The purpose of the report is to provide a detailed analysis of Costco industry external environment, critically analyse the company and provide a detailed analysis of resource and competitive position, identify the generic strategy Costco is using to achieve a source of competitive advantage and finally, develop a new five-year strategy for Costco.
Costco Wholesale Corporation operates a chain of membership warehouses and with 592 warehouses across the globe; it is the largest and most profitable chain of its kind. Costco is partially vertically integrated with backward integration with Kirkland Signature Brand.
External environment analysis using Porter’s five forces model identifies that the industry faces low threats of new entrants, supplier and buyer bargaining power with moderate rivalry among competitors along with high threat of substitutes. Industry faces new challenges because of shifting demographics, household downsizing, more educated consumers and new channel formats. A comparative analysis of rival’s market position shows that among its competitors, Costco possesses considerable market share.
The generic competitive strategy adopted by Costco is that of the best-cost provider with low pricing, limited product selection and “treasure-hunt” merchandising being the three key elements of the company’s business strategy.
Low prices, very low employee’s turnover, low overhead cost, loyal and affluent customer base, high inventory turnover, superb return policy, strong brand and scale of operations are found to be some of the key strengths of Costco. Some of the weaknesses identified as: less attractive store décor, inconsistent profit margins, unattractive location, not having self-checkout, primary focus on business customers, slow growth of its private label, and limited choice for customers. Online sales, increasing house remodelling expenditure and increased demand for technological products are some of the potential areas that Costco can tap. Threats are stemming mainly from slow economy due to financial crisis.
To develop sustainable competitive advantage Costco can cut cost through operating excellence, innovation, speed, adopt triple bottom line accounting and has to successfully manage complexity arising from environment and its own operation. It can be hoped that Costco will continue its success as long as it keeps following its well thought out ideas and strategies.
Table of Contents
- Executive Summary
- 1. Introduction
- 1.1 Company Background
- 1.2 Mission Statement
- 1.3 Financial Review
- 1.4 Purpose
- 2. External Environment
- 2.1 Industry's Dominant Economic Features
- 2.2 Competitive forces and the strength of each force
- 2.3 Cause of competitive structure and business environment to change
- 2.4 Rivals' market positions
- 2.5 Strategic moves rivals are likely to make
- 2.6 Key factors for competitive success
- 2.7 Attractiveness of industry and prospect for profitability
- 3. Resource and Competitive Position of Costco
- 3.1 Effectiveness of present strategy
- 3.2 SWOT analysis
- 3.3 Price and cost competitiveness
- 3.4 Strength of company's competitive position
- 3.5 Strategic issues faced by the company
- 4. Generic Strategy Costco uses to achieve competitive advantage
- 5. New Strategy to Ensure Sustainable Competitive Advantage
- 5.1 Cutting cost through efficiency
- 5.2 Shopper Insights
- 5.3 Innovation
- 5.4 Speed
- 5.5 Triple Bottom Line Accounting
- 5.6 Managing Complexity
Objectives and Key Themes
The report aims to comprehensively analyze Costco Wholesale Corporation, evaluating its external environment, competitive standing, and strategic approach. It seeks to identify Costco's competitive advantage and propose a five-year strategic plan for sustained success.
- Costco's competitive strategy within the warehouse club industry.
- Analysis of Costco's strengths and weaknesses in relation to its competitors.
- Evaluation of the external factors impacting Costco's performance.
- Identification of key opportunities for future growth and profitability.
- Development of a sustainable competitive advantage strategy for Costco.
Chapter Summaries
1. Introduction: This chapter provides background information on Costco Wholesale Corporation, including its business model, mission statement, and recent financial performance. It highlights Costco's position as the largest and most profitable warehouse club chain, emphasizing its low-price strategy and commitment to member satisfaction. The chapter also lays out the report's purpose: to analyze Costco's competitive environment, its strategic position, and to propose a new five-year strategy.
2. External Environment: This chapter employs Porter's Five Forces model to analyze the competitive landscape of the warehouse club industry. It examines the threats from new entrants, supplier and buyer power, existing rivalry, and substitute products. The analysis highlights the moderate rivalry among competitors like Sam's Club and BJ's Wholesale, but also notes the challenges posed by changing demographics and evolving consumer preferences. The chapter further investigates the market positions of Costco's rivals, anticipating their strategic moves and identifying key factors for success within the industry.
3. Resource and Competitive Position of Costco: This section delves into Costco's internal resources and competitive standing. It assesses the effectiveness of its current strategy, performing a SWOT analysis to identify its strengths (low prices, loyal customer base, high inventory turnover) and weaknesses (less attractive store décor, inconsistent profit margins, limited product selection). The chapter also examines Costco's price and cost competitiveness, evaluating its overall competitive strength and pinpointing strategic challenges it faces.
4. Generic Strategy Costco uses to achieve competitive advantage: This chapter focuses on identifying the generic competitive strategy employed by Costco. It concludes that Costco operates as a best-cost provider, combining low prices with a curated selection of products and a "treasure hunt" merchandising approach. This section likely details how this strategy differentiates Costco from its competitors and contributes to its success.
5. New Strategy to Ensure Sustainable Competitive Advantage: This chapter outlines a new five-year strategic plan for Costco. It proposes various initiatives, including cost reduction through operational excellence and innovation, improving speed and efficiency, adopting triple-bottom-line accounting, and developing strategies for managing the complexities of its operating environment. The emphasis is on strategies to sustain Costco's competitive advantage in a dynamic marketplace.
Keywords
Costco Wholesale Corporation, warehouse club industry, competitive advantage, Porter's Five Forces, SWOT analysis, best-cost provider strategy, low-price strategy, sustainable competitive advantage, operational efficiency, innovation, triple bottom line accounting, market share, rivalry, consumer behavior, financial performance.
Costco Wholesale Corporation: A Comprehensive Strategic Analysis - FAQ
What is the overall purpose of this report?
This report aims to comprehensively analyze Costco Wholesale Corporation, evaluating its external environment, competitive standing, and strategic approach. It seeks to identify Costco's competitive advantage and propose a five-year strategic plan for sustained success.
What key themes are explored in this analysis of Costco?
The report explores Costco's competitive strategy within the warehouse club industry, analyzes its strengths and weaknesses against competitors, evaluates external factors impacting its performance, identifies opportunities for future growth and profitability, and develops a sustainable competitive advantage strategy.
What is covered in the Introduction chapter?
The introduction provides background information on Costco, including its business model, mission statement, and recent financial performance. It establishes Costco's position in the market and outlines the report's purpose: to analyze Costco's competitive environment and strategic position, proposing a new five-year strategy.
How does the report analyze Costco's external environment?
The report uses Porter's Five Forces model to analyze the competitive landscape of the warehouse club industry. It examines threats from new entrants, supplier and buyer power, existing rivalry (including competitors like Sam's Club and BJ's Wholesale), and substitute products. It also considers changing demographics and consumer preferences and anticipates rivals' strategic moves.
What internal aspects of Costco are examined in the report?
The report delves into Costco's internal resources and competitive standing. It assesses the effectiveness of its current strategy through a SWOT analysis, identifying strengths (low prices, loyal customer base, high inventory turnover) and weaknesses (store décor, profit margins, product selection). It also examines price and cost competitiveness and pinpoints strategic challenges.
What is Costco's generic competitive strategy, according to this report?
The report identifies Costco's generic competitive strategy as a best-cost provider, combining low prices with a curated product selection and a "treasure hunt" merchandising approach. This strategy differentiates Costco from its competitors.
What is proposed in the new five-year strategic plan for Costco?
The five-year strategic plan proposes initiatives including cost reduction through operational excellence and innovation, improving speed and efficiency, adopting triple-bottom-line accounting, and strategies for managing operational complexities. The focus is on sustaining Costco's competitive advantage.
What are some of the key keywords associated with this analysis?
Key keywords include Costco Wholesale Corporation, warehouse club industry, competitive advantage, Porter's Five Forces, SWOT analysis, best-cost provider strategy, low-price strategy, sustainable competitive advantage, operational efficiency, innovation, triple bottom line accounting, market share, rivalry, consumer behavior, and financial performance.
What specific tools or frameworks are used in this analysis?
The analysis utilizes Porter's Five Forces model to assess the competitive landscape and SWOT analysis to evaluate Costco's internal strengths and weaknesses. The concept of a "best-cost provider" strategy is also central to the analysis.
What is the overall conclusion regarding Costco's future?
The report concludes by proposing a new five-year strategic plan designed to ensure Costco's sustainable competitive advantage in a dynamic marketplace. This plan focuses on enhancing operational efficiency, driving innovation, and adapting to evolving consumer preferences and market conditions.
- Quote paper
- Yasir Farabi (Author), 2012, Competition among the North American Warehouse clubs: Costco Wholesalers versus Sam’s Club versus BJ’s Wholesalers, Munich, GRIN Verlag, https://www.grin.com/document/197075
