Introduction to Costco Wholesale Corporation

Discuss about the Costco Wholesale Corporation Strategy.

Costco Wholesale Corporation is the second largest global retailer in the world that supports international group of warehouse. The uniqueness of the company is that it offers high quality branded products at reduced cost. It deals with variety of products like groceries, toys, sporting goods, health and beauty, sporting goods as well as food court. The main vision of the company is to promote efficiency in operations and reduce price and cost. In parallel with its vision, the mission statement of the company is to provide superior goods at reasonable price to all members. High quality and best prices in the market is the main strategy of the company to attract customers and achieve growth in business. Although Costco Wholesale Corporation is currently at the top of its business, the main challenge for the company is to maintain the same pave with other top retail organizations like Walmart and Super Target. Hence, the main purpose of the report is to conduct SWOT analysis for the company and focus on threats and opportunities for the business organization. With the use of theoretical framework for analysis, the report also provides recommendations to eliminate threats and maximize the opportunities for the company.

As the report is focused mainly on considering the risk or threats to business at Costco Wholesale organization, the SWOT analysis of the company is informed by strategic management and risk management theory. Strategic management is the comprehensive business process to set business objectives, analyze competitive business environment and internal organization of the company and evaluate strategies across the organization. Strategic management process supports a company to identify current marketing strength of the company compared to its competitors and recognize opportunities and threats facing the organization [1]. The strategic management process in an organization can be analyzed by the method in which the four stage of strategic management process is implemented. This includes:

1. Environmental scanning- It involves the process used to analyze the internal and external factors affecting the business of an organization.
2. Formulating strategic business strategies- It is the approach taken to take the best course of action to fulfill business objectives and vision.
3. Implementation of strategies- Strategy implementation involves restructuring organization’s structure, resource and decision making process to convert business strategy into action
4. Evaluation of strategies- The final phase is the step to evaluate internal and external factors that affects business activities and influence the business activities of an organization[2] .

From the above explanation, it can be said that theoretical framework for strategic management is build from three components which includes strategic analysis, strategy implementation and strategic choice. This theoretical framework has been chosen to analyze internal and external factors of the organization [3]. The three components will help in the analysis of threats and business at Costco Wholesale Corporation the following ways :

1. Strategic analysis: Strategic analysis will help to identify the strategic position of the company. Review of internal and external factors can affect business position of an organization. Different tools can be used for strategic analysis such as SWOT analysis, Porter’s five forces and PEST analysis. SWOT analysis identifies strength, weakness, opportunities and threats to identify the strategic position of the company. This is based on the assumption that good business strategy is one that fits with the external and internal situations of a company [4]. Similarly, PEST framework helps to understand the drivers of long-term change [5].
2. Strategy implementation- It involves the steps taken to manage the change
3. Strategic choice: It involves the steps taken to identify possible scenarios or alternative to achieve outcome ).

The advantage of taking the strategic analysis framework for SWOT analysis is that it favors analyzing both internal and external factors of the company and this would help to determine whether current strategic steps taken by the organization is suitable as per the internal and external environment or not.

Theoretical Framework for SWOT Analysis

SWOT analysis can be considered as a useful technique to understand the strength and the weaknesses of an organization and the threats and the opportunities faced by the organization. The main purpose of SWOT analysis is to understand the strengths and minimize the threats and make the greatest advantages of the opportunities available to mitigate the risks ⁶.

One of the strength of Costco is that they possess a loyal customer base. The main philosophy of the COSTCO whole sale is to provide quality goods to its members but at high prices. Brand loyalty means that the customer trust the products of the brand. Brand loyalty is related to customer satisfaction. High cost switching is often related to loyalty. Low price does not result in brand loyalty and it is the brand loyalty of the customers that enables the companies to charge higher prices for their products. According to [6] customer loyalty and profit can be increased by making the customer the first priority, by providing rewards to the customer. In some cases the loyalty points can be used to enhance the customer loyalty.

Strength is COSTCO has been improving to provide goods to its customers at competitive prices. It has focused not to increase the price of the product initially but to maintain a viewpoint among the members of the pricing authority or providing the goods at competitive prices to the customers [7].

COSTCO has been considered as one of the largest retailer in the world after Walmart according to Forbes. COSTCO has in total 749 warehouses worldwide. The high sales volume of Costco has contributed to its high operating efficiency. In spite of having a low margin of the in the retailing industry the company has been proved to be profitable to most of the competitors and is growing rapidly⁷. The strength of the retail marketing can be increased by proper risk management and proper strategic management related to higher loyalty, but it is necessary to manage the cost by compromising the quality of the product. For the retailers customer retention is more important than customer acquisition. It costs more to acquire a new customer than to re-engage an existing one. Furthermore, repeated customers are likely to spend more with time and hence the profit of the company may increase⁷.

Some of the major weaknesses of Costco are that the company is mainly dependable on the financial performance of Canada and United Status. This can be mitigated by focusing on the other departments across other countries.

SWOT Analysis of Costco Wholesale Corporation

It order to overcome the threats Costco should accomplish its business model with a lower cost leader strategy that strives to be the overall low cost provider of the product. The frills and the costs that were historically associated with the retailers like fancy buildings, the sales person, billing and account should be curtailed. Costco should position itself in the market place by thorough product selection [8]. The supply chain efficiency of Costco should lie in the cross dock distribution facility. This can be done by purchasing the product directly from the manufacturers and then routing it through cross docking facilities that can act as the points of vendor consolidation points for moving goods in full truck to the stores.

In order to face the competitive market effective strategies can help to face the competition in the market. These can be done by enhancing the quality of the product and the customer retention policies. Big companies like Costco cannot compromise with the cost and hence focus should be given of beating the competition through other means⁸. The company should run a tight operation having extremely low overhead that would enable the company to do savings to the members. In order to win over the competitors it is necessary to achieve superior customer satisfaction.  The business model should be strong enough to generate a fruitful return over the invested capital.

Strategic sooth saying is extremely important for competing with the market. Continuous research and development is required to learn what the customers want. It is necessary to go after a certain types of customers, the small business owners that are status conscious and hence have the capacity to spend money on the premium items. Hence it is necessary to focus on the small business owners as they are sometimes the wealthiest section of the society [9]. Competitors can be managed by making most of the profits from the membership fees than the profit margins and the product sales. One of the strategies for shifting the rules of competition is to lower the prices of certain key products. It means that the company might sell the products at amazingly low prizes, which is a key competitive advantage in the discount retail sector. Strategies like customer friendly return policies can be useful in retaining the customers. Strategies like acceptance of several payment methods, provision of the gift prizes can increase the customer experience and satisfaction. A company like Costco should have an aggressive and strong online presence for ensuring a strong membership renewal rate, which Costco is already having[10].

Recommendations to address identified threats and maximize opportunities

Costco is a retail organization that has established its name in the retail sector. It has used quality parameters to offer great price to attract and retain new consumers. Strength for the company is diverse variety of goods with which the company is dealing now. Such product diversification gives company the scope to enter large and diverse market and maximize source of revenue and income. This also give Costco the opportunity to expands it business globally and open new warehouses even in remote locations. Review of this strategic step taken by Costco is in relevance with relationship marketing theory. The company took the step to focus on quality to hold on its customer and build new customers too. Relationship commitment is dependent on trust, service quality and communication effectiveness [11]. The company took the step to interact with customers by focusing on functional and technical quality. The company can used took strategic step to evolve its marketing mix and further attract more number of customers by means of high quality products. Another incredible step that the company can take to enhance its product quality and versatility includes offering products with multiple usage. It can also take the help of web technology to attract young and health conscious customers and drive long term earnings too.

Another opportunity for the company is its strong presence in e-commerce. This gives the opportunity to grow at much higher rate than before. The advantage of using e-commerce as a medium is that the company will have no geographical limitations in selling their products and it will save their operational cost too. This will expand reach to customers and ensure 24/7 buying and selling [12].

One of the common threats that big companies face are big competitors like Walmart, Kroger and Target. This has certainly limited the market share of Costco[13] .

There are many ware house companies in U. S and Canada that are capable of providing similar merchandise quality, price and selection. The company also competes worldwide on a global basis with the international, national and the regional whole sellers including the super centers and the supermarkets, departmental stores and the online retailers[14] . The internet retailer giants such as the Amazons are real threat to Costco that provides good quality of products with prices similar as offered by Costco. Costco is also vulnerable to the forex movements of the US dollar versus the foreign currencies, particularly the Canadian dollar ¹⁴.

The threats can be turned in to opportunities my taking up proper administrative and strategic planning. Competition with the giant companies can be made by cost curtailment without compromising the quality of the product [15]. Customer retention is the best policy for increasing the profit margin than the other companies. An aggressive online marketing of Costco can be made and online retailing can be improved. New experimentation has to be made for the introduction of the new products in the market for that it is required to understand the requirements of the people . Evaluation of the public requirements can be made from the market analysis. Another option for turning the threats in to opportunities is the high retention of the employees. Generous pay and excellent health benefits or health insurance coverage can be helpful in reducing the staff turnover in Costco.

The company has to research and take big risk for the luxury items although a lot of money is bounded in the inventory if the item does not sell quickly [16]. The buyers have to rely on the intuition and creativity to buy the items. Other factors that influence the opportunities are the effective packaging. The packaging should appear appealing to the customer.

Over the past few years retailing in Australia has experienced a positive growth. Despite of the weak growth of the market and the increased household debt, the strong housing market, low interest rates and growth of the household credits, the customers are still encouraged for spending. Although higher costs are often internet retailing in Australia have experienced a strong development .  The increased role of having a retail presence in more than one channels have encouraged the retailers for investing heavily in the omni-channel offerings, having a particular focus on the digital presence. The grocery retailers are much stronger than the non grocery retailers.

The Costco has been the second largest retailer in the Australia leading across more than one channel. The success of the company is largely driven by the strong performance of all the channels like the groceries, toys, hardware, sporting goods and the house ware [17]. Although retailing in Australia would see a positive value CAGR as per the fore cast, the overall economy of Australia us seen to be slowing down. High mortgage stresses and low wage growths will be affecting the impact of the growth of the customer products and thus the growth of retailing ¹⁷.

Conclusion and Recommendation:

It has been identified that the main weaknesses and the threats to Costco are the big competitors like the Walmart or the online retail stores[18]. Big competitions can be we won by shifting the rules of the competition like lower prices in some exclusive products that would attract a large number of customers¹⁷. Customer retentions can be done by reminding the customers about the introduction of new products which can be done by the help of automated SMS . The provision of a smart card in shopping, loyalty points above a certain percentage of purchases[19]. Furthermore in order to compete with the online giants such as the Amazon, there should be a strong online marketing. Online retailing would include different payment modes, cancellation and easy return policies [20]. Costco will continue to expand its horizons by reasonable prices and strong customer loyalty. Although Costco’s strengths have outstripped the weaknesses, proper strategic management can be useful in mitigating the current threats.

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