|Company Name||Costco Wholesale Corporation|
|Year Established||July 12, 1976|
|Founder|| James Sinegal|
|Headquarters||Issaquah, Washington, United States|
|Area Served.||United States, Canada, United Kingdom, Australia, Mexico, Japan, China, Taiwan, Spain, France, South Korea, Iceland|
|Net Revenue||$ 152.7 billion (2019)|
|Net Income||$ 3.66 billion (2019)|
|Products and Services||Merchandise|
Cash & Carry
3. Home Depot
6. Best Buy
9. JC Penney
Costco Wholesale is one of the leading retailer brands in the world, the second larger after Walmart. Its current revenue is $152.7 billion as of the year 2019. The current CEO of Costco is Craig Jelinek who has served in the company since 2012. Costco has a number of reasons due to which they have been able to successfully run their operations in the face of stiff competition. The brand however also suffers from acute weaknesses in their business model and faces market threats.
In this article, we will discuss the SWOT Analysis of Costco that includes some of the primary strengths of the Costco Wholesale along with their weaknesses, opportunities, and threats that it faces currently.
Costco Wholesale Swot Analysis: Strengths
Below are the key strengths of Costco Wholesale.
Indomitable Market Presence
Costco has a very strong branding operation which has ensured that its potential customer base is absolutely aware of the brand presence. It has been a long-time provider of quality wholesale goods and this has allowed the brand to thrive on through decades of stiff competition. This leading retail brand places its own label on its products and sells its products at its own chain stores, which further strengthens its market presence. Costco is an extremely well known wholesale brand throughout the United States and Canada.
Costco Warehouse Locations Worldwide
As of July 2019, Costco has 775 location worldwide, see the below details
- 539 in United Stated
- 100 in Canada
- 39 in Mexico
- 28 n United Kingdom
- 26 in Japan
- 16 in South Korea
- 13 in Taiwan
- 11 in Australia
- 2 in Spain
- 1 in Iceland, France, and China
Membership and Customer Base
Loyal customers of Costco are provided special privileges and extensive discounts on their products. Costco also offers membership deals which allow them to create long turn and loyal customers. This idea to provide membership based deals and privileges has been one of the primary market strengths for the brand. In 2018, the company was having more than 94 million member and cardholders worldwide.
Costco provides at least 15% lower prices at an average than the market price on most wholesale goods and this has allowed it to retain a loyal customer base. It is known as the provider of cheap and quality products amongst all markets. As a result, most sections of the lower economic class choose Costco as their primary mode of purchasing wholesale products.
Expanded Supply Chain
The brand has been always expanding its supply chain and allowing the usage of latest technology to support its operations worldwide. One of their primary aims is to expand into previously unforeseen markets and create one of the largest global supply chains. Costco Wholesale also keep their supply chains highly straightforward which allows them to provide competitive prices on goods.
Costco Wholesale SWOT Analysis: Weaknesses
Below are the key weaknesses of Costco Wholesale.
Dependency on the U.S Market
Almost 80% of Costco’s target market is solely in the United States and in Canada. This is one of the primary weaknesses the company suffers from as any form of economic slowdown in these two countries heavily affects their business. If the brand was to expand into other countries they would potentially be able to reduce chances of being hugely affected by any economic upheavals.
Costco offers a much smaller product range than their largest competitor, Walmart. So, even if a customer prefers the pricing and quality of Costco over that of Walmart they would not be able to get many products at their outlets. This decision of Costco to stick to a limited product range has always served as a competitive disadvantage.
Core Merchandise Categories
- Food and Sundries (including groceries, packaged food, dry food, snacks and candies, beverages and cleaning supplies).
- Hardlines (including appliances, health and beauty, hardware and gardening).
- Fresh Foods (including meat and bakery).
- Softlines (including apparels and variety of small appliances).
- Ancillary (gasoline and pharmacy).
Product Recalls affected Costco Reputation
There have been instances where the brand has been forced to entirely remove a certain branded product from their outlets. The primary reasons for this have been either an issue with quality or a momentary issue such as a disease. For example, in the November of 2015 Costco had to recall a certain food product from all of its outlets due a toxin that was found in one of the primary ingredients. Such cases heavily affect the reputation of the brand and make them lose long time loyal customers.
Costco Wholesale SWOT Analysis: Opportunities
Below are the key opportunities of Costco Wholesale.
Costco has recently entered the e-commerce market by making their products available online. E-commerce stores are highly productive during the current times and this will surely help to expand the business opportunities of Costco and allow them to attract customers from areas where they do not have any outlets. Its ecommerce website is operating is different geographical areas like U.S and Canada, UK, Mexico, Korea and Taiwan. In the year 2018, e-commerce sales was 4% of the net sales.
The brand has been increasing its presence outside of United States and Canada and the more they expand the bigger a customer base they will have. Since it is clear that Costco provides quality goods at highly competitive rates they will be able to attract a solid customer base wherever they choose to open their outlets.
Private Labels will Attract More Customers
Customer trends have shifted towards buying private label brands of recent. Since Costco is known for providing private label wholesale products they would be able to attract more customers by providing more private label products.
Costco Wholesale SWOT Analysis: Threats
Below are the key threats of Costco Wholesale.
Increase in Labour Cost
Since one of the major USP of Costco is the pricing at which they provide their wholesale goods, the current rise in labour costs worldwide is sure to affect their profit margins. Labour costs in the United States are currently facing a steep rise and this does not suit the company’s revenue model at all. The scenario in Canada is similar as well. The primary way in which Costco can sidestep this problem is by opening outlets in other countries where the labour costs are still low enough to secure their profit margins.
The United States is home to some of the largest retail giants such as Walmart Sam’s Club, BJ’s Wholesale Club, Amazon.com, Kroger, Target and many more. Even though Costco provides competitive pricing compared to these brands, their market presence does eat up a huge portion of Costco’s potential market base. And since these retail brands continue to expand their product selection this trend of competitive marketing is only meant to grow.
The government continues to place various restrictions on the supply chains of large retail brands. These restrictions have led to increase in costs of running such expansive supply chains and more such regulations are expected to arrive in the future. As a result, Costco’s profit margins will be heavily affected and they will be forced to increase their prices which will make them lose their loyal customer base.