Business Ethics at Costco Corporation - Case Study Example

Costco Analysis Table of Contents Table of Contents Executive Summary 3 SWOT Analysis. 3 Strengths 4 Diverse product mix 4 Value-Added Services 4 Strong Financial Performance 5 Weaknesses 5 Dependence on the North American Market 5 Opportunities 5 Growth in Non-Store Format 5 Strategic Expansion in Existing and New Markets 6 Threats 6 Changes in Labor Laws and Other Issues 6 Intense Competition 7 Risks Associated With Suppliers 7 Competitive Analysis 7 Marketing Assessment 8 Social Media Assessment 8 Specific Recommendations for improvement 9 References 10 Introduction Costco Corporation is a low-cost discount retailer operating in more than 660 warehouse retail stores. Costco also e-retails its products on costco.ca in Canada and costco.com in the US. There is a restriction to the access of Costco’s warehouses. It is only accessed by members who pay a small annual fee. The inventory of Costco has grown to high-end consumer products. They include luxury items and sophisticated electronics. The company has succeeded in meeting the needs of a specific customer group while also meeting the needs of other profitable customers. The company is a membership warehouse chain operator. The portfolios of the products of the company include hardliners, sundries, soft lines, food, fresh food, and ancillary. The products are also sold online. The company is always growing. The continued growth has always been attributed to its expansion strategies. The company has started an extensive overseas expansion to continue with its expansion needs while at the same time maintaining its domestic growth. Growth in old stores is spurred by the addition of more goods and the inclusion of additional services like pharmacy and gas stations. Copco’s Earnings per share (MorningStar.com) Executive Summary Costco Corporation is an international low-cost retailer with more than 660 retail locations in more than six countries worldwide. It has stores in about thirty-seven States in the US. Professionals and small business owners in the range of a hundred thousand dollar salary constitute the primary customers of the corporation due to their need for high-end goods and services and high disposable income. Day to day home and office supplies, usually from paper to flour provides the economic saving of most of the buying and brings the customers who are capable of high-end impulse buying. The company generates one of the highest dollars per square foot returns. The consistent growth of Costco and low volatility coupled with corporate policy and excellent service make it the right firm for investors. SWOT Analysis. Costco Wholesale Corporation operates as a chain of membership warehouses with headquarters in the United States. The corporation has more than 660 warehouses in the United States, Mexico, Japan Canada, Puerto Rico, Japan, United Kingdom, Taiwan, Australia, and Korea. Its strengths emerge from its value added services and diverse product line. The value added services are a source of loyalty to its members. The corporation can also ensure that its growth is strong by enhancing its e-retail services and also by opening up new stores. Its high dependence on vendors can hamper its growth because of labor issues and the rapidly growing competition. Strengths Diverse product mix The corporation has a broader assortment of merchandise. It also has lower prices when compared to other retailers. The corporation provides a wide variety of products to its members. It provides six product categories that include hairlines, sundries, soft lines, food, ancillary, fresh food and other products. In addition to the diverse product line, it accepts return of its merchandise within its 90-day policy in Canada, the US, and the United Kingdom. The returns mostly arise from the sale of its electronic products. Costco provides free technical support to its customers. On the same note, it has extended warranty duration. The fact that the company provides a diverse assortment of high-quality goods at lower prices makes it attract a lot of new customers. Fair prices make the corporation retain the existing customers. Value-Added Services Costco is a chain of membership warehouses. It offers two types of membership for individuals. It has a gold star membership and the business membership. Additionally, it offers minimal charges for its better quality and privately labeled products. Members can decide to use their membership at any Costco warehouse be it in Canada or the United States. It has approximately one million gold star members and seven million business members, with an additional four million add-on cardholders. It is also experiencing member renewal rate of more than 90 per cent. Its increased membership has been a source of its increased income. Membership fees contribute to the magnitude of 2.2 percent of Costcos total sales. The membership not only increases loyalty among its customers but also increases the company’s total revenue. Strong Financial Performance Over the past several years, the financial performance of Costco has been consistently profitable. Earnings and revenues from operations have been increasing significantly. The company posted a growth of six per cent in revenues in the fiscal year ended September 2013 with the increase attributed to an increase in membership fees and comparable sales. The corporation’s operating profit increased by 10.6% in the fiscal year 2013. The net income also increased by 19.3%. The consistent financial performance of the company has enhanced its market position as well as improving its profitability. Weaknesses Dependence on the North American Market Costco is overwhelmingly depending on the North American market. Dependence on a certain geographical region will expose it to associated drawbacks and risks and will limit its growth. The operational and financial performance of Costco on the North American market accounts for 84 percent of operating income and 88 percent of consolidated net sales. California alone accounts for over 23 percent of the companys net sales. Opportunities Growth in Non-Store Format The company has been availing itself across the world by merchandising through its e-retailing platform. The non-store selling format used by Costco includes the use of its websites costco.ca in Canada and costco.com in the United States. The websites offer the merchandises t available in stores. It also merchandises the products not found in its stores and services such as travel and membership, digital photo processing, and pharmacy. Costco should take advantage of the tremendous internet retailing growth to enhance its online shopping sites with technological and security protection facilities. It should also offer liberal return policies and free shipping. According to the website globalbb.onesource.com.proxy.seattleu.edu, such services will make its internet shopping more appealing than ever to its clientele in comparison to its competitors The corporation can also take advantage of the growing online retail sales in the US to increase its market presence and generate higher revenues. Strategic Expansion in Existing and New Markets Costco has the potential of nurturing its growth by opening premier stores in its existing markets both internationally and in the domestic market. The company has plans of entering into new markets. In 2013, 26 new stores were opened. The expansion has increased the revenues of the company by 6 per cent. The expansion plans by Costco provide opportunities for the corporation to penetrate into new markets and also increase its proximity to its customers. Threats Changes in Labor Laws and Other Issues Labor laws are changing in the United States. Costco can be limited by the labor laws and thus find it hard to attract qualified employees to fill its vacant positions at the warehouses and other outlets. According to Gibson (2006), other external factors such as the availability of good number of qualified personnel in the local operating markets, changing demographics, health, unemployment levels within those markets, prevailing wage rates and adoption of new revised and new labor laws affect the operations (p.215). With a larger number of employees, revised labor laws and increasing labor costs, rules and regulations can adversely affect the company’s financial performance. Intense Competition Competition is a threat to the continued growth of Costco. Its main competitive factors include employees, members, customer service and products, warehouse sites, and price. The main competitors include Wal-Mart’s, Wholesale Club, Amazon.com, Sam’s Club, BJ’s, Kohls, Target, and other regional, local, and national retailers with low-cost operations. Other competitors including supermarkets, general merchandise wholesalers, supercenters, discount retailers and specialty chains offer stiff completion, hence impede the total sales. Some competitors have greater market penetration and more financial resources. Competition can hamper the company’s growth prospects. Risks Associated With Suppliers The success of Costco depends on product availability and low prices which are dependent on the ability of suppliers to deliver the goods. Finding qualified suppliers locally and internationally can be a tall order because of the type of goods that Costco deals within its line of operation. If supplies are affected by the political or economic factors, the same gets transferred to Costco. According to Emmett (2005), the risks associated with the supplies of a company can affect the revenues and sales of the company (p. 162). Competitive Analysis Costco operates in regions that have large numbers of small business owners and high-income professionals who have a higher demand for high-end goods. In the United States, the main competitor of Costco is a Wal-Mart division called Sam’s Club. Another regional player called BJ’s Wholesale Club competes with Costco in the Atlantic seaboard of the US. To differentiate it from Sam’s Club, Costco specializes in high-end luxury merchandise that its customers demand. Its focus on the high-end demographics differentiates it from other discount operators. Costco focuses on high-end clients and offers them low prices. The strategy has enabled it to create loyalty among its customers and has created a barrier to the entry of new competitors. On the same note, the strategy has helped it remain relevant in its operations. Other than the clientele, Costco has also been able to create very loyal employees. The loyal employees have contributed in the creation of a very positive image among the customers, shareholders and suppliers that very few competitors can match. Its customers view Costco as a low-cost store with high-end goods. The image of Costco of high quality vs. low cost has been making customers make a lot of impulse purchases that would not have happened. Its competitors have been seen as bulk buying cheap vs. low-quality items and goods Marketing Assessment Costco has been able to create an assumption in its customers that its products are unlike any other offered in the market. The ability to allure has been its greatest marketing strategy. The membership idea has been another vital marketing strategy where customers have been taking pride in showing their membership cards. The membership comprises of business, gold and executive membership cards. Social Media Assessment The non-store selling format used by Costco includes the use of its websites costco.ca in Canada and costco.com in the United States. The websites offer the merchandises available in stores. It also merchandises the products not found in its stores. Services such as travel and membership, digital photo processing and pharmacy are also offered. The business should take advantage of the tremendous internet retailing growth to enhance its online shopping sites. Additionally, it should take advantage of the technological and security protection facilities and offering liberal return policies and free shipping. In so doing, it will make its internet shopping more appealing than ever to its clientele. According to the website globalbb.onesource.com.proxy.seattleu.edu, a business can take advantage of the growing online retail revenues in the United States to increase its market presence and generate higher revenues. Specific Recommendations for improvement The company should increase its expansion in the overseas market since the local market is already saturated. It also helps to reduce the risk of relying only on the domestic market. Costco is overwhelmingly depending on the North American market. Dependence on a certain geographical region will expose it to associated drawbacks and risks and will limit its growth. The company should stabilize its low-cost bulk buying strategy. Application of such tactics will help increase demand of its products. It will also help to hedge it against economic shocks like a major economic downturn which can hurt it because there will be a decline in the demand for luxury goods. The company should also build on its membership strategy. The membership strategies will make it know the needs of each customer to enable it tailor the product selection and marketing towards the need. The membership strategy is also a source of income and a marketing campaign. References Emmett, S. (2005). Excellence in warehouse management: How to minimize costs and maximize value. Chichester, West Sussex, England: Wiley. Top of Form Bottom of Form Gibson, K. (2006). Business ethics: People, profits, and the planet. Boston, Mass.: McGraw-Hill. http://globalbb.onesource.com.proxy.seattleu.edu/web/Reports/ReportMain.aspx?KeyID=177272 &Proc http://globalbb.onesource.com.proxy.seattleu.edu/web/company/companylookup.aspx?searchtyp e Read More