William Shonk, Danny Anders, Brytnie Miller MiñielApril 2016
offers 3,600 items whereas Sam’s Club offers 4,000 items. Although the difference in
quantity between the two doesn’t seem large, Costco has shown that with the right planning
and management, having a narrower product offering can lead to more than one advantage.
Costcodeliberately limits each product category to fast-selling models, sizes, and colors, which
meansthey usually offer only one or two brands or sizes per item which essentially makes the
decisionfor the member as to what they will by. This leads to efficiency in management because
there arefewer products to inventory, and it also leads to increased sales because customers are
morelikely to go ahead and buy a product even if it is not the brand they were wanting or the
productis being sold in a larger quantity than what they were wanting. Costco is also able to
create a competitive advantage over Sam’s Club with their treasure-hunt items. Treasure-hunt
items arehigh-end or brand-name product offerings that carry big price tags offered at a low
price.
Costco’s strategyis to entice shoppers to spend more than they might by offering
irresistibledeals on big-ticket items or name-brand specials and, further, to keep the mix of
featured and treasure-hunt items constantly changing so that bargain-hunting shoppers would
go to Costcomore frequently than for periodic “stock up” trips. This will draw members to the
store moreoften with the item of leading to more frequent purchases. The treasure-hunt items
at Sam’s Clubtend to be less upscale and carry lower price tags than those at Costco, which is
not always a positive representation of value that customers are looking for.
Costco enjoys a competitive advantage over BJ’s Wholesale in the same way that they enjoy
acompetitive advantage over Sam’s Club in regards to their product offerings. BJ’s Wholesale
hasa product offering of about 7,000 items, which is significantly higher than Costco’s product
offering of only 3,600. Costco has found their competitive advantage in offering
minimalvariation within each specific product category, but offering a range of products that
meet all of their members’ needs. Costco’s product range covers a broad spectrum that includes
rotisserie chicken, all types of fresh meats, seafood, fresh and canned fruits and vegetables,
paper products,cereals, coffee, dairy products, cheeses, frozen foods, flat-screen televisions,
iPods, digitalcameras, fresh flowers, fine wines, caskets, baby strollers, toys and
games, musical instruments,ceiling fans, vacuum cleaners, books, apparel, cleaning supplies,
DVDs, light bulbs, batteries,cookware, electric toothbrushes, vitamins, and washers and dryers.
Costco has managed to offera wide range of products that creates a one-stop shopping
experience for their members. While BJ’s Wholesale offers a significantly higher amount of
products, their range is not are varied.
Costco also enjoys a competitive advantage over BJ’s Wholesale in their geographical
expansion. Costco has made it a strategic goal to increase sales at existing stores by 5
percentannually and open additional warehouses. In recent years, Costco has opened between
14 and 34 new locations (total domestically and internationally) each year. BJ’s Wholesale
does not appear to have a strong expansion strategy in place, which is affecting their
market share.Costco has a winning strategy that is carefully made up of five sub-strategies that
allow them totouch on all market opportunities. Costco has found a way to successfully
implement each of thefive sub-strategies that each attribute to their overall goal of generating
high sales volume and rapid inventory turnover. Because Costco’s sub
-strategies align and have been successfullyimplemented, they are able to win in their
industry. ___________________________________________________________________
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William Shonk, Danny Anders, Brytnie Miller MiñielApril 2016
After completing a SWOT analysis, what recommendations do you
havefor Costco?
InternalStrengths
Weaknesses
1.Its Kirkland brand of private label brands is successful and offers high profit margins
2.Low product and services
3.Internal (home grown) topmanagement team in majority
4.Employee’s turnover within a year of recruitment is just six percent
5.Unique ability to keep overhead costlow resulting in low prices of goodsand services
6.Loyal and affluent customer base
7.High inventory turnover compared toits competitors
8.Consistent return on sales and returnon assets
9.Incredible return policy
10.Very attractive low prices
1.
High geographic concentration ofstores (30% of sales come from inCalifornia)2.
About 10% of sales come from gas,and if prices remain low, Costco'scheap gas becomes less
of anincentive for shoppers to come in3.
Comparatively less attractive storelayout for luxury items4.
Weak advertisement base leading tothe inability of reaching full range ofmembership base.5.
Not widely scattered around theworld than its competitors6.
Location is not attractive in terms ofreal-estate7.
No self-checkout8.
Primary focus on business customersrather than individual customers9.
Membership only warehouses clubretail business model10.
Limited selection of goods andservices.
ExternalOpportunities Threats
1.
E-commerce could win some business away from the likes ofAmazon and Sam's Club2.
Costco has said it plans tosignificantly expand its international presence.3.
Costco’s operations are mainly
targeted in countries where there ishigh GDP and high disposableincome of the consumers
(Canada,U.S.A and Japan) with low inflationrate in said countries4.
Serves the democratic countries with political and governmental stability5.
Rapid growth in membership1.
Sam's Club has been aggressivelyexpanding its services to businessmembers and has plans to
improve its private label brands2.
Shoppers could tire of Costco'slimited e-commerce and gravitatemore to its online
competition3.
Costco cannot attract people who are below poverty line due to itsmembership fees and bulk
purchase4.
Not well diversified in terms ofgeography (presence)5.
High competition from Sam’s Club
and BJ6.
Highly dependent on United States
William Shonk, Danny Anders, Brytnie Miller MiñielApril 2016
6.
Possibility of international expansion7.
Advantage of economic downturn8.
Increasing brand awareness9.
Positive image in terms of employees pay and social responsibilityand Canadian market.7.
Largely dependent on vendors fortimely supply of quality merchandiseat reasonable price8.
High market expectation in terms of price, quality and financial performance
SWOT Analysis Summary Recommendations
S-O Strategy:
Costco can pursue opportunities that are a good fit for its strengths.Costco can expand in e-
commerce. This could expand its already Loyal and affluentcustomer base
by reaching more customers that aren’t just in high GDP areas. This
will also help it to expand outside the United States and take away customers from
itscompetitors.
W-O Strategy:
Costco can overcome weaknesses to pursue opportunities. Highgeographic concentration of
stores (30% of sales come from in California) and weakadvertisement leads to the inability of
reaching full range of membership base which primarily focuses on business customers rather
than individual customers. If Costcofocuses more on e-commerce and its online presence it
could win some business awayfrom the likes of Amazon and Sam's Club
and have a rapid growth in membership.
S-T Strategy:
Costco can identify ways to leverage its strengths to reduce itsvulnerability to threats. By using
its high profit margins with its brand, Kirkland, itcan further exploit the already attractive low
prices and reduce its membership fees tohelp attract people who are below poverty line.
W-T Strategy:
Costco can establish a defensive plan to prevent
the firm’s
weaknesses from making it highly susceptible to threats. Its current weakadvertisement leads
to its inability for reaching its full range of potential membership base. It can concentrate on
attracting people who are below poverty level byadvertising its low prices in areas that are
outside it current geographic presence interms of high GDP. It can focus membership fees
based on income so its primaryfocus on it not only business customers but also on individual
customers.
