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Competition among the North American Warehouse clubs: Costco Wholesalers versus Sam’s Club versus BJ’s Wholesalers

Masterarbeit 2012 20 Seiten

BWL - Unternehmensführung, Management, Organisation

Leseprobe

Table of contents

Executive Summary

1. Introduction
1.1 Company Background
1.2 Mission Statement
1.3 Financial Review
1.4 Purpose

2. External Environment
2.1 Industry’s Dominant Economic Features
2.2 Competitive forces and the strength of each force
2.3 Cause of competitive structure and business environment to change
2.4 Rivals’ market positions
2.5 Strategic moves rivals are likely to make
2.6 Key factors for competitive success
2.7 Attractiveness of industry and prospect for profitability

3. Resource and Competitive Position of Costco
3.1 Effectiveness of present strategy
3.2 SWOT analysis
3.3 Price and cost competitiveness
3.4 Strength of company’s competitive position
3.5 Strategic issues faced by the company

4. Generic Strategy Costco uses to achieve competitive advantage

5. New Strategy to Ensure Sustainable Competitive Advantage .
5.1 Cutting cost through efficiency
5.2 Shopper Insights
5.3 Innovation
5.4 Speed
5.5 Triple Bottom Line Accounting
5.6 Managing Complexity

6. Conclusion

7. References

Executive Summary

The purpose of the report is to provide a detailed analysis of Costco industry external environment, critically analyse the company and provide a detailed analysis of resource and competitive position, identify the generic strategy Costco is using to achieve a source of competitive advantage and finally, develop a new five-year strategy for Costco.

Costco Wholesale Corporation operates a chain of membership warehouses and with 592 warehouses across the globe; it is the largest and most profitable chain of its kind. Costco is partially vertically integrated with backward integration with Kirkland Signature Brand.

External environment analysis using Porter’s five forces model identifies that the industry faces low threats of new entrants, supplier and buyer bargaining power with moderate rivalry among competitors along with high threat of substitutes. Industry faces new challenges because of shifting demographics, household downsizing, more educated consumers and new channel formats. A comparative analysis of rival’s market position shows that among its competitors, Costco possesses considerable market share.

The generic competitive strategy adopted by Costco is that of the best-cost provider with low pricing, limited product selection and “treasure-hunt” merchandising being the three key elements of the company’s business strategy.

Low prices, very low employee’s turnover, low overhead cost, loyal and affluent customer base, high inventory turnover, superb return policy, strong brand and scale of operations are found to be some of the key strengths of Costco. Some of the weaknesses identified as: less attractive store décor, inconsistent profit margins, unattractive location, not having self-checkout, primary focus on business customers, slow growth of its private label, and limited choice for customers. Online sales, increasing house remodelling expenditure and increased demand for technological products are some of the potential areas that Costco can tap. Threats are stemming mainly from slow economy due to financial crisis.

To develop sustainable competitive advantage Costco can cut cost through operating excellence, innovation, speed, adopt triple bottom line accounting and has to successfully manage complexity arising from environment and its own operation. It can be hoped that Costco will continue its success as long as it keeps following its well thought out ideas and strategies.

List of Tables

1. Competitive Analysis

2. Unweighted Competitive Strength Assessment

List of Figures

1. Strategic Group Map

1. Introduction

1.1 Company Background

Costco Wholesale Corporation operates a chain of membership warehouses that sell a wide variety of brand products, as well as the company's own Kirkland Signature brand, at discount prices to businesses and individuals. With 360 warehouses across United States, Canada, Mexico, Japan, Taiwan, Korea, and the United Kingdom, Costco Wholesale Corporation is the largest and most profitable chain of its kind (Stores, 2011, p. 1).

1.2 Mission Statement

The mission statement of Costco is: “To continually provide our members with quality goods and services at the lowest possible prices” (Costco Annual Report, 2011).

In addition to offering low prices, Costco strives to be a valuable member of the community where they do business. The company does so by “providing good jobs at good pay, being involved in community activities and charities, contributing to local tax revenues, offering a profitable business opportunity to their suppliers, and most importantly, taking care of its members” (Costco Wholesale, 2001, p. 2).

1.3 Financial Review

As of May 01, 2012, the consensus forecast amongst investment analysts advises investors to hold their position in the company. The analysts forecast a median share price of $90, which is a 3.88% increase from the last price of $86.64. In 2011, Costco declared a dividend of $0.89, which was a 15.58% increase from the previous year. Analysts expect a dividend of $0.97 USD for the next year, an increase of 9.21% (Financial Times, 2012).

On Feb 29, 2012, Costco reported 2nd quarter 2012 earnings of 0.90 per share, which exceeded last year's results by 13.92%. Additionally, the company reported 2nd quarter 2012 revenues of $22.97 billion, which was 6.19% above the previous year’s result exceeding the $22.85 billion forecast of the analysts (Financial Times, 2012).

1.4 Purpose

The purpose of the report is to provide a detailed analysis of Costco industry external environment, critically analyse the company and provide a detailed analysis of resource and competitive position, identify the generic strategy Costco is using to achieve a source of competitive advantage and finally, develop a new five-year strategy for Costco.

2. External Environment

2.1 Industry’s dominant economic features

There are over 1,200 warehouse clubs in U.S., among which Wal-Mart has the largest share of 37.7%, following Costco with 13% and others with 48.1% (Hoary, 2010, p. 20). Costco is partially vertically integrated with cross-dock distribution. It also has backward integration with Kirkland Signature Brand (Khoury, 2010, p. 21). The industry operates with large economies of scale that comes from bulk buying from suppliers, gigantic packaging, large warehouse stores and a customer member base.

Costco is operating in a market that is at the stage of maturity with at least one store in each major metropolitan area (Khoury, 2010, p. 29). This means although the industry is profitable, the sales growth is low. Moreover, the players in the market are already established and strong brand awareness is present among the customers.

2.2 Competitive forces faced by the industry members and the strength of each force

2.2.1 Threat of new entrants

Costco operates in the retail industry that requires a very high level of capital investment and takes time to build up customer trust and relationship. Because of the enormous first-mover advantage derived mostly from economies of scale and given the inherent capital intensity of this business, any new entrant would face huge initial cost. Therefore, it could be concluded that the threat of new entrants is low.

2.2.2 Bargaining power of suppliers

Labour is the major supplier of Costco. Until today, Costco has not suffered from any employee strikes. The firm has chosen to keep its employees happy and will probably not attempt to alter this relationship in the foreseeable future.

In terms of the suppliers of inventories, Costco can leverage considerable buyer power in such a way that supplier power is a minimal concern. This leverage stems from the fact that suppliers generally cannot forward-integrate into retail- at least not into massive warehouse retail (George, Glick & Glowalla, 2004, p. 11). On the other hand, Costco can threaten to backward-integrate via its Kirkland private label. As a result of all these, Costco enjoys extensive buyer power.

2.2.3 Bargaining power of buyers

Costco has a large customer base with no individual consumer having much influence. However, consumers do have many options in the non-warehouse retail market such that Costco must fight for these customers with quality guarantees and lower prices. Overall, it can be said that the bargaining power of buyers is low.

2.2.4 Threat of substitutes

This is a threat that could be classified as high. Considerable substitutes are available when Costco’s products are disaggregated across sub-industry segments. For example, Costco’s mattress section competes with discount mattress stores and its media section competes with Tower Records and similar firms (George et al., 2004, p. 10).

Although there are only a few players in this market, they compete for every customer that comes through the door. Substitutes are plentiful and without proper strategy any firm could lose its sales to the guy across the street.

2.2.5 Rivalry among competitors

Costco operates in the highly concentrated retail product market, where its major competitors are Sam’s Club and B.J.’s Warehouse. According to George et al. (2004, p. 8), B.J.’s is the less formidable competitor because of its fewer and less productive stores that exist only on the East Coast. On the contrary, Sam’s Club presents a greater threat given its larger number of stores. Nevertheless, Costco has impressive ability to beat Sam’s Club on various sales measures and analysts do not seem overly concerned that Costco will lose its edge in the near future. Moreover, it has also been found that Sam’s Club presently trails Costco on both the quality and price axes. Therefore, it can be concluded that rivalry among the competitors are moderate.

2.3 Cause of competitive structure and business environment to change

U.S. retail industry is becoming more complex and changing at an ever-increasing speed. According to Maxwell, Dugal and Rubel (2007, p. 2) shifting demographics, household downsizing, more educated consumers and new channel formats compels the industry to quickly adapt and modify existent processes to satisfy the needs of future customers. Retail firms now have to tailor its offerings to their customers, as opposed to the mass appeal approach of the 1980s, in order to win customer loyalty.

In addition to that, economic crisis is changing consumer buying habits and thus creating a greater urgency for retailers to address new realities. A research undertaken by PricewaterhouseCoopers (2011, p. 1) found that retailers will be finding it difficult to grow and maintain profit margins as a combined effect of high operating expenses, market saturation, the rise of multichannel buying, an aging population, less affluent buyers, diminished consumer loyalty and the rise of digital media to influence purchase decisions.

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Details

Seiten
20
Jahr
2012
ISBN (eBook)
9783656231318
ISBN (Buch)
9783656231875
Dateigröße
732 KB
Sprache
Englisch
Katalognummer
v197075
Institution / Hochschule
University of New England
Note
Schlagworte
competition north american warehouse costco wholesalers sam’s club bj’s

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Titel: Competition among the North American Warehouse clubs: Costco Wholesalers versus Sam’s Club versus BJ’s Wholesalers