Costco Wholesale Corporation SWOT & PESTLE Analysis

Strength

1. First mover advantage: Costco is the world’s first membership warehouse club. In 1983, the first Costco warehouse location was opened in Seattle (U.S.) and gradually Costco become the first company ever to grow from zero to $3 billion in sales in less than six years. In 2017 Costco featured as the sixth most valuable retail brand in the world, with a brand value of over 16 billion U.S. dollars. A study by Statista estimates that Costco’s global revenue will cross US $167 billion by 2023, an increase from approximately 128 billion dollars in 2017. Costco was able to establish a dominant market with its first mover advantage, deduced primarily from economies of scale and given the colossal capital investment required for this kind of business, the threat of new entrants stands low. In the US, the major competitors operating membership warehouses are Sam's Club and BJ's Wholesale Club, but BJ’s has a relatively lower spread in terms of locations with many of its store food courts being replaced by Dunkin' Donuts kiosks or shops.

2. Operational and supply chain efficiency: Costco’s secret sauce lies in keeping operational expenses very tight. This is primarily achieved by trimming down on overhead costs by virtually cutting down on all the frills and costs associated with conventional sellers including sales team, expensive locations, delivery, billing, lighting and accounts receivable. Lighting costs are minimized on sunny days, as most Costco warehouses operate with skylights. Costco also saves by not stocking extra bags or packing materials and customers are required to carry their own bags or use a shopping cart or empty merchandise shipping boxes. In this way they are able to pass on dramatic savings to their members. The goods are usually bulk-packaged and marketed primarily to large families and businesses. A conventional Costco warehouse carries on average 4,000 distinct products, while a comparable Walmart Retail outlet stocks approximately 140,000 products. If the wholesale price of a product is too high, Costco will refrain from stocking it. Costco’s supply chain is the concept of eliminating fingerprints on the product as they employ the cross dock distribution (depot) facility. Costco procures the lion’s share of its merchandise directly from the manufacturers and channelizes it through a network of cross-docking facilities which act as vendor consolidation points to transport products in packaged containers to the receiving kiosks. This process brings in freight volume and handling efficiencies, decimating redundant costs associated with conventional multiple-step distribution channels.

3. Strong Brand value: Costco featured on Rank #15 in the Global Fortune 500 list in 2017 and was the second largest global retailer in 2015, only after Walmart. In 2016, Costco was pegged as the world's largest retailer of choice and prime beef, organic foods, rotisserie chicken, and wine. As of June 2018, Costco boasts of a strong 93.0 million membership community. Their member renewal rate was 90% in the U.S. and Canada and 87% on a worldwide basis in 2017. The majority of members renew within six months following their renewal date.

Weakness

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Opportunity

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Threat

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Political

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Economic

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Social

1. Low unemployment levels: The unemployment levels US has been showing great colors falling down to below 4% for the first time. The economy generated a solid 164,000 jobs in the month of April 2018. The decline owed to a lowered labor force and fewer people saying they were unemployed instead of an increase in how many people found work. However despite the ultra-tight jobs market, wages for American workers still aren’t rising rapidly. Though the environment is getting favorable the vast majority of American workers still aren’t reaping big rewards from the tightest labor market. However if the cost of labor increases the central bank will feel pressure to raise the cost of borrowing in the U.S. more aggressively to prevent an outbreak of inflation.

2. Buying preference shift of millennials: As the online channels and door step delivery services are on a rise, the warehouse clubs like Costco have seen a pressure in being left behind in retail race. Warehouse clubs such as Costco, Sam's Club and BJ's Wholesale Club have for decades been a place where families can stock up on bulk items, go for free trials of samples and spend the most of the shopping time wandering through aisles. But as more of Americans' buying shifts online, warehouse clubs may largely be left behind. Customers are more inclined towards increasing convenience in shopping where they lack a willingness to shop for toilet paper and dish soap in person. As a result companies like Amazon and Boxed are on a rise who are into home delivery and online channel shopping. Most of the core customers who shop In the warehouse clubs are older age people or the ones with families. But for millennial it is online shopping which has caught their eyes.

3. Growing acceptance of Private labels: According to a report by Nielsen, people in urban areas are favorable for private label goods as people in cities tend to buy only what they consume. Costco has already developed private label brand lines qualifies as a great opportunity. As per recent reports growth levels among national and private labels in grocery retail stores indicate a growth rate of 1% and 3%, respectively. An increasing number of U.S. consumers are investing in private label brands that reflect qualitative characteristics they care about in retail grocery products. Costco has recently developed a private label brand Kirkland Signature which caters to food and fashion. About 25% of Costco’s sales, according to a Market Realist report above the industry average of 17% from private label sales are via the premium private brand.

Technological

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Legal

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Environmental

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