Costco Wholesale Strategic Analysis - Case Study Example

COSTCO WHOLESALE STRATEGIC ANALYSIS Costco’s Capabilities The major goal of Costco is to provide their members with quality services and goods at the least prices possible. It was believe of the management that rapid inventory turnover when mixed together with operational efficiencies gained through reduced merchandise handling in self-service facilities of warehouse, no frills, had facilitated Costco to operate at much lower margins so as to gain high profit margins than mass merchandisers, traditional wholesalers, supercenters and supermarkets. As per the Supermarket News, Costco has been able to achieve the position in America as the third largest retailer. The major capability of the firm is that it is relatively cheaper in comparison to all other conventional grocers. Its operations are aligned with the purchasing strategy which is called as “treasure hunt” which denotes that tempting deals and new items spontaneously appear. The items which are offered by the company are relatively at low prices and this enable buyers to add more items to their shopping cart (Matthew, 2006, p. 135). Value chain analysis to some extent helps to identify the hidden capabilities of a firm. The value chain basically represents those factors which help to deliver goods or services to end users. It is essential for a firm to control its supply chain activities efficiently so that right product is delivered to customers at right time and right place. There is a mix of distribution facilities which has been adopted by Costco so that level of efficiency can be enhanced in its supply chain. The most essential component in supply chain of Costco is its highly efficient facility of cross dock distribution (Thompson, 2009). Costco is even been able to keep its operating expenses low through purchasing merchandise directly from manufacturers and then directly routing them through cross docking network that act as points of vendor consolidation in order to move goods in full volumes, by loading into truck to respective stores. Their capabilities majorly lie in eliminating middlemen from the system so that total cost associated with supplying products to customers can be reduced. These savings are then passed to customers in the form of low prices so that better profit margins can be obtained. Resource Base The resource base of a company forms the major factor that helps to gain competitive advantage. It can also be stated that these resources are the contributing factors in relation of firm’s capabilities. Amongst its total resources the most important element is its inventory. The company effectively manages its inventory turnover. There are no such high costs associated with rate of inventory turnover for Costco. On the other hand the highly skilled workforce of the firm contributes effectively towards success and growth. The organization considers its human resources to be the most vital component to increase overall efficiency of its operations. Costco even comprises of wide range of products which include daily need products of customers. However the major focus of the firm is to narrow down the product category and put more emphasis on colors, fast selling models and sizes. It provides required training and support to all the employees so that they are able to handle effectively supply chain operations and deliver desired customer service. Apart from human resources, financial strength of the firm is also another significant resource. The company is able to expand its operations and set up warehouses in different locations due to its funding sources. High profit margins of the firm have helped it to reallocate funds as and when required. On the other hand incorporation of advanced technology into the system has helped the firm to improve upon their capabilities. It can be stated that automated system helps the firm to reduce labor costs and even saves time. Costco has wide scale of operations and there are generally items of large quantities which are handled by the firm. However advanced technology enables a firm to handle or move items effectively and eliminates labor required previously for stocking and handling. The company even maintains strong and healthy relationship with all its suppliers as it considers them to be an essential member of the organization. Suppliers are regarded as an important resource and along with this the firm even rewards other stakeholders so as to establish long term relationship. Importance of resources and capabilities in key success factors Costco has been able to establish strong position in the market place due to three important factors such as quality merchandise, rapid inventory turnover and low prices. The company controls its operating costs effectively and due to this it can offer low prices to customers. It is highly evident that in a competitive industry the most essential factor is to gain competitive edge which becomes difficult to be imitated by other players. The efficiency of supply chain operations of Costco has helped it offer best value and best prices to its customers. Ethical objectives of the company to some extent contribute towards its success. Costco believes in treating people rightly and even forming long term relationships with their supplier and employees. The most important resource of the company is its highly skilled workforce as they handle the overall operations. Retail industry has grown considerably in the last five years that accounts up to 5.73%. In such a scenario the growth of Costco over this time frame was 13.28% (Simerson, 2011, pp. 90-91). This clearly indicates that the organization has been able to allocate its resources appropriately so as to gain economies of scale. On the other end, a strong membership base for the firm has also increased its revenue margins. Bulk packaging is an area of focus for the firm and it achieves high profit margins through reducing operational expenses and then passing on the savings to end users. Its large base of warehouse stores also serves as an essential resource which facilitates easier movement of goods from one end to another. The company even has implemented e-commerce platform which is one of its capabilities that can be regarded as its success factor. Costco’s internet sale, which is one of its strength, contributes majorly towards its overall revenue growth. There is an on-going effort made by the firm so as to reduce the operational costs. The company does not believe in investing large sum of amount in marketing or advertising techniques. This in turn has enabled the firm to establish strong relationship with suppliers and customers, since word of mouth advertising is the major focus of the company (Markides, 2013, pp. 109-110). Its resources and capabilities related to financial segment, human capital or operational efficiency are the major contributing factors in overall success and growth of Costco. SWOT analysis of Costco SWOT analysis is a strategic tool which helps to analyze strengths and weakness of a firm which is internal to it, and even determine probable opportunities and threats that might have a significant impact on the firm. The first major strength of the firm is its widespread operations in many locations. There are nearly about 600 locations where Costco has been able to set up their warehouses and stores. Costco is even stated as largest membership in United States of warehouse club chain. The organization comprises of more than 1, 50,000 employees and all of them are dedicated towards their job and are highly skilled. This firm has a strong financial position which can be stated as one of its major strengths. Revenue performance of the company is also good and it clearly reflects the large base of loyal customers of Costco. The high popularity of the brand is a major factor that contributes immensely towards success and growth of the firm. It is even the largest wine retailer across the globe. In every location of Costco there is a food court available which enhances overall shopping experience of customers. The business centers of Costco carry effectively restaurant, janitorial, professional office, convenience stores and hospitality supplies. On the other hand there are certain weaknesses of the firm which needs to be mitigated efficiently so as to enhance its overall success and growth (Keller, 2008, pp. 76-77). Job insecurity is a major factor of concern for all the employees and to some extent it even facilitates high turnover rate. The employee agreement which is made by the organization is subjected to change as and when required. This is turn creates an instable working scenario for the employees. The competition in the retail industry is high and it forms one of the weaknesses for Costco. Since the competition is stiff so the performance of market share is stagnant. The opportunities for the organization are related to growth in the retail industry. Emerging economies is a major opportunity for the firm. The international market can be tapped by Costco so as to gain high profit margins. Costco can even acquire small retail chains located in different regions so as to gain more market presence. The organization can even utilize customer focused services and advertising so as to increase visibility in the marketplace. Threats for the firm are of various types; firstly, labor relations in Canada are not stable which can have an impact on operations of Costco (Cole, 2003, pp. 80-81). Private labeled companies are arising which is a major competition for Costco. The labor wages are increasing which is creating an impact on Costco’s business operations. On the other hand the demand for labor is also increasing which needs to be catered by the company effectively. References Cole, G.A. (2003). Strategic Management. Singapore: Cengage Learning EMEA. Keller, S. (2008). Strategic Brand Management. New Delhi: Pearson Education India. Markides, C.C. (2013). Game-Changing Strategies: How to Create New Market Space in Established Industries by Breaking the Rules. San Francisco: John Wiley & Sons. Matthew, B. (2006). Why Costco Is So Damn Addictive. Fortune, 30 (2), p. 135. Simerson, B.K. (2011). Strategic Planning: A Practical Guide to Strategy Formulation and Execution. USA: ABC-CLIO. Thompson, A. A. (2009). Costco Wholesale Corporation: Mission, Business Model, and Strategy. Retrieved from: https://cours.etsmtl.ca/gol470/Lectures/3.%20costco%20strategy%20wareshousing.pdf. Read More