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PESTEL for Costco

PEST Analysis is a measurement tool which is used to assess markets for a particular product or

a business at a given time frame. PEST stands for Political, Economic, Social, and Technological

factors. Once these factors are analyzed organizations can take better business decisions.

PEST Analysis helps organizations take better business decisions and improve efficiency by

studying various factors which might influence a business such as political, economic, social,

and technology.

Let's study each individual factor of PEST analysis in detail. In PEST analysis, 'P' stands for

Political environment. It includes government regulations or any defined rules for that particular

industry or business. It also involves study of tax policy which includes exemptions if any,

employment laws, environment laws, etc.

The letter 'E' in PEST analysis stands for economic factors. It gauges the economic environment

by studying factors in the macro economy such as interest rates, economic growth, exchange rate

as well as inflation rate. These factors also help in accessing the demand, costing of the product,

expansion, and growth.

'S' stands for social factors that form the macro environment of the organization. It includes the

study of demographics, as well as the target customers. These factors help in gauging the

potential size of the market. It includes study of population growth, age distribution, career

attitude, etc.

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The letter 'T' in PEST analysis stands for technology. As we all know, technology changes very

rapidly, and consumers are hungry to adopt new technology. It involves understanding factors

which are related to technological advancements, rate at which technology gets obsolete

(Example: the operating system in mobile phones), automation, and innovation.

Political: As Costco operates globally, regulations in different countries will greatly affect the

business. The company has to establish a good corporate relationship with labor organizations

and governments by following rules and regulations. Despite Costco being headquartered in the

United Stated, it also must be cautious of the legal environment in several of its host countries.

Economic: The retail industry is mainly affected by the economic environment of operations and

its suppliers in the host country. “When markets dip, purchasing trends follow, putting pressure

on the company’s bottom line.” When “the economy is taxing than retail sales are down for all

major retailers,” Costco remains consistent in opening warehouses and the growing their

membership; this helps the company to be consistent through changes in the economy. (Taking

Stock in Costco Wholesale Corp (COST), 2008) Since the business operates everywhere in the

world, other economic factors will also affect Costco’s performances such as tax payment

systems, fiscal and monetary policies, and rates of exchange, etc. For example, the exchange

between the US dollar and other currency can fluctuate dramatically. The difference between the

exchange will affect Costco’s income statement

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Sociocultural: Income levels of families of developed and developing countries are different,

which will greatly affect Costco’s position in the market. Costco’s revenue comes primarily from

its membership fee; however, the price Costco charge is different due to the different region. For

example, in the US, it charges $55 per year for Gold Star or Business membership. However, it

only charges MXN 50 (30 dollars) for Mexican. In the United Kingdoms, the membership only

costs 20 euro and is restricted to certain groups only. When Costco sets its membership, it has to

take cultural factors into consideration. Therefore, cultural diversity is a significant factor that

affects the business.

Technology: There are many online competitors threatening Costco’s sales. In addition, the shift

in consumer behavior favors shopping on apps on their mobile devices. At present Costco’s

mobile app only shows in-store coupons and warehouse locations. If a customer wants to order

something the app opens up a web browser to go to the Costco website. The app needs to be

revamped, streamlined and allow for customers to purchase items directly from within the app.

Costco should also allow for the site to store pickup

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