Costco Wholesale Corporation Swot Analysis
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Costco Wholesale Corporation has changed the way shopping has been done and centralized merchandise into one location. The founders of Costco Wholesale Corporation, James Sinegal and Jeffrey Brotman, are the envy of retailers everywhere. Costco was started over 20 years ago and continues to grow every year. They have over 488 locations serving 84 million customers in eight different countries. Costcos annual sales are over $50 billion and employ a work force of nearly 125,000 highly motivated and well paid employees. With these numbers it makes the number one warehouse club and the fourth largest retailer in the nation. The idea behind Costco is to offer a limited selection of merchandise at very low prices, setting razor thin profit margins, establishing lofty ethical standards, and rewarding employees with good pay and healthcare benefits. The reason Costco is able to offer low prices and better value is because they eliminate all the added extras and costs historically associated with conventional wholesalers and retailers such as sales people, fancy buildings, delivery, billing, and accounts receivable. Concrete floors, fluorescent lights and pallets of merchandise piled on to the rafters, the massive 150,000 square foot theater or retail is worthy of the “big box” title. At first this idea started with Sol Price, founder of the California retail Price Club where James Sinegal worked and looked to for a mentor. He learned Prices high volume and low cost trade secrets and also studied the art of getting the right product in the right place for the right price. Sinegal left Prices company to start a competing company, Costco. Later the two businesses merged in 1993.
There are many distinctive aspects to this company in which it continues to grow and succeed. Such as their business environment, leadership, motivation techniques, and their strong background for ethics and social responsibility.
The environments in which businesses operate are increasingly dynamic. Managers are required to be ready to react and respond to subtle environmental shifts (1; p.63). The business environment starts with the external environment which is divided into two parts the general and the task environment. The external environment has six dimensions, they are; international dimension, technological dimension, socio-cultural dimension, economic dimension, legal political dimension, and the natural dimension. The international dimension of the external environment represents events originating in foreign countries as well as opportunities for U.S. companies in other countries (2; p. 65). Costco demonstrates this because they started as a small startup company in Issaquah, Washington and have gone international with the company in eight different countries. The countries include, with 410 locations in the United States and Puerto Rico, 77 in Canada, 21 in the United Kingdom, 6 in Taiwan, 7 in Korea, 9 in Japan, 1 in Australia, and 32 in Mexico (3).
The technological dimension includes scientific and technological advancements in a specific industry as well as in society at large (2; p.66). In this country technology has had huge advancements and has improved many company operations. Companies now run smoother and more efficient. Establishing cost saving partnerships with suppliers requires the resourcefulness of Costcos dedicated managers, but maintaining these relationships on day to day basis is made possible through amazing technology. An example would be the coordination of order transports, and replenishment of inventories. This would be nearly impossible without computerized information systems like the Costco Collaborative Retail Exchange (CRX), a high tech program that crates an electronic link between Costco and its vendors. The program gives manufactures, suppliers, and other partners constant visibility of Costcos warehouse. With the constant visibility they are able to effectively reduce out of stocks, increase new product introduction success, and manage item performance. Other Costco businesses depend on technology as well. Another example is their website, Costco.com, the companys e-commerce division. The site offers about 4,000 items for sale and nearly 70 percent of products ordered online are shipped directly from external suppliers to the customers. By connecting outside vendors and manufacturers to its e-supply chain, Costco saves millions in warehousing, inventory and shipping expenses. The CRX system has a great impact on the organization, managers, and customers. The system has played an important role in Costcos past, and it also holds the key to Costcos future success.
The socio-culture dimension of the general environment represents the demographic characteristics as well as the norms, customs, and values or the general population (2; p.66). Costco does not build warehouses anywhere without looking closely at the area. Sinegals development strategies include the careful identification of sites that provide a good fit between the organization and the environment. Majority of Costcos stores are located in suburban commercial districts, but also have stores in urban outlets too. For example, the tower complex location in the heart of downtown Vancouver, Canada, merchandise caters to the downtown demographics. AS with any type of consumer store, strategic planning is very important with respect to where Costco or other stores want to build.
The economic dimension represents the general economic health of the country or region in which the organization operates (2; p.68). Among these are the consumer purchasing power, the unemployment rate, and interest rates. This dimension does not reach out to all types of consumers when it comes to purchasing power and unemployment rate. Although most people can afford to shop at Costco, there are still many who can not for a couple reasons. First, Costco has a $50 dollar membership fee that occurs every year you are a member. For the lower income people it is too much and prefer to keep the extra cash. Secondly, what makes Costco a luxury is their selling of merchandise in bulk for low prices. In exchange lower income people can not afford to pay $10 dollars for a bulk of three boxes of cereal when instead they can purchase a box for $3 dollars at a smaller store. They plan on short term consumption instead of long term. Buying in bulk for low income people also means that they can not afford to buy a variety of products from Costco either. Though Costco continues to grow, it is still tough for many because of the recession. Many are being laid off, not many open jobs, or they have taken a pay cut to keep their job. This plays a huge factor because they are losing potential customers. There is nothing Costco can really do about this because of the fact that they are a “big box” wholesaler.