with respect to registrations and permits. Rigid import restrictions and industry policies limit the access of foreign products and services, resulting in less control of operations for the foreign company in the Chinese market. This inversely promotes local products and domestic companies backed up by local governments. As the majority of Costco’s revenue comes from its private-label Kirkland Signature, importing and selling them in the Chinese market would be a big challenge. Costco’s competitors, Metro and Walmart along with local partners (JVs) share the market with 65.2% and 34.8% respectively, who have increased competition by providing value-added services such as “next-hour delivery”. (Exhibit 2)

Opportunities: With the worlds largest population, vast size, changing demographics, and increase in the middle-class population create a major opportunity for Costco to expand to China and achieve great economies of scale. With the Chinese manufacturing industry becoming more advanced with technology, Kirkland products can be manufactured in China helping to overcome import restrictions. Warehouse concept stores are a niche in China and continue to see extensive growth over the coming years. As fresh food is the drive engine of supermarkets in China, Costco can offer American fresh food along with localised products to build an American brand image that attracts young and affluent customers.

Mode of entry: To grow in the long term in the Chinese market Costco should partner up with a local company to carry on business activities as a joint venture. A local partner would be beneficial by providing knowledge on the vast Chinese market, its target audience and their requirements, government regulations, industry policies and performing marketing activities and other business operations as per local cultures are crucial aspects for Costco to succeed in a complex market. Such a collaborative partnership would allow a medium level of control on operations, resource commitment and dissemination of risk between both the entities.

India:

Challenges: One of India’s biggest barrier for international companies to enter is lack of local infrastructure. Many investors and MNCs face non-transparent and unpredictable regulatory regimes. As the government controls what and how things can be sold on e-commerce platforms, this discourages foreign companies to enter India. Due to policies on data localisation and local content requirement, and other rigid government norms, carrying on day to day business operations for Costco in India would be a challenge. One of Costco’s key product is fresh food items, importing such items are made mandatory to be approved by a government department. As India is multi-cultural and diversified amongst different regions, Costco would have to implement different business and marketing strategies regionally resulting in increased operations costs. Overall, due to rigid government regulations and political differences between the central and state governments, India appears to be an unstable market for foreign companies.

Opportunities: The warehouse concept of supermarket stores has been an untapped industry in the Indian market. With rapid urbanisation, an increase in the population of millennials and the middle class there has been a demand for international products.

Mode of entry: To gain a strong foothold in India, Costco should enter into a Joint venture with a local company in the initial phase to establish themselves in such a complex market. As mentioned earlier, India’s diversified market and audience size are complex to understand and deliver for a foreign company. A strong local partner would help in strategically expanding into regions with suitable infrastructure and resources. A Joint venture would primarily benefit Costco by overcoming government regulations and rigid import norms.

Based upon Costco’s business model and the potential for a large consumer base, should Costco enter densely populated Asian countries, such as China and India? Justify your decision.

With economic, demographic and technological factors rapidly increasing the rate of change in these Asian countries gives Costco an opportunity to expand innovatively. As countries like China and India have a vast potential of growth in terms of population and economic growth are set to become the backbone of the world’s economy (Michelle Grant, Megatrends Reshaping The Global Retailing Industry). As per Euromonitor International, these Asian frontiers will account for 50% of the world’s production and global consumer expenditure by 2025. Within the next five years, forecast says China will account for 25% of the overall industry’s sales growth.

Another key factor is the increasing growth of digital consumers in Asian countries. With consumers becoming more tech-savvy by utilising multiple devices to interact with company services and products. As mobile internet retailing is rapidly on the high, it will also account for more than 58% of total e-commerce sales. Particularly with increased access to smartphones access in emerging markets like India and China will allow Costco to expand with omnichannel business strategies.

Unlike developed economies, these frontier markets have been seeing a gradual increase in the proportion of middle-class people of the population. As the middle-class focus on acquiring most of their money and optimising

Critical Analysis of Business Strategy and Key Limitations in Costco Wholesale Corporation

Introduction and Background

Costco Wholesale is a multi-billion dollar wholesale retailer with hundreds of membership warehouse clubs across eight countries worldwide. Costco’s long-standing success is the product of the combined efforts and aspirations of Costco’s co-founders Jim Sinegal and Jeff Brotman and Sinegal’s mentor, Sol Price. Price, previously the founder of FedMart (a chain of discount department stores) founded Price Club, the world’s first membership warehouse club, in San Diego, CA in 1976. At Price Club, Sinegal was Price’s Executive Vice President of Merchandising, Distribution, and Marketing, and was instrumental in fine-tuning merchandise and marketing strategies. Sinegal eventually left Price Club and teamed up with Brotman to co-found Costco Wholesale in Seattle, WA in 1983. Although Price felt hurt by Sinegal’s decision to leave Price Club to start Costco, Price considered Sinegal and Costco as “extended family,” united in their battle against competitor Sam’s Club. In 1993, Price Club and Costco merged and went on to become the world’s most successful warehouse club. Price said of the merger, “We were good at innovating, but when it came to expanding and controlling, we weren’t so good. Now, Jim has done a pretty damned remarkable job. He puts a great emphasis on quality and has moved into the food business and other new lines. We were very good at creating, but Jim was very good at developing.” (Morris 65)

Sinegal and Price’s protege and mentor relationship made for an easy merge in terms of corporate culture and the two companies shared similar vision, mission, and values. In a joint Price/Costco statement released at the time of the merger the companies stated, “No two merchandising companies could be more alike in terms of their merchandising philosophies, corporate cultures, determination to offer high quality products at great value to the consumers and commitment to their employees.” (Morris 65)

The concept behind Price Club was a business that was both retail and wholesale that served small businesses needing convenient and economical products but at less volume than a whole truckload. In a December 1988 article, the New York Times wrote, “Price was convinced that if he could keep prices down and yet put everything a small business customer needed under one roof, he’d have a winning formula.” (Morris 25) Membership to Price Club was initially limited to businesses and individuals of select groups (e.g. government, hospital, or bank employees), creating exclusivity and company commitment. By pre-selecting members, Price Club was able to thereby pre-select its customer base demographics without extensive research. Price Club also only accepted cash or checks to lower risk. By screening its customers via the membership application (which requested customers’ personal information, including SSN), the store was able to lessen the risk of receiving bad checks and reduce customer theft and pilferage.

Costco provides value to its members by offering products at a much lower cost than typically available to retail customers. Sinegal explaining the low cost, low price model, “Costco is able to offer lower prices and better values by eliminating virtually all the frills and costs historically associated with conventional wholesalers and retailers, including salespeople, fancy buildings, delivery, billing and accounts receivable. We run a tight operation with extremely low overhead, which enables us to pass on dramatic savings to our members.” (Morris 90)

Costco believes that its product, people, and code of ethics are what separate the company from its competitors. Costco’s mission statement is “to continually provide our members with quality goods and services at the lowest possible prices.” The products Costco offers to both its business and household customers, are high quality goods with mass appeal, thereby appealing to a high-end demographic. The Kirkland Signature brand rivals name brand products in terms of both quality and notable cost savings. Costco offers its members a wide variety of products and services including: fresh baked goods, fresh and frozen foods, alcohol, books, jewelry, electronics, household and office supplies, life insurance, home and auto insurance, motor vehicles for purchase, tire service, mortgages, vacation packages, apparel, bottled water delivery, business phone service, pharmacy, vision care, photo printing, gas station, caskets, and more!

Costco boasts a diverse and inclusive work environment for employees. Considering employees as the company’s “most important asset,” it is well-known that Costco pays considerably higher wages compared to its competitors and even offers benefits to its employees. Costco also stresses the importance of internal promotions, with over 90% of its managers worldwide (70% of U.S. warehouse managers) and executives having started out in hourly positions as cart pushers or inventory stock workers. “Our founders always said, if you hire the right people, pay them good waves, involve them in the business, then good things will happen,” asserts Russ Miller, Senior Vice President of Western Canada Operations. (‘The Costco Story’) U.S. Costco employees average nearly nine years of employment at the company, with more than 60% of employees at the company for over five years and over a third having spent over 10 years with Costco. Worldwide, Costco has more than 13,000 employees that have served the company for over 25 years.

Costco asserts that it cannot survive without its members. As stated in the Costco Code of Ethics, “Our members are our reason for being – the key to our success. If we don’t keep our members happy, little else that we do will make a difference.” (‘The Costco Story’) Andrée Brien, Senior Vice President and Senior General Merchandise Manager, considers the Costco Code of Ethics, established by Costco’s founders, to be “the foundation of the company and the cornerstone of its success.” (‘The Costco Story’) Customer satisfaction is undeniably evident in the 90% membership renewal rate of Costco’s 93 million members. (Meyersohn)

Business Strategy

Costco’s strategy has two stipulations: requiring a paid membership card for entry and no advertising, so it requires a few steps to attract and retain customers. The company must get customers to return to Costco, visit frequently, and also spend more time in the store.

In order for customers to want to return to the store and spend more on products, Costco needs to supply them with a variety of exciting reasons. The more sound and more desirable the attraction, the more customers will return. Such attractions include:

• Best quality: Costco sells only the best quality. It is one of the largest sellers of fine wines in the world. In addition, the growing range of its great value, high quality, unique Kirkland Signature private label products (ranging from clothing to food items), adds to its strong brand and value and, gives the customer a compelling reason to return.
• Low prices: Costco is committed to having the lowest prices on all the products and services it offers on a reliable basis. Costco sells packaged products in bulk, therefore the cost per unit is less than at any food retailers. Also, Costco has a lower gross profit percentage. When a retailer negotiates the lowest cost and has a very low gross profit percentage, customers notice that Costco has the best prices in town.

Costco also puts its membership fees back into the products the company sells in order to further lower prices. The strategy behind this is that Costco’s low price offerings will get members to return. Costco also saves costs and can provide its members with low prices because of its high inventory turnover at high sales volumes. The company does this by supplying its customers with fewer brands and products that are sold quickly. While big-box retailers, such as competitor Wal-Mart, typically sell over 100,000 products, Costco only offers its customers an average of 3,800 items. Rival BJ’s Wholesale Club sells over 7,000 items, which hinders its capability to compete in terms of value. (Meyersohn)

• Guarantee policy: Every product is guaranteed and has a return policy.
• Return & refund policy: Goods can be refunded until the last day it expires. This increases the value and builds trust between the customers and Costco.
• Free samples during visits: Tasting the free samples of new products also excites the customers and gives a wonderful motivation for them to return.
• Retrieving membership fee: Existing and new members know that they can make savings by shopping at Costco. Members have an interest in coming back to shop to earn the fee back over the year by saving at Costco.

Beyond convincing customers to return to Costco, increasing visits per month is more important because there is an immediate relationship between customer frequency and yearly total spending. Additionally, the more customers spend at Costco, the more likely those customers will renew their membership. In order to increase visit frequency, Costco offers:

• Low price gasoline: Most Costco warehouses have an adjoining gas station, priced each day to be the lowest gas price in the area. Vehicles are generally refilled every week, and this offering has turned out to be a highly successful driver of visits (pun intended).
• Loss leaders: Costco’s biggest loss leaders are its $4.99 rotisserie chicken and its $1.50 hot dog and drink combo. Costco refuses to raise the price on its rotisserie chicken and hot dog. The strategy is not to make a profit from these items, but to attract additional visits. Members looking for a cheap lunch at Costco will often venture into the store to shop. The rotisserie chicken is placed all the way in the back of the warehouse to get members to walk through the entire length of the store, prompting more impulse purchases.
• Coupons: A booklet of coupons is mailed to all members monthly. The coupons are valid for 25 days in the coming month.
• Treasure hunt: To create urgency and a need to visit more often, Costco supplies a flow of products that change consistently throughout the year, customers feel that they must purchase right now because the item may not be there the following week. The more frequently a customer revisits, the more ‘treasures’ the customer finds.
• Costco Anywhere Visa card: Costco, in partnership with Citibank, provides members a no-fee credit card which compensates the customers with increased spending at Costco, like, 4% money back on Costco gas purchases and 2% back on Costco purchases. Members also get 3% back on restaurants and travel and 1% back on all other purchases.

Finally, Costco must show its members the value of how spending more in its stores actually saves them more. Costco does this by supplying:

• Executive Memberships: A regular membership is $60 annually for the essential cardholder. Executive membership is offered for $120, which has added benefits and also includes a 2% annual purchase rebate. It compensates the higher spending members while motivating all members to experiment with other Costco products and services (e.g. travel offers and lower-cost insurance). Generally, executive members spend more than her members and their share of sales grows continuously because of it.
• Large sizes: Items are sold in bulk to lower the cost per unit. Customers end up spending more on the larger quantities, but still feel the higher value from a cheaper per unit cost.
• Costco.com: Costco’s website features some 20 distinct categories that include selected in-store items with many available only online. These buys are qualified for any suitable Costco purchase rebate program the member is enrolled in. This motivates the customers to consider Costco first while looking for anything.

Costco employs a low cost strategy. The way in which Costco cuts costs in its value chain (e.g. warehouse model) adds to the store’s uniqueness amidst a sea of retail competitors. However, its differentiated model is not actually the company’s strategy. This strategy demands maintaining the lowest feasible prices for its members by keeping costs as low as possible. Costco’s low cost strategy may seem easy to imitate, but history proves very few who have entered the wholesale club battle survived. Since its inception, Price Club/Costco have faced a multitude of clones; however, only two other wholesale clubs remain: Sam’s Club and BJ’s Wholesale Club (see Appendix).

Financial Highlights:

Costco

Revenue

Gross Profit

EPS

Total Assets

Cash

on hand

Long-term debt

Total liabilities

Shareholder’s Equity

12 mo. end. 02/28/19

$147.24B

$19.09B

$7.79

Qtr. end. 02/28/19

$42.80B

$7.12B

$4.79B

$28.62B

$14.18B

Year-over-year

+8.29%

+6.38%

+16.1%

+10.58%

+22.16%

-26.3%

+7.38%

+17.67%

Key Limitations

Costco has a number of advantages, but there are also some disadvantages. There are some challenges that Costco currently faces, which could become potential problems in the future. Things like memberships, omnichannel experiences, consumer preferences, and bulk buying, are all likely to affect the value chain of Costco.

One of the biggest problems with Costco’s business model is its dependence on memberships. This strategy works well as long as its members keep coming back and continue purchasing items in bulk as they have historically, but several issues could affect that trend. Customers could choose to move their memberships to a competitor, such as Wal-Mart’s Sam’s Club. The only notable difference between the two wholesale clubs is selection, which is tied to consumer preference. If the range of products changes, Costco could lose out. Also, Costco competes against specialty retailers, such as Office Depot, PetSmart and Whole Foods. Customers looking for these products may prefer those retailers’ products over those of Costco. More broadly, Costco’s competitors also include: Sam’s Club (Wal-Mart), BJ’s Wholesale Club, Wal-Mart, Amazon, Home Depot, The Kroger Company, Target, Kmart, Lowe’s, Best Buy, and Aldi. According to Brotman, “In virtually every market we’re competing with someone.” (Morris 63)

Currently, most retailers are adopting an omnichannel focus. Customers use different connected devices to shop online, research products, and compare prices. While Costco’s emphasis on the warehouse allows the bulk discount retailer to keep prices low, it does not translate well to the type of omnichannel experience many customers expect. Costco is making some investments towards that goal, but there is no guarantee that those efforts will be successful or that the changes will be implemented in time for the company to remain competitive.

Changing consumer preferences could affect Costco as well. The company uses a warehouse approach. It buys certain items in large quantities and tries to get them sold as quickly as possible, but it only works if it can maintain those high volumes. If customer preferences change, Costco could be left with large amounts of unwanted, and possibly perishable, goods.

When buying in bulk, transporting everything home may be a problem for some. For people in urban areas who may be unable to park near their buildings or for families with young children who may find transporting bulk goods too much to handle, it can be a real issue. Costco offers some online services, but there are other discount bulk providers such as Amazon’s Prime service and the newcomer, Jet (owned by Wal-Mart), that offer similar deals and free shipping. Amazon offers free two-day shipping and a Prime Pantry service for $99 per year (in addition to other benefits, such as streaming video), while Jet does not have a membership fee and has many deals that are similar to Amazon’s offerings.

The problem that Costco faces, and is a big risk going forward, is that people are shopping in stores less and less. Eventually it is possible, maybe even probable, that Costco’s immunity to this trend, which has impacted so many other retailers, will end. Consumers have begun to invest in digital platforms because they are easy and convenient. Because of this, a number of chains, including Sports Authority, Linens-N-Things, Borders Books, Circuit City, and others, have gone out of business over the past few years, while a handful of top names are teetering on the edge in 2018. Costco has always tried to keep its costs low and the company could improve its social media presence by hiring a social media manager.

To tackle these major problems, Costco had to increase spending on everything from sampling to making sure its in-house restaurants remain an enticingly cheap way to eat a meal or snack. The chain expanded its focus on making people want to visit its stores because, as they buy more and more online, it could become harder to get them to leave the house just to shop.

In my analysis, Costco has no major strategic issues facing them at this moment. Its business model is appealing in the sense that the company has rapid inventory turnover, operating efficiencies, and profit at a very low gross margin. Such success has come its way due to factors such as internet sales, ongoing effort to cut costs, only stock bargains, treasure-hunt merchandise, no-hassle return policy, and word of mouth advertising.

Costco employs a cost strategy that aims to penetrate pricing and a diversion buying strategy that gives customers a treasure hunt shopping experience. Of these strategies that Costco utilizes, the chief elements of low costs, low prices, limited products, and a treasure hunt environment are the main ingredients that put themselves above all competitors.

In 2017, Bloomberg Businessweek wrote an article cautioning Costco about its slow approach to e-commerce. Costco launched its website in 1998, the same year Amazon.com launched, prior to Target and Wal-Mart’s ventures online. By 2017, Amazon.com was dominating e-commerce, and both Target and Wal-Mart had invested billions towards website development. Costco’s web presence lacked elements that were offered by competing web retailers, including in-store order pickup and an active social media presence. Bloomberg admitted that Costco seemed to be doing fine as overall revenue growth had surpassed competitor Sam’s Club for the prior five years, but warned that Costco’s “laissez-faire approach to online could prove a dangerous long-term game.” “On the one hand, “they have a business model that is working, so why break it?” says Robin Sherk, an analyst at consultant Kantar Retail. Yet “if Costco waits too long, they might find themselves too far behind.” (Boyle)

Although Costco does offer more items online compared to in-store (10,000 vs. 4,000, respectively), Costco knows that customers are more often than not compelled to purchase more than intended by the in-store free samples, its in-store treasure hunt experience, and other impulse buys. Costco also knows that most of its members are on the older side and are less technology dependent. However, half of Costco’s members are also Amazon Prime members, a stark increase from 14% five years prior. At the time of the article, Amazon began offering a variety of goods in bulk at prices rivaling Costco’s and Amazon’s acquisition of Whole Foods Market was pending. Bloomberg was thusly concerned Costco would lose customer’s purchases to Amazon. Grocery shopping is how Costco stayed ahead of Amazon as 93% of members purchased groceries at Costco, whereas only 18% of Amazon users used the website to purchase food. The Whole Foods acquisition may present some notable competition to Costco.

The year prior to the article, Wal-Mart purchased Jet.com, an online shopping retailer. Bloomberg’s suggestion was for Costco to consider a similar acquisition. Others suggested that Costco would benefit by offering online ordering with in-store pickup. Costco has taken small steps by working with third-party distributors Instacard, Shipt, and Google Express to help with processing costs of online orders. Costco also introduced bridal and baby gift registries for members. Although investment research analyst, Brandon Fletcher (of Sanford C. Bernstein) thought that it was not necessary for Costco to ramp up its e-commerce operations, Bloomberg noted that although Costco saw an 11% growth rate for digital sales, it still lagged behind the overall e-commerce market which was expanding at a rate of roughly 15% annually. (Boyle)

By February 2019, Bloomberg Businessweek had changed its tune, declaring that Costco had beat out Amazon as a consumer favorite. Costco’s slow and steady e-commerce growth proved triumphant as Costco bested Amazon, the reigning champion of customer satisfaction in the internet retail category for seven years straight, by just a single point on the 2018 annual American Customer Satisfaction Index (ACSI). (Soper) This was an impressive feat as this was Costco’s first appearance on the list. Rather than radically revamping its business strategy to compete with Amazon, as many other retailers were doing, Costco stuck to what it knew and proceeded to “perfect what’s been working for four decades.” (Meyersohn) Costco held onto its advantage in food market by embracing internet retail. In addition to its partnership with Instacart, Costco also introduced CostcoGrocery. While Instacart provides same-day delivery to both members and non-members alike, CostcoGrocery provides members with two-day delivery on “shelf-stable” products web orders. Members would also receive free shipping on purchases exceeding $75 or choose free in-store pickup. By expanding its online offerings, Costco saw an online sales increase of 21% since July 2018. ACSI applauded Costco for not only leading the pack in in-store customer satisfaction but succeeding in the e-commerce space as well.

Recommendation for Costco

It is important that Costco takes advantage of the social media resources available, so that the company can keep in touch with younger generations. Costco does not need to join every social networking platform in order to achieve a social media presence. Costco does not want to spend money on advertising, however most popular social media platforms are free to use.

The company should focus on one or two social networking sites in order to enhance its relationship with customers online. Costco could benefit from are Facebook and YouTube. Facebook can be an essential tool for companies like Costco that strive to make connections with its customers. Costco will need to adjust the type of content it posts on Facebook so that it engages users. This can help strengthen the relationship between the consumer and organization. YouTube is another useful social network that can benefit Costco. Sam’s Club, Costco’s main competition, uses YouTube to post videos of its products. Costco could use similar video networking strategies to educate members on products being offered, and drive people to its website. As seen on Costco’s website, the company invests in making promotional videos. Uploading such videos to YouTube would not require any additional costs. Whether Costco chooses to use social media or not, it will be very important for its business to keep a watchful eye on the latest trends and technologies so that the company does not fall too far behind.

Costco otherwise seems to have a solid handle on its other key limitations, as proven by the most recent Bloomberg article and ACSI ranking. Although there are some concerns that Costco may fall behind by not immediately conforming to changing consumer demands, the company’s stability and success come from knowing its business model and sticking to it. Costco should keep a close eye on changes in consumer preferences, as unpopular items will remain on shelves and high inventory turnover is essential to its business strategy to keep costs and prices low. The company knows that keeping the costs of the value chain as low as possible is the only way to keep prices low, and those stellar low prices are the key to customer loyalty. Clear vision, mission, and values are to credit for Costco’s exceptionally loyal members and workforce.

References

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2. Boyle, Matthew. “Costco Is Playing a Dangerous Game With the Web.” Bloomberg.com, Bloomberg, 24 Aug. 2017, www.bloomberg.com/news/articles/2017-08-24/costco-is-playing-a-dangerous-game-with-the-web.
3. Costco Financial Statements 2005-2019 | COST. (n.d.). Retrieved from https://www.macrotrends.net/stocks/charts/COST/costco/financial-statements
4. González, Ángel. “Costco Philosophical about Keeping Chicken Prices Low.” The Seattle Times, The Seattle Times Company, 29 May 2015, www.seattletimes.com/business/retail/costco-philosophical-about-chicken-prices/.
5. Meyersohn, Nathaniel. “How Costco Thrives in the Amazon Era.” CNN, Cable News Network, 14 Sept. 2018, www.cnn.com/2018/09/14/business/costco-warehouse-kirkland-signature-amazon-retail/index.html.
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8. ‘The Costco Story.’ Costco Wholesale Canada Ltd., 2019, https://www.costco.ca/about-us.html. Accessed April 15, 2019.
9. Tuttle, Brad. “Why Costco May Never Raise Prices on $4.99 Chickens, $1.50 Hot Dogs.” Money, Meredith Corporation, 29 May 2015, money.com/money/3901655/costco-rotisserie-chickens-hot-dogs/.
10. Soper, Spencer. “Costco Emerges as Consumer Favorite While Amazon Love Wanes.” Bloomberg.com, Bloomberg, 26 Feb. 2019, www.bloomberg.com/news/articles/2019-02-26/costco-emerges-the-consumer-favorite-as-love-for-amazon-wanes.
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Reflective Essay on My Experiences of Visiting Costco

There has only ever been one thing in my life that I was one hundred percent sure of, and that is Costco. The weekly endeavors with my father to the enormous warehouse have become a tradition. From the oversized food to skyscraper-esque aisles, I found endless opportunities to explore. I was the five year old who summited the staggering twenty-four box high, Mount Cheerio. I was the six year old who coasted through the massive aisles on the shopping cart in search of buried treasure. I was the seven year old who ventured into the Antarctic among the strawberries and carrots. Costco wasn’t just a place to shop, it was a place for me to explore.

As I outgrew the flatbed of the cart and became old enough to wander the vast emporium of industrial freezers and plastic wrapped cartons towering several feet high, I found myself on a new quest. I began to take the time to observe my fellow Costco goers carts filled to the brim with excess amounts of pretzels, Gatorade, and batteries. Even from a young age, I had always been curious as to why people ever needed to buy so much of one thing. Why would anyone ever need thirty six boxes of quinoa? Why is she buying three bottles of 180 piece vitamins? I barraded my father with questions as we navigated the aisles.

As I traveled between carts of free samples, I began to realize that Costco, which had served as such a place of comfort for my father and I on Sunday mornings, was suddenly so unfamiliar. I was no longer focused on the smoothie in my hand, but the unthinkable use of the 10 pack of maple syrup in aisle 24. Costco became a place for me to wonder and question issues much larger than my lack of a three pound box of jelly beans. My father and I found ourselves discussing the issue of obesity in America and diversity. Watching the women in the parking lot load up their Lexus’ with dark chocolate covered almonds and Sunchips, brought me to consider the political and economic nature of the world we live in. And just as I observed others putting mass amounts of food into their carts, I began to question my family and I’s role in supporting this mecca of commercialism. Costco allowed me to ponder and express my thoughts, whether it was through the enjoyment of Costco’s “all beef” hot dog or the sampling of new foods at the sample carts thoughtfully positioned around the store.

It was at Costco that I began to find my investigative skills that I use daily: at work, school, and in my social life. Just as I sampled Club crackers and tortilla soup, I sampled different areas of interest within my education. My introduction to AP and IB my freshman year further cultivated my interest in social sciences and all science courses. I began to realize that I wanted to be a person who made an impact and reach the most people. So I began to sample extracurriculars, friends, and electives in school. And just as I scooted through the aisles, carefully looking over the packages of food, I chose my classes, jobs, friends, and skills.

With my cart in hand, I began to take on something even bigger than the enormous warehouse: life. But Costco was only the beginning. It helped me to set up my basis of knowledge and exploration. It helped curb my insatiable and infinite curiosity. I want to seek and understand the deeper meanings of things and to help others. More importantly, I want to make an impact. Just as Costco satisfied my hunger for adventure, thought, and froyo for a dollar fifty, I believe college will further my interests and fine-tune these qualities I already possess.

Costco Wholesale Corporation: Background Information, STP Analysis, SWOT Analysis

Background Information About Costco Wholesale Corporation

Costco was the world’s second-largest retailer, Costco was the largest retailer of option in the world with organic food, rotisserie chicken, premium beef, and wine. Costco has the core competencies that give it a competitive advantage over its competition. Costco has defined its business model of services and quality goods at a very low-cost supplier. Costco management has designed, developed and implemented various strategies focused on this framework, enabling Costco to have a very large rate of growth in market share, sales, balances, etc. The main competitive advantages of Costco are economies of scale, reduced reliance on profit from goods sales and more concentrate on profits from membership fees and ancillary department sales and services.

Marketing Strategies

Costco’s s marketing strategies are providing high-quality products at the lowest price and charge all customers’ a membership fee. The marketing mix (4Ps) of Costco successfully supports the company’s efforts to maintain one of the global retail market’s top positions. (see Appendix for full trans)

Unique Value – Membership

Costco’s membership fee is very profitable. Costco operates a chain of membership-only warehouse clubs. Customers must join the membership before to shop in Costco. Customers need to show the membership card when they enter and purchase in Costco. Costco keeps costs to a minimum and sells high-quality products at the lowest price to attract customers to join the membership. Receive annual fees every year to make a profit.

Recommendation of Marketing Plan

Considering the product’s environmental sensitivity, the level of product saturation in the new potential market and other possible contextual factors. Hong Kong is a new potential market for Costco.

STP Analysis

Segmentation

In segmentation, geographic segmentation and behavioral segmentation will be considered. First, for the geographic segmentation, high-purchasing power residential areas, commercial areas, and some prosperous areas such as Central and Causeway Bay. These are the areas where Costco can be set up. Second, for the behavioral segmentation, Costco should intend to focus on consumers who like to buy foreign imported goods.

Targeting

For targeting, upper-middle-income consumer groups are the target customer of Costco. The issuance of membership cards as a market segment is divided into business members and gold star members. Business member is for the company management or director of Nonprofit Organization. Gold star member is for adult consumers.

Positioning

About the positioning, Costco imports large quantities of products to introduce unique products at the lowest price. Also, in order to attract the general consumer market, Costco should sell retail goods, provide small package items, offer retail goods for consumers to choose. However, based on cost considerations, the price is slightly higher than bulk packaging sales.

SWOT Analysis

Strength

Costco imports goods directly. They are the importers, it eliminates the price difference between suppliers and importers, so the products are selling at a low price. In the crowded market, Costco has differentiated itself by offering bulk products at discounted prices. There are many kinds of products imported from abroad, offering more options to customers. Costco selling their own production, it reduces the purchasing cost. Also, Costco provides products tasting to attract consumers to buy.

Weakness

Due to the membership system, member need to pay the membership fee to shop, and member needs to pay an annual fee to renew the membership, Costco will be lost non-member customers. Costco packs products into bulk packages in order to save costs, but the packaging is too large, it is not suitable for a small family. Although customers have the option to buy most goods at Costco, the choice is rather limited compared to other retailers. The total number of products circulating is 4000. When you hear that Walmart holds over 50,000 items, it sounds impressive.

Opportunity

By eCommerce, Costco is creating a stronger presence. And with all that Costco has to offer, building a strong community of online shoppers will be easier for it. It also makes it possible for Costco to sell more items without placing them in physical stores. Costco can also do something to stand out by offering its own production. Also, most people admire imported goods, their acceptance of Western culture has also increased sharply. It is a good chance to set up Costco in Hong Kong.

Threat

The competition is rising. Costco is used to compete with the big guys like Walmart, but the market share of Costco is still limited. Now it places pressure on Costco with these same guys focusing on eCommerce. Although the price of the Costco products is very low, if Costco wants to enter the market in Hong Kong, they have to compete with local supermarkets and department stores.

Adaptation

The inherent risk of international retail expansion is that retailers cannot adapt to different social and cultural environments. If retailers are unable to adapt to the needs of new consumers, they may lose sales and customer retention. So, Costco should adopt Global localization when they enter into Hong Kong market. Hong Kong people not used to buy bulk package products, they can shop in the supermarket and department store anytime, they do not need to buy food for a week at a time. Also, Costco could provide some products with Hong Kong culture only sell in Hong Kong to attract customers to consume in Costco.