Costco Swot Analysis Essay

While there may be low bargaining power of suppliers, the bargaining power of consumers is extremely high. The rise of the Internet has led to an unprecedented transparency of prices within retail. It is now significantly easier to find the different prices offered at the various discount stores in the U.S. Thus in order to keep customers from the other 23,000 discount retailers in the united states, Dollar General must appease their customers at all costs in order to remain successful.

Bargaining power of buyers is medium-high because of the low switching costs and wider spectrum of similar products selling at competitive prices due to the influence of developing countries

Costco is a club card organization. Everyone wants to join. Joining Costco gives people access to great things that they must offer. Costco offers high wages, benefits and opportunities for growth. They offer the best wages around. They reward they employees not only with incentives but with bonuses. Employees can grow with the company because they promote within. Costco has some of the best top suppliers, PepsiCo, and Kraft Heinz. Having some of the best suppliers gives the company to bargain with their prices. A new competitor would find it hard to match Costco products and prices. Five Forces that outline Costco are rivalry among competitors. Rivalry among the company is high. Costco and Walmart are the top two in retail. Their or others, Best Buy and Target which are well known for holding their power. Retailers are competing against each other with whom can give lower prices to customers. The treat of substitute products and service is another force. This force is important because it is a technique to take customers away. They try to take customers away from other retailers by carrying items in one size with the best brands at a low price. Potential new competitors is down because competing with Costco and Walmart is hard. Power of supply. Costco does not spend that much on supplies because they buy in bulk keeping the

These are usually one time buys at very low prices and that turn very quickly. Costco’s customers shop their stores and look for these deals. These customers also know that when they spot these bargains they have to act quickly, because they would not last for long and most likely would not return. This concept naturally led to even high turnover of the “Treasure Hunt” products and is a definite competitive advantage. These characteristics – Low Prices, Limited Selection and the Treasure Hunt shopping environment are all key components to their winning Strategy.

The wholesale club industry has evolved into a common oligopoly just as other major industries have. The “big three” of this industry are Costco, Sam’s Club, and BJ’s. A five forces analysis will be examined in regards to the wholesale club industry.

Costco buys the majority of its merchandise directly from manufacturers for shipment either directly to Costco’s selling warehouses or to a consolidation point where various shipments are combined so as to minimize freight and handling costs. As a result, Costco eliminates many of the costs associated with multiple step distribution channels, which include purchasing from distributors as opposed to manufacturers, use of central receiving, storing and distributing warehouses, and storage of merchandise in locations off the sales floors. (1)

Costco Wholesale is the second largest retailer in the U.S behind Walmart. Costco is kown for its pricy $55 a-year membership fee, but this doesn’t stop consumers from coming to its massive warehouse of consumer goods. “Costco’s sales have grown 39 percent and its stock price has doubled since 2009” (Stone, 2013, p.1). That is a clear fact that Costco is doing well. This is during a period where other retailers struggled significantly.

Bargaining power of buyer: 46% percent brand loyalty means product is important to customer and he can pay more for the product – had positive effect. Also a large number of customers minimize bargaining leverage.

The first of Porter’s Five Forces that impact Costco is the threat of new entrants. The threat of new entrants into the wholesale and membership retail space is low. There are several reasons why the threat of entrants into the market is low. The leading reason why the threat of entry is low is because an emerging company will struggle to have the volume necessary to compete with Costco. Costco is the sixth largest retailer in the U.S. As a major retailer, Costco has the highest discounts on a majority of its

Next, the threat of new entrants which I believe is weak. Since Costco is a large warehouse store they have aggressive pricing that is difficult for smaller retailers to duplicate. Costco has their private Kirkland brand that makes entering this market more difficult and hard to duplicate unless new entrants have sufficient capital that is needed. As well marketing and advertising is very costly to gain new customers and keep current customers. Another factor making the threat of entry weak is the unappealing market growth in the industry which is small and as well as the

There are over 1,178 warehouse club locations across the U.S. and Canada, including Costco’s US warehouses. Unfortunately for the industry, expansion through small-size stores by the industry’s major players is expected to

Buyers (consumers) have a great deal of bargaining power because the buyer has a variety of brands to choose from and a lot of options to choose from such as precook, fresh, roasted and boneless.

Many of Costco’s strengths are held with their low prices, limited selection, and their employees. Costco prefers to hire from within and focused on career longevity and development for their employees. It was company policy to fill at least 86 percent of its higher-level openings buy promotions from within; in actuality, the percentage ran close to 98 percent, which meant that the majority of Costco’s management team members were home grown (Gamble & Thompson Jr., 2009, p. 226). Even with their many strengths, Costco still had some weaknesses. Their warehouses appeared to be very industrial, with concrete floors and merchandise displayed on wooden pallets. Costco also relied heavily on word-of-mouth advertisement, which saved the

Costco’s business model is focused on producing high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of national name brands and select private-label products in a wide range variety. Costco is focused in low-cost strategy is concentrated on a narrow buy segment and out competing rivals by having lower costs, therefore being able serve a niche consumers at a lower price. (Gamble, John and Thompson, Arthur (2009)

Small business and individuals/households do not have to go to Costco or any other warehouse club to shop. They have many other alternative places and channels they can make purchases, including from online retailers. Acceptable substitutes are readily available and buyer costs to switch are minimal. While the price at substitute retailers may not be quite as low, the selection of merchandise is greater and there is often greater convenience in location. Product differentiation is also low in that the merchandise is quite similar. Take for example Costco selling Sealy mattresses. The same mattress can be