Running head: COSTCO CASE STUDY 1
COSTCO CASE STUDY
Case study analysis on Costco wholesale
Costco is one of the biggest warehouse stores in America apart from Walmart. Costco warehouse was founded in 1983 in Seattle by Jeffrey Brotman and Jim Sinegal. It was during this time that Jeffrey Brotman had started a small shop of men’s clothing but had flopped later on while Jim Sinegal was working for fed mart at the time. Jeffrey approached JimSinegal with the idea of opening a warehouse store in Seattle and they both had agreed upon a start up warehouse club in which result became Costco. During this time Costco was conceived to be more than a business company, but a mission thus is the mantra of “Do the right thing always”. Both Jeffrey and Sinegal divided their roles to smoothen out their work and be able to operate clearly and more focused. Sinegal became the merchandising, operational leader and the face of the company as the CEO until his retirement in 2011. Broman’s roles included selection of store sites and competitive strategist. It was during October 1993 that Costco merged with price club. The company was then able to establish its routes further outside the country into the world.
To this day, Costco has valued itself as being a discount based company wholesale where they sell their products cheaper (in bulk for consumers) to make a faster turnover of commodities. To make this possible, Costco has gone ahead and marked some strategic external environments that might hinder their visions. The external forces may include political, technological factors, social factors, economic factors, and lastly environment. These factors have all been considered by Costco by partnering with the government and making sure they adhere to the rules and regulations required by the law. Costco is a major third-largest warehouse store that has gone ahead fashioned in working with the best mins in the job of technology experts and buying the latest technology to go with the latest models. Social factors have a significant impact on how stores run their shops by studying the population of where you are going to set up shop to show that you can account the people’s needs and what kind of products you need to focus on giving discounts which Costco has keenly observed. Environmental factor includes land law, climate of the place affect how business will run and so far Costco has established a clean sheet of being the best in the industry by engaging research on lands laws and regulation that can safeguard their work.
Costco strength and weakness
Costco’s strength, weakness, opportunity, and threat analysis usually confirm the most significant threat that concerns the company at hand. Costco has been a discount friendly company that faces a lot of challenges and weaknesses a lot when it comes to buying and selling products and the returns that the company makes in profit.
Stiff market availability competition with retail store
Expansive supply chainanimal rights trends
Strong brand signature online competition
Diversification exclusive to membership
Expansion of products low-profit margins
Expansion of locations limited product margins
Costco SWOT analysis
Like all retail stores, Costco faces a significant threat of weakness and opportunities that usually save the company operations by looking into Costco’s internal gaps and strategic factors, limited product, and exclusiveness to membership and low-profit margin (Frue, 2019). Having low insufficient product margin compared to their competitor makes it hard for customer to get what they wanted due to the low availability of products in-store and having a customer membership to exclusively make it hard for others to enter and buy goods in its warehouse. Due to Costco discount rate it makes it hard to make a big profit from their sales and leaves small window of price adjustments.
Though Costco may be facing some severe threats, there are a few ways that can save the company from falling and go down the drain like diversification, expansion of product mix, and the development of locations. Costco can diversify and expand through the extension of products like Walmart. Products sold at the company can also get added where customer has all the variety they need in one place. The company has no zero policy to open its shops in one place but can do so in many areas, states, and countries where there are better economic benefits and grow in size. This makes points that Costco has a better chance in growth opportunity and expansion.
Costco faces threats that are social cultural-based that can render the market performance redundant. Competition with retail stores, online games, and online competitions are some of the risks that Costco is facing at the moment. The company is facing threats from its rivals such as Walmart’s Sam’s clubs in the market segment. Small business is now selling products online for a cheaper price giving Costco a run for their money and a hard time. Animal rights are some of the challenges that Costco is dealing with at the moment due to the fact they can reduce their animal products thought the company could make some adjustments and comply with the law and improving their supply chain policy. The company, however, needs to enhance its environment to do better than its competition.
Costco has the ability that firms use to grow their market and make extensive profits. Strong market presence, expansive chain supply, and strong brand like Kirkland signature. Costco is one of the leading wholesale shops in America, that has enabled it to have better exposure to consumers or customers. Expansive chain supply of Costco has helped the company created a very significant strength to achieve economy of scale. Having Kirkland as a brand assures customer that the quality of products that they deal with are legal and of good quality.
Costco corporate level strategy
Costco has a straightforward level strategy that is to always provide members with goods with quality and services and the lowest price possible. This business model can be linked back to their corporate strategy, where they intend to achieve quality and cost leadership. Costco’s mission of having lower price products, goods and services is what keeps consumers coming back for more since they love it (Grunig Kuhn, & Montani, 2018). This strategy by the corporate to lower price proves as an advantage to Costco from competitions.
Costco usually makes its sales in large amounts, creating more turnovers. This is due to their low cost and trade Kirkland land trademark, where the goods they sell are of good quality. Making more turnovers makes it so they have added advantage from their competitors, thus creating more profit.
Costco also usually makes a big chunk of money by investing with their workers. This tactic helps clear more turnovers while lowering the amount needed in employing more workers every time during cycles. This motivates their employees making them appreciate the work that they are doing and better serves the customer right.
Analyzing Costco business-level strategy.
Costco uses various business-level strategies to be ahead in the market. To achieve its business strategy goals, Costco has organized itself on multiple functional units
Costco has a shallow profit sales pitch attracting customers all over. The tone has cut down competition from other retailers (Mackey & Sisodia, 2014).
Costco usually offers a membership card where its customers can come in and buy their products in a small amount as possible. Any members who don’t have the membership card, however, can acquire one and still buy their products also.
While registering to do business online with Costco, they ensure that they keep making small business advertisements while lowering their prices weekly. This kind of marketing makes it hard to compete with the company since it makes high turnovers.
Customers get guaranteed that the products they buy are of good quality since the company usually signs up with best in the best like Kirkland’s. Using such trademarks means that the products and goods you’re dealing with are of quality standards.
Employers at Costco are ever happy and satisfied due to regular engagement by the company in making turnovers. Happy employees ensure that the company is guaranteed to build good relationships with their customers.
The company has strategically positioned itself all over the world in places where there is the demand for its service or availability. In reference to online business, Costco has already setup websites and started transacting online and opening stores worldwide for better, faster service delivery.
Costco usually goes and buys its merchandise from the manufacturers making the products in large quantities, enabling them to buy at low costs and making it less expensive for their customers also to purchase.
Costco structure and organizational structure
This type of organizational structure involves a strong functional structure and a secondary divisional structure. Through the functional organizational structure, Costco groups employees according to business functions, such as marketing and accounting. On the other hand, through the divisional organizational structure, Costco groups business components according to location or market (GAMBLE, 2019). Thus, the following are the main characteristics of Costco’s organizational structure functional grouping, which is primary and geographic division, which is secondary.
The function unit of Costco gets put in order of how they can run a business effectively and successfully. This method is proven successful and has been working respectively over some time where the top management level passes the law that can affect from top to bottom employee chain.
The functional characteristic of Costco’s organizational structure presents the essential functions to maintain the retail business. These functions are carried out, starting at the corporate level and affect the entire organization.
There is some strategic position that usually gets placed around the world in a way that they can offer more services to people much faster. Costco gets divided in ways that have proved sufficient to serve its large number of clientele, giving them a vast market advantage.
The main advantage of Costco is that they can always serve a broad clientele much faster and the structure inside is massive in a way that customers once inside the store can access the things they want much convenient manner.
Another advantage of the classification of the grouping is that they can always be able to support a large functioning organization. This way, they can make a decision that can affect all the divisions inside at the same time.
Costco though being a large company has the potential of becoming number one of the leading company worldwide. Using some of this recommendation, the company shall have an added advantage in the market.
Costco can increase their revenue if they open more stores in many parts of the world and venture into Africa where there is need for their services and goods. By venturing to Africa continent, they will surely have a large market and their products sold in bulk.
Costco has a good policy where they send emails to their customers and newly signed customers weekly. Sending emails over time tends to be unappealing since some customers find it annoying at times and slowly unsubscribe to the service missing the essential details or deals.
Costco should really improve customer services as well hire more employees to meet the large number of customers that come in on busy days of the week; and also work on meeting deadlines in delivering goods to their online clients. Sometimes it takes longer to provide goods and service, and customer always get angry at the company for not delivering on time, thus canceling the product they bought demanding a refund.
Costco should venture more into online business and set up hardware stores allover major hot points where their clients but more merge into the online segment. By setting this up this type of model, delivering goods will be much faster and increase their chance of being the best in the market.
They should also ensure they do more with trademarking with the best in the market. By using more good quality trademarks that are well-known all around by customers could help boost confidence in shopping experience and also build loyalty.
Costco has the option of memberships that give better discounts to either premium members or standard club level members usually offers services to clients who have signed up with them more and give them more offers. All customers should be given certain perks and Costco should work on creating better common ground view of the market for all.
Animal rights department and concerned parties should be addressed accordingly to avoid lawsuits all the time.
Costco could also partner up and merger with other small retailer in order to trade more. Partnering up with small retailers helps reach more clients and improves work quality thus creating more profits.
Frue, K. (2019, july, 4). SWOT Analysis of Costco Wholesale. Retrieved from PESTLE Analysis: https://pestleanalysis.com/swot-analysis-of-costco-wholesale/
GAMBLE, J. (2019). Essentials of strategic management: the quest for competitive advantage. MCGRAW-HILL EDUCATION: N/A.
Grünig, R., Kühn, R., & Montani, M. (2018). The strategy planning process: analyses, options, projects. Berlin: Springer.
Mackey, J., & Sisodia, R. (2014). Conscious capitalism: liberating the heroic spirit of business. Boston, Mass. : Harvard Business Press.
TRACY, B. (2018). BUSINESS STRATEGY. N/A: MANJUL Publishing House.