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Costco Wholesale Corporation
Costco Wholesale Corporation
Decisions, Productivity
UPDATED ONUPDATED ON FEBRUARY 6, 2017 BY DANIEL KISSINGER
A Costco in
Markham, Ontario, Canada. Costco Wholesale Corporation’s operations management
(OM) addresses the 10 strategic decision areas in its business to maximize productivity.
(Photo: Public Domain)
Costco Wholesale Corporation maintains its position as the second biggest retailer in
the world through successful operations management (OM). The 10 strategic decisions
of operations management tackle the operational concerns in various areas of the
business. Costco has different operations management practices based on varying
market conditions around the world. However, Costco has developed standards and
policies for operations management throughout the organization in general. As such,
Costco’s standardization helps ensure consistency and a unified direction for operations
management toward the long-term fulfillment of its mission and vision.
3. Process and Capacity Design. Costco’s processes emphasize speed and efficiency
for maximum capacity. In this strategic decision area of operations management, the
company’s main objective is to optimize cost-effectiveness. Costco Wholesale’s
warehouse-style stores contribute to this objective. For example, pallets used in the
stores maximize the efficiency of moving goods while ensuring capacity utilization of
these Costco facilities.
4. Location Strategy. Costco Wholesale’s strategy for this decision area of operations
management is to maximize market reach. This is achieved through warehouses that
are located in or near urban centers. Most of Costco’s locations are in cities. This
strategy enables the company to maintain high revenues per facility, thereby
contributing to the organization’s continued profitability.
5. Layout Design and Strategy. Costco Wholesale uses the warehouse-style layout for
its stores. The company’s goal in this strategic decision area of operations management
is to minimize the use of extra spaces. Costco uses its warehouse-style stores as retail
spaces doubling as storage spaces. In this way, the firm does not spend for extra
storage space.
6. Job Design and Human Resources. Costco’s strategy in this decision area of
operations management highlights fast-paced jobs as well as internal leadership
development to promote employees. Costco’s objective is to motivate employees and
reduce turnover. Through internal leadership development, the company develops most
of its leaders from its current employees.
7. Supply Chain Management. Costco has a supplier diversification strategy for this
decision area of operations management. However, the company’s supply chain
management is focused on quality and low prices. As a result, Costco offers a limited
array of products at its warehouses/stores. The company does not sell products with
high bulk/wholesale prices.
10. Maintenance. Costco has minimal maintenance costs for its facilities, considering
that it uses warehouse-style stores. In this strategic decision area of operations
management, Costco’s business model contributes to the ease of maintenance. Also,
human resources are maintained through continuous hiring and a number of training
and development programs to support Costco’s business needs.
A Costco in Neihu,
Taiwan. Costco Wholesale Corporation’s corporate social responsibility programs
successfully address stakeholders’ interests. (Photo: Public Domain)
Costco Wholesale Corporation has a number of key corporate social responsibility
(CSR) programs that successfully address the interests of its stakeholders. The
company and these stakeholders significantly affect each other. As such, it is necessary
for Costco to ensure that its corporate social responsibility efforts directly address the
stakeholders’ concerns. Success in doing so could lead to long-term beneficial effects
for Costco, such as a stronger brand image and customer loyalty. In light of the
changing market conditions, Costco continues in evolving its corporate social
responsibility programs and policies for long-term viability in the global retail industry.
Investors. Costco needs to satisfy the interests of investors as one of its main
stakeholder groups. Investors are significant stakeholders because they determine the
capital available to grow the business. The interests of this stakeholder group are
profitability and business growth. Costco’s corporate social responsibility efforts address
these concerns. For example, the company continues to expand its operations in the
United States and overseas. Costco also continues to grow, as indicated in its
increasing net income in the past years.
BUSINESS, MANAGEMENT
1. Appliances
2. Auto & Tires
3. Baby, Kids & Toys
4. Clothing & Handbags
5. Computers & Printers
6. Electronics
7. Furniture
8. Grocery, Floral & Pets
9. Holiday, Gifts & Tickets
10. Home Improvement
11. Health & Beauty
12. Home, Kitchen, Bed & Bath
13. Jewelry & Watches
14. Office Products
15. Patio & Outdoor
16. Sports & Fitness
17. Travel & Luggage
18. Photo Center services
19. Optical services
20. Hearing Aid Center services
21. Gasoline
22. Business Services
23. Home Services
24. Life Services
In addition to the typical basic goods found in its warehouses/stores, Costco offers
services, such as photo printing services, life insurance (under Life Services), and
payroll services (under Business Services). This element of the marketing mix shows
that Costco Wholesale Corporation has expanded its product mix to a considerable
degree of diversification.
1. Warehouse-style stores
2. The Costco online store
3. The Costco mobile app
All of the company’s goods and services are typically available in its warehouse-style
stores. However, consumers can also purchase products through Costco Wholesale’s
e-commerce website. Mobile users may use the Costco mobile app to access
information about products and to make a purchase. Customers may opt to have their
online or mobile purchases delivered to their doorstep. In this element of the marketing
mix, Costco Wholesale Corporation harnesses information technology for a broad
market reach.
1. Sales promotion
2. Direct marketing
3. Personal selling
4. Public relations
Costco Wholesale Corporation’s Five Forces analysis indicates that the company faces
strong forces in its industry environment. Suppliers have the weakest force in affecting
Costco’s business.
The retail industry is saturated, with many firms aggressively competing against Costco.
Also, the high variety of firms makes the competition tougher, as firms capitalize on their
unique competencies to compete against Costco. In addition, the low switching costs
are an external factor that makes it easy for consumers to transfer from Costco to other
firms. Thus, based on this element of the Five Forces analysis, competition is among
Costco’s most important concerns.
The low switching costs mean that Costco’s customers can easily transfer to other
retailers like Walmart’s Sam’s Club. In relation, Costco consumers have many
substitutes to choose from. Also, because of the Internet, Costco’s customers can easily
access information about prices and offers among competing retailers. As a result, it
becomes even easier for them to transfer to the retailers that have the best offers.
These external factors indicate that Costco Wholesale Corporation must consider the
bargaining power of buyers as among the top issues in this Five Forces analysis.
Because of the large population of suppliers, no single supplier can easily impose its
demands on firms like Costco. Suppliers’ bargaining power is further weakened
because the overall supply is high, which means that a single supplier’s action is
unlikely to significantly impact the level of total supply available to Costco. In addition,
most of Costco’s suppliers have low forward integration, which means that they have
minimal control on the distribution and sale of their products in Costco
warehouses/stores. This element of the Five Forces analysis shows that the external
factors leading to the bargaining power of suppliers are among the least of Costco’s
concerns.
The low switching costs mean that it is easy for consumers to transfer from Costco to
new retailers, thereby giving these new entrants a strong chance of success. However,
the moderate cost of doing business could be an entry barrier that offers some
protection for Costco. Also, the external factor of the high economies of scale makes it
difficult for new entrants to directly compete against giants like Costco. Thus, this
element of the Five Forces analysis shows that the threat of new entrants is a
considerable issue for Costco Wholesale Corporation.
A Costco in
Markham, Ontario, Canada. Costco Wholesale Corporation’s PESTEL/PESTLE
analysis shows that the company has mostly opportunities based on the external factors
in its remote or macro-environment. (Photo: Public Domain)
Costco Wholesale Corporation develops strategies that address the opportunities and
threats identifiable in its PESTEL/PESTLE analysis. The PESTEL/PESTLE analysis
model enumerates the external factors in the firm’s remote or macro-environment that
act as opportunities or threats in the business. Costco Wholesale needs to consider
these opportunities and threats to maintain its market position as the biggest
membership warehouse club chain in the United States. This PESTEL/PESTLE
analysis indicates that Costco has many options for growth and improvement, based on
opportunities in its business environment. However, Costco must develop competencies
to protect itself from the threats in the retail industry.
Costco Wholesale Corporation has the opportunity to grow with minimal political
disturbance in major markets. In addition, the company has the opportunity to improve
its policies and strategies to exceed the expectations based on environmental and
animal rights policies. In this dimension of the PESTEL/PESTLE analysis model, Costco
has major opportunities to grow its business.
The increasing international trade agreements give greater support for Costco to
expand its supply chain and warehouses/stores. The company also has the opportunity
to establish new locations in developing markets to boost financial performance. In
addition, Costco can improve its growth and stability in the U.S. even though economic
growth remains low. In this dimension of the PESTEL/PESTLE analysis model, Costco
Wholesale Corporation has opportunities for further growth.
Based on the external factor of increasing demand for business social responsibility,
Costco Wholesale has the opportunity to improve its corporate social responsibility
programs to strengthen its brand image and consumer perception. Also, Costco has the
opportunity to improve customer satisfaction by implementing policies and strategies for
better animal rights and environmental performance. In this dimension of the
PESTEL/PESTLE analysis model, Costco Wholesale Corporation has major
opportunities to satisfy customers and interest groups.
Costco has the opportunity to attract a larger market share through e-commerce. In
addition, the company can implement new automation technologies to increase its
business efficiency, which should translate to savings and better financial performance.
Also, Costco can innovate in terms of other technological applications, such as in
information processing, knowledge management, and HR training. This dimension of
the PESTEL/PESTLE analysis model shows that Costco has technological opportunities
to improve its business processes.
Ecological/Environmental Factors
As a retailer, Costco needs to consider the effects of ecological concerns on its remote
or macro-environment. In the PESTEL/PESTLE analysis model, this dimension refers to
the ecological conditions that influence business performance, such as through supply
chain performance or market growth. In Costco’s case, the following are the main
ecological external factors:
Climate change threatens Costco Wholesale Corporation because part of the business
sells produce, which is dependent on optimal climate conditions. In relation, Costco
must adapt its product mix to satisfy the changing lifestyles of consumers. Also, the
continuing colony collapse disorder (CCD) affects bees and, in turn, the supply of food
products that Costco sells. However, the company cannot do much about this specific
threat of CCD. In this dimension of the PESTEL/PESTLE analysis model, Costco must
consider adjusting its strategies to strengthen its supply chain.
Legal Factors
Legal systems impose requirements on firms like Costco. This dimension of the
PESTEL/PESTLE analysis model shows the effects of laws or regulations on firms’
remote or macro-environment. Some of the important legal external factors in Costco’s
case are as follows:
Costco has the opportunity to improve its employment practices to exceed the
requirements of employment laws. Also, Costco can adjust its policies and strategies to
optimize its performance despite tax reform issues. In addition, the company can
impose new policies that require more accurate GMO labeling for its food products. This
dimension of the PESTEL/PESTLE analysis model shows that Costco Wholesale
Corporation can change its business practices to exploit legal opportunities.
A Costco in Neihu,
Taiwan. Costco Wholesale Corporation’s SWOT analysis shows that the business has
the strengths needed to address its weaknesses, but the opportunities and threats
warrant some strategic changes. (Photo: Public Domain)
Costco Wholesale Corporation is the second biggest retailer in the world after Walmart.
This success is linked to Costco’s ability to strike a profitable balance in addressing the
internal and external factors shown in this SWOT analysis. The SWOT analysis
examines the internal strategic factors (strengths and weaknesses) and the external
strategic factors (opportunities and threats) relevant to the business. Costco’s SWOT
analysis gives insights on the most significant issues that the company must include in
its strategic formulation. Effectively addressing these issues in the SWOT analysis can
support the continuation of Costco’s position in the global retail market.
This SWOT analysis of Costco Wholesale Corporation identifies the most important
concerns affecting the company. Investors and managers use the results of the SWOT
analysis to understand Costco’s potential in the global retail market.
As the leading membership warehouse club chain in the United States, Costco
Wholesale Corporation is strong because of its market presence. The company’s name
is popular among consumers. Also, Costco’s expansive supply chain is a strength that
relates to the firm’s ability to achieve economies of scale. Another strength of Costco is
its Kirkland Signature brand, which consumers view as a label of quality. These
strengths in the SWOT analysis of Costco highlight the benefits of the company’s
current position in the market.
Costco has a limited product mix compared to the wider and more extensive selection
available from competitors like Walmart. This weakness prevents maximization of
revenues from consumers who might not find what they are looking for at Costco
warehouses/stores. Also, Costco’s business model creates exclusivity to members and
prevents other shoppers from easily purchasing at its warehouses. Moreover, because
of Costco’s generic strategy, the company has the weakness of low profit margins,
which leaves little room for price adjustments. This SWOT analysis of Costco Wholesale
Corporation shows that the company’s weaknesses are directly linked to its business
model.
1. Diversification
2. Expansion of product mix
3. Expansion of locations
Costco has the opportunity to diversify its business, such as through the addition of new
services or an entirely new business in another industry. The company could also
expand its product mix, which is currently limited compared to those of firms like
Walmart. In addition, Costco has the opportunity to expand its business around the
world by opening new warehouses/stores in overseas locations, especially in high-
growth economies. This SWOT analysis of Costco Wholesale Corporation points to
opportunities for growth and expansion.
Costco Wholesale Corporation faces tough competition with retail firms like Walmart,
especially Walmart’s Sam’s Club. In addition, in the online market, many small and
medium-sized firms are now selling goods for low prices, thereby competing against
Costco. The animal rights trend is a threat because it has potential to reduce demand
for some of Costco’s products, although the company has the opportunity to address
this matter by further improving its supply chain policies. This SWOT analysis of Costco
shows that the company must improve its strategies and policies to overcome threats in
its external environment.
High energy and fast pace. Efficiency is also included in Costco Wholesale
Corporation’s organizational culture. Through high energy and a fast pace, employees
are motivated to maintain optimal productivity. This characteristic of Costco’s
organizational culture also contributes to the energetic buzz that helps satisfy customers
based on speed and efficiency of service.
Teamwork. Costco facilities use work teams. This characteristic of the company’s
organizational culture maximizes performance by utilizing the synergy of teams.
Through teamwork, employees achieve flexibility that enables Costco to address
variations in customer preferences. These work teams also enable the company to
facilitate camaraderie among its employees.
A Costco
warehouse/store in Neihu, Taiwan. Costco Wholesale Corporation’s organizational
structure is mainly based on its corporate business functions. (Photo: Public Domain)
Costco Wholesale Corporation’s organizational structure is based on the company’s
current operations and locations. A firm’s organizational structure is the configuration
used to interconnect different organizational components to address business needs.
Costco’s organizational structure reflects the company’s current market presence. This
corporate structure enables Costco’s effective management of operations in different
markets. As the biggest membership warehouse club chain in America, Costco
Wholesale has designed its structure to ensure successful management of its business
in the U.S. and overseas. However, Costco must change its organizational structure
over time to suit its expanding global operations.
1. U.S. – Northeast
2. U.S. – Northwest
3. U.S. – Southeast
4. U.S. – Southwest
5. U.S. – Midwest
6. U.S. – Northern California
7. U.S. – Bay Area
8. U.S. – Los Angeles
9. U.S. – San Diego
10. U.S. – Texas
11. Eastern Canada
12. Western Canada
13. United Kingdom
14. Korea
15. Mexico
16. Taiwan
17. Japan
18. Australia
A Costco at
Markham, Ontario, Canada. Costco Wholesale Corporation’s generic strategy and
intensive growth strategies are combined to ensure the company’s competitive
advantage despite tough competition. (Photo: Public Domain)
Costco Wholesale Corporation’s generic strategy (based on Porter’s model) dictates the
company’s approach to maintaining its competitive advantage. As the second biggest
retailer in the world, Costco follows its generic competitive strategy to directly compete
against other giants, especially Walmart. On the other hand, Costco’s intensive growth
strategies determine the actions suited to grow the business. The company uses its
intensive growth strategies to continue expanding worldwide. In spite of the tough
competition with Walmart and local players, Costco remains strong and competitive,
thereby showing the effective implementation of its generic competitive strategy and
intensive growth strategies.
BUSINESS, MANAGEMENT
A Costco
warehouse/store in Neihu, Taiwan. Costco Wholesale Corporation’s mission statement
is aligned to the business, but the company needs to release an official vision
statement. (Photo: Public Domain)
Costco Wholesale Corporation is the second largest retailer in the world. This position
indicates Costco’s effectiveness in following its mission statement and vision statement
through appropriate strategic objectives. A firm’s vision statement guides the overall
direction of organizational development. In Costco Wholesale’s case, the corporate
vision statement emphasizes customer experience and satisfaction. On the other hand,
a firm’s mission statement determines the strategies and tactics needed to achieve the
vision. Costco Wholesale’s corporate mission statement highlights the importance of
creating value for customers, especially through pricing.
Costco Wholesale Corporation follows its mission statement through strategic objectives
that emphasize consumer savings and satisfaction. Costco’s vision statement also
points to savings as value for its customers.
1. Efficient operations
2. Unmatched savings
3. Access through membership
This vision statement shows Costco’s need to ensure efficiency in its operations. Such
efficiency minimizes costs and prices. Cost minimization leads to the next point of the
vision statement: unmatched savings. Costco’s customers can expect such savings
through discounts based on membership status or by using Costco Cash Cards. Access
through membership is the component of the vision statement that indicates Costco
Wholesale’s membership-only warehouse club model. Based on this vision statement, a
strategic financial objective is to minimize costs so that the company could continue to
offer the discounts that attract customers to its warehouses/stores.
Costco’s mission statement shows that the business uses quality as a selling point. This
factor is important because there are many other firms that compete against Costco on
the basis of low prices. The company’s mission statement also indicates low prices as a
major selling point. Customers are drawn to the discounts and low prices available at
Costco. Moreover, the mission statement shows that these offers are always available
at Costco warehouses/stores to members. A strategic objective linked to this mission
statement is to develop a supply chain that supports cost minimization and high quality.
A Costco Wholesale
store in Taiwan. What are Costco’s mission, business model, strategy, and SWOT
(strengths, weaknesses, opportunities, threats)? (Photo: Public Domain)
Costco Wholesale Corporation’s case shows that the business continues to grow and
expand. The company now has operations in overseas locations, such as Taiwan. The
firm is among the biggest retail organizations in the world today. As a retail firm, Costco
depends on consumer purchasing capacities. Consumer perceptions also have a
significant impact because competition is high in the retail market. Competition from
firms like Walmart is especially notable. Costco must maintain competitive advantage to
ensure long-term viability. At present, the ability of this company to continue growing
and expanding is based on its affordable quality goods and services.
Costco Wholesale uses its business model to follow its mission statement. However, the
internal analysis elements (strengths and weaknesses) and external analysis elements
(opportunities and threats) show that Costco’s managers must formulate new strategies
for sustained growth and development of the firm.
Strategy. Costco’s generic strategy is cost leadership. This strategy entails maintaining
the lowest prices possible. Retail giants like Walmart also use the cost leadership
strategy. Costco’s strategy also combines the membership warehouse club business
model to differentiate it from other retail firms.
The company’s business model is a core factor that enables Costco to follow its
mission. In fact, this business model aligns with the company’s mission. The generic
strategy of cost leadership also agrees with and is needed to sustain Costco’s business
model.
SWOT Analysis
Main article: Costco Wholesale SWOT Analysis
Costco’s main weakness is the membership-only warehouse club retail business model.
This model encourages customers to buy at Costco stores, but also limits the total
number of customers. Non-member consumers might feel unwelcome at Costco stores.
The company has the weakness of the limited array of goods and services. Customers
might go to other retailers like Walmart, which has a wider array of goods and services.
The company has the opportunity to enter new markets, such as markets in developing
Asian countries.
Costco has the opportunity to expand the coverage of its e-commerce websites. The
company currently offers online services to the United States, Canada, United Kingdom,
Australia, Mexico, Taiwan, South Korea, Japan, and Spain.
The company also has the opportunity to increase the variety of its goods and services
to improve the attractiveness of Costco stores to a more diverse population of
consumers.
The entry of new membership warehouse club retail companies threatens Costco’s
potential to succeed in overseas markets. In overseas markets, new membership
warehouse clubs are opening.
The aggressive marketing of other retail firms also threatens Costco.
Final Note
Costco Wholesale Corporation is a highly viable business. The business has the
essential strengths to take advantage of opportunities in the retail industry. The firm’s
low prices make it attractive even during times of economic difficulties. The company
has opportunities to address threats to its long-term viability. The firm could use its
website and its network of suppliers to compete against new membership warehouse
club retail companies. Costco is expected to continue to grow in the years to come.
Expansion in overseas markets could also further boost the company’s success.