SWOT Analysis on Costco - Essay Example

S.W.O.T. analysis on Costco Costco is doing well in the wholesaling industry. The company has a good financial base and committed management team. Despite the ever-increasing competition, the company has managed to increase its total revenue. The financial position of the company makes it attractive to shareholders. The company has a good future since it has opportunities to penetrate into new markets. Table of Contents Abstract 2 Table of Contents 3 Introduction 4 Strategic Planning (Situational Analysis) 5 1.Internal business environment 5 Strengths 5 Weaknesses 6 2.External business environment 7 Threats 8 Organization for action 9 Conclusion 11 References 12 Introduction Costco is a membership warehouse club whose core aim is to bring its members the best prices on brand-name merchandise. Costco provides a diverse selection of merchandise, and the convenience of departments and limited member services designed to make the shopping experience a satisfying one. The companys first business opened in 1976 under the name Price Club on Morena Boulevard, San Diego (Costco Wholesale, 2013). The company originally served small businesses, but it discovered that it could achieve greater buying influence by also serving some audience of non-business members. In 1983, the company’s first warehouse was opened in Seattle. The company became the first to grow from 0 to $3 billion in terms of sales in less than six years. Costco merged with Price Club in 1993. The combined company operated under PriceCostco where it had 206 locations of operations generating annual sales of $16 billion. The headquarters of Costco Wholesale Corporation is found in Issaquah, Washington. The company is the globes biggest warehouse club chain based on sales. The company has employees of about 142,000 in number. This paper analyses Costco in terms of its strengths, weakness, opportunities and threats. The paper sets out a short history of the company and its market position. The paper looks at the revenue of the company, and the areas it can also engage into in order to increase its revenue. This paper sets out to explore if Costco has managed to hold its ground in its line of operation (Costco Wholesale, 2013). Strategic Planning (Situational Analysis) 1. Internal business environment Strengths Loyal customer base Costco boasts of very loyal customers. Customer loyalty is the strength of the link between an organizational relative attitude and continuous patronage with customers. The organization has effectively managed to attract and retain many customers over the years of its operation in operation (Costco Wholesale, 2014). Since Costco has a loyal customer base, it allows for the organization to have continued business from customers. It gives the organization credibility from customers who help it to grow. Customer loyalty has many benefits which include customers buying from an organization from time to time again, increase in how much individuals buy from the organization, customers can go beyond the norm and increase in their purchase, be unlikely to be lured by competitors, or tend to be understanding if anything goes wrong. Strong management Management plays a big role in determining if a business organization can succeed. Every organization strives to get a good management team that can help with the realization of the organization’s goals and objectives. Costco has managed to obtain a good management team that pushes forward its goals. The wholesale has recruited high caliber professionals who can be relied upon to bring the much needed success (Knapp, 2008). Costco employs employees after a rigorous recruitment exercise. The employs are trained and impacted with skills that will help the organization realize additional revenue. The continuous training has helped to create a strong management team that runs the organization very effectively. Strong financial muscle and increased revenue performance From year to year, Costco Wholesale Corporation has grown its revenue from $99.1B to $105.2B. Most astoundingly, the company has managed to reduce the sales percentage that was committed to the cost of goods sold. The percentage declined from 87.58% to 87.44%. The decline was the driving factor that led to a growth from $1.7B to $2.0B. The 2013 revenues for the company totaled $105.2B, while its annual earnings were $4.49 per share. The total revenue of $105.2B for the year 2013 was a big achievement for the company. With the increasing competition in the industry, increased revenue indicates that the company is doing well. A strong financial muscle implies that the company can easily expand into many other areas. An increased revenue performance indicates that the company’s investments are working in favor of the company. A good financial muscle allows the company to diversify into other areas that can help the company increase its revenue. Increased revenue is good news to members and shareholders, since they will get a much higher dividend (Fuller, Thompson & Butters, 2007). Weaknesses Non-consistent product supply The major weakness of Costco is lack of consistent product supply. The company relies on several suppliers who lack consistency. The company can easily lack the stock of a particular product if a supplier fails to supply. The situation can lead to loss of some customers if they come and lack that product. Strong dependency on suppliers The company has a strong dependency on suppliers, something that can act to the disadvantage of the company. Suppliers can fail to supply a certain product due to unavoidable circumstances. The company should start thinking of producing many of its own products. Mixed feelings from the vendor community There are mixed feelings from the vendor community. Some vendors complain of lack of efficiency from the company. The vendors believe that the company lacks customer satisfaction, and hence it must make some improvement. Although a section of vendors gives the company’s activities thumbs up, the company must act swiftly to solve vendors’ complains. 2. External business environment Opportunities Very low shopper penetration Costco Company has an opportunity to expand into various regions. Now, there is a very low shopper penetration around the world. Costco competes with companies such as DOLLAR, WAL MART, Vipshop and TARGET. The competition is only experienced in some specific areas. Some areas lack the services of companies that operate in the same area. As of March this year, Costco operated 649 warehouses that included 462 warehouses found in the United States. 87 warehouses are found in Puerto Rico while 33 and 25 warehouses are found in Canada and Mexico respectively. In addition, 25 are found in the United Kingdom, 10 in Taiwan, 18 in Japan, 5 IN Australia and 9 in Korea (Fuller, Thompson & Butters 2007). The statistics indicate that the company has not opened warehouses in Africa. Africa is a good opportunity for the company to expand. E-commerce business The internet has opened many opportunities for companies to market and sell products online. The internet offers a platform where organizations can interact with their customers around the globe. E-commerce business is where products can be traded online. It allows payments to be made online and products delivered to customers at a convenient time. Costco has an opportunity to invest in an E-commerce business, it only needs a simple internet connection and they are good to go. Expand wholesaling The other opportunity that Costco has is the ability to expand its wholesaling. The company can decide to venture into other areas of wholesaling. Besides the products that Costco is selling, the company can engage in a market research and sell other types of products to sell. For example, the company can decide to diversify into wholesaling agricultural or motor products into various markets around the globe. Threats Many promotional activities Promotion helps businesses to reach out to potential customers and maintain the existing ones. Many business organizations have noticed the advantages of promotional activities, hence have poured their money into various promotional activities. The promotional activities being carried out by competing businesses may be a big threat to the market share of the company. If the promotional activities succeed in taking away of some customers, then Costco will experience a decline in revenue. In order to sustain its top position in terms of revenue, Costco must also engage in powerful promotional activities that will attract new customers and retain the existing customers. Economic slowdown The current economic slowdown is a big threat to the company. The economic slowdown implies that people have less money in their pockets, which means that their purchasing power will be reduced. The economic slowdown has led to retrenchment of many people. The situation compels families to have a tight budget where they will only purchase products in the order of priority. When shoppers are no longer buying products they used to buy, the sales of the company reduce hence reduced revenue. Potential new competitors Although Costco is doing so well at the moment, there are new players in the wholesaling industry who are coming up. The potential new competitors have the ability to wrestle the market share being enjoyed by Costco. Costco has to keep an opening eye in order to survive in the industry. Some of the potential new competitors are DOLLAR, WAL MART, Vipshop and TARGET. Organization for action In trying to achieve the company’s mission statement, the company uses its code of ethics. The company uses a divisional organization structure where its national operations have been divided into three divisions. The divisions are Eastern, Southwest, and Northern/Midwest. An Executive Vice President leads every division. The very divisions are divided to make regions that are led by Senior Vice Presidents. These regions are further divided to form districts that are led by District Vice Presidents. In these districts, there are various warehouses that are under the leadership of the General Managers, a number of Assistant Managers and subordinate staff members. The company’s organizational structure follows four business ethics. The ethics are obeying the law, minding employees, respecting and taking care of members. The company believes that if the ethics are observed, the eventual aim of rewarding shareholders will be realized. There is a direct buying relationship with producers of brand name merchandise. Workers are organized in self-managing teams, and each worker is made to feel that he/she is a member of a supportive community. The company has established a strong vendor relationship. Purchasing economies of scale are achieved through a strategy of item focus. The strategy has assisted the company to achieve its vision and mission of respecting shareholders. Excellence in the company is realized by operating within the core competencies and core business. Leadership The secret of Costco’s success is in its culture. The CEO of the company has created a culture where there are no divisions between staff and the leadership. Every employee of the company has the same reasoning when it comes to understanding their customers and what makes the company’s strategies work. Each of the employees knows their task when it comes to creating the perfect atmosphere for customer has to get the “Costco experience”. The staff is paid fair wages which are higher than those of competitors. The gesture reflects the employees’ importance in contributing to the customer experience (Smith, 2010). The leadership of the company ensures that it involves it employees in major decision-making. The company listens to the view of employees on how the company can be improved. The company’s core competence makes it achieve the projected performance. The core competences’ effectiveness is made easy with the organization’s structure that permits the workers to self manage themselves. Motivating people The employees of Costco Wholesale Corporation get extensive training and education to improve their skills according to the market demands. The company has effective mobilization of a committed and engaged workforce (Sisodia, Wolfe & Sheth, 2007). Costco has health-care benefits that are available to many employees. Although the company increased the employees’ health care contribution, it covers about 92% of health care costs, which is generous according to the industry standards. The Washington state’s employees are not unionized. At a time when grocery companies desire to contain their labor costs, Costco believes in compensating its employees since they contributed in building it. Innovation and change The company’s industry conditions change since critical forces compel industry participants to change their actions. The driving forces are the main essential causes that change industry and viable conditions. They influence how the landscape of the industry will be changed. The major driving forces for Costco are joining the internet market, reforms changes in the growth rate of the industry, changes in customers and how they use products, product and marketing innovation, and changes in cost of products (Costco Wholesale, 2013). Costco has begun to accept internet shopping. The company created a website in the U.S (www.costco.com) and also in Canada (www.costco.ca), the websites help the company to be more competitive and effective in the internet market. Conclusion Costco has a very good management that can help the company realize its objectives. The management team has managed to come up with strategies that have seen the company’s revenue increase. The increased revenue is important for the company can use the additional revenue to diversify its business. The company is in a position of opening warehouses in other parts of the world such as Africa. If the company further improve on its selling strategies, it is obvious that the company’s financial muscle will strengthen. The financial strength of the company makes it attractive to investors. The company is paying its shareholders handsomely; hence it may easily attract many other investors. Costco is a good place to work due to better conditions for employees. The company has good rewards for performing employees. References Costco Wholesale. (2013). Why become a member. Retrieved from April 17, 2014 from http://www.costco.com/membership-information.html Costco Wholesale. (2014). Company profile. Retrieved from April 17, 2014 from http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-homeprofile Fuller, D., Thompson, A. & Butters, M. (2007). Costco Wholesale household almanac. Issaquah, Wash: Costco Wholesale. Knapp, D. (2008). The Brand promises how Costco, Ketel One, Make-a-wish, Tourism Vancouver, and other leading brands make and keep the promise that guarantees success. New York: McGraw-Hill. Sisodia, R., Wolfe, D. & Sheth, J. (2007). Firms of endearment: how world-class companies profit from passion and purpose. Upper Saddle River: Wharton School Pub. Smith, B. (2010). Core topics in operating department practice leadership and management. Cambridge, UK New York: Cambridge University Press. Read More