Macroeconomic Analysis of Demand/customers
Macroeconomic Analysis of Demand/Customers:
We know the major factors shifting the demand curve can be, but are not limited to, population size and composition, disposable income of customers, market trends and tastes, price of related goods and forecasted price, supply and need. Our further analysis of demand will be based on information gathered for our selected corporation, Costco.
Costco’s financial and operational performance is highly dependent on their U.S. and Canadian operations, which comprised 88% and 85% of Costco’s total net sales and operating income in 2015, respectively. Within the U.S., Costco’s California operations comprised 31% of U.S. net sales in 2015. Costco has a larger percentage of higher volume warehouses located in California as compared to their other domestic markets.
Declines in financial performance of U.S. operations and Canadian operations that may adversely affect the demand side of Costco’s business mode could arise from, among other things: negative trends in operating expenses, including increased labor, higher energy and gasoline costs, increased healthcare costs; higher levels of unemployment and depressed home values potentially resulting in the inability to retain their existing member base, or attract new members; increased consumer debt levels; higher foreign currency exchange rates; unsettled financial markets, and reduced consumer confidence; and changes related to government fiscal and tax policies.
One of the major forces driving the demand for Costco is the size and composition of its customer base. We see a shift of the market being millennials, nearly thirty seven percent of the market in 2014 and rising according to Forbes. We look at this particular generation, because they purchase and think different from previous generations. Millennials are actively attempting to be individuals, while purchasing sustainable, environmental friendly products. Further, Millennials are active with using technology and see online purchasing more favorable than older generations.
Costco thrived with a physical location to visit, but does have the online presence to compete with other big box stores such as Wal-Mart, JCPenney and Target. Different from those stated companies is that Costco still requires a yearly membership fee. Membership fees can range from $120 for elite business to $60 for an individual/family membership. Compare this to Sam’s Club, the biggest rival of Costco, and their yearly individual/family membership of $45.
Although Millennials may outnumber the Baby Boomer generation, the spending power and presence of disposable income are still possessed by the Baby Boomer generation. At the current time period, the Baby Boomer generation encompasses the 52 – 70-year-old population in the US. This accounts for nearly seventy-five million individuals.
So, where are these