Costco Wholesale (Term Paper Sample)

MNGT 4710: Strategic Management-Fall Term 2023 Costco Wholesale Student Name Institutional Affiliations Instructor Date 1 Industry Competition: Competition in the North American wholesale club industry The North American wholesale club industry exhibits a cut throat competitive rivalry and is comprised of mainly three payers - Costco Wholesale with over 800 warehouses in the region, Sam’s club which is a subsidiary of Walmart as well as the BJ’s wholesale club. The three compete toughly for market share bringing to the market a very broad-based brand portfolio with products being dispatched at discounted prices to customers. The 800 warehouses of Costco in the region are comprised of about 550 of them located in U.S and 100 in Canada (Gamble et al., 2023). This gives Costco a competitive edge over its rivals. The competition in this region is quite intense due to several factors: All the players give similar services and products such as furniture, electronics, household items and groceries which translates to multiple options for customers at the point of making a choice of where to shop. Again, the pricing is quite a competitive factor where wholesale clubs strive to give the lowest possible prices so as to ensure customer retention. This creates aggressive price wars among the players. Again, the industry is comprised of very high buyer power which gives the customers the ability to switch between the clubs on the basis of value and price. Prices can easily be compared online and informed decisions made which puts pressure on the clubs to offer incentives and competitive prices. In addition, external competitors and online retailers like Amazon also affects the competition since their product offering includes bulk discounted items which poses a threat to the wholesale club model. The Strongest competitive Force based on the Five Forces Model (Ch.3) The Porter five force model looks into the forces of the bargaining power of suppliers, bargaining power of buyers, threat of substitution, threat of new entrants and also rivalry among the players. A keen look into the North American wholesale club industry, the strongest competitive force is the rivalry among existing competitors. The rivalry which exists among the existing players is usually tough since these players give similar products at different prices. With few barriers to entry, this opens the market for others to easily penetrate the market which increases competition putting more pressure on the wholesale clubs to attract the customers and differentiate themselves (Gamble et al., 2023). The wholesale clubs have constant pricing wars as well as very aggressive strategies on discounts meant to attract and retain customers which again intensifies the rivalry. The higher buyer power enables customers to switch between brands at will which heightens the sensitivity to competition. 2 Strategy: Costco’s Strategy Whereas it is true that Costco’s business strategy involves a warehouse-club membership model, the wholesale adopts the cost leadership strategy among the five generic strategies. Costco has a focus of offering products at relatively low prices, a strategy meant to appeal to a broad catch of customers. Costco’s business model lays emphasis on offering value to customers via a combination of quality products and low pricing strategy. Costco leverages on its buyer power to keep operational costs considerably low. A key aspect of Costco’s cost leadership strategy is the limited product selection since the brand has its focus on offering a curated assortment of certain products with a focus on national products as well as Costco’s own label brand, the Kirkland signature. The strategy permits the company to negotiate better deals with their suppliers and maintain low costs inventory. Costco also creates unique experiences in shopping with the ‘treasure-hunt’ approach. A sense of excitement and urgency is created constantly changing the inventory and offering limited time-specials which encourages repeat business with the customers (Gamble et al., 2023). Costco delivers consistently strong sales growth and keeps a healthy profit margin despite working on a low strategy in pricing which greatly highlights how effective Costco’s cost leadership approach is. Key elements of Costco's operations in support of the Cost Leadership Strategy There are number of elements which are in support of the cost leadership approach in Costco. First, Costco maintains strong relations with suppliers and there it keeps a bulk purchasing power which facilitates setting of prices in a favorable way. For instance, upon buying merchandise in large quantities, which is often directly from manufacturers, this permits the company to secure quite low prices per unit. In 2015 Costco’s merchandise purchase reached $113B and this globally and this figure keeps rising. With various strategies, the company maintains amazingly low strategies. It operates in big warehouse stores meant for cost savings and efficiency which permits utilization of space and it reduces the need for unnecessary spending with elaborate store designs. Further Costco has an excellent lean model of staffing through which the staff can handle multiple tasks and helps to keep labor costs quite in check. For instance, in 2015, Costco reported 205, 000 full-time staff in all its different stores worldwide and this permits very cost-effective levels of staffing. Such operational efficiencies help to greatly control operational costs which greatly supports the Costco’s cost leadership approach (Gamble et al., 2023). Costco works on minimizing unnecessary packaging and frills saving on material costs as well as waste which is in alignment with its Costco’s moves to sustainability. Again, Costco has a preference on quality rather than costly marketing with its promotional marketing activities being limited only to ins-store sampling and monthly coupons. 3 Performance: Costco’s Financial Performance Regarding Costco’s performance, it is worthy noting that the company has a strong financial position. Costco has consistently reported strong results on financial health with very steady growths on revenue as well as solid profitability. For instance, in 2021 fiscal year, Costco net sales heightened to 200.7B which represents a 17.9% growth in revenue surpassing the previous year. The net income also saw an increment of 9.4% reaching $ 4.4B. Further, the company has a very healthy Return on Equity (ROE) which is a major indicator of profitability with a 28% ROE in 2021 (Gamble et al., 2023). This reflects the ability of the company to consistently generate profits in a substantial way relative to its investments from shareholders. Supporting by Use of Data from the Case In accordance to exhibit 1 of case 2, the net Costco sales for the 2021 fiscal year were $192.052B which was an increment when compared to $163.220B in 2020 fiscal year as well as $149,351M in 2019 fiscal year. The trend shows a steady increase in net sales over the three-year period. In regard to profitability, the company net income, for fiscal year 2021, Costco reported a net income of $5.007B which could be compared to the two consecutive previous years $4.002B in 2020 and $3.659B in 2019. This is again consistent growth in net income over the years indicating the strong financial performance of the company. Furthermore, Costco's cash and cash equivalents increased greatly from $11.258B in the 2020 fiscal year to $12.277B in 2021 fiscal year which again highlights a very strong liquidity position for the company. In addition, Costco’s merchandise inventories saw an increase from $14.215B in 2020 to $14.215B in 2021 which is an indication of a strong management of Costco’s inventory levels (Gamble et al., 2023). 4 Human Resources: Costco's Human Resource Practices The Human resource practices inclusive of the system of compensation of Costco are in good alignment with the company’s general strategy of cost leadership and giving value to customers. First, in consideration of Costco’s compensation stand, the company pays its staff good wages when compared to the standards of the industry. In 2019, Costco raised the minimum employee hourly wage to $15 per hour which is relatively high than the federal minimum wage in US. The company offers regulars rises in pay as well as bonuses to its staff with good opportunities for career advancement within this company (Gamble et al., 2023). Such practices are clear indicators of the company commitment towards creation of a positive work environment for all employees. Further, Costco provides comprehensive benefits including vision coverage, dental and healthcare with an 401(k)-plan company match, paid time off and other benefits. This indicates that Costco values the company’s long-term financial security. Such HR practices work in support of Costco’s business strate...