Competition Among Warehouse Clubs
All wholesale clubs (Costco, Sam’s Club, and BJ’s Wholesale) offer low prices to attract members and provide them with considerable cost savings enough to more than cover membership fees. The rivalry among them is vigorous and will remain so. All 3 club rivals are aggressively pursuing top-line revenue growth; chiefly by opening new stores, attracting more members at both new and existing stores, and endeavoring to grow sales revenues and shopper traffic at existing stores. The industry is becoming somewhat mature and that intensifies rivalry.
Costco began operations in Seattle Washington in 1983 and by the end of 1984, there were nine stores in five states, serving more than 200,000 members. The company went public in 1985, selling shares to the public and raising additional capital for expansion. Costco became the first ever U. S. company to reach $1 billion in sales in less than six years. Of the 1,250 warehouse club locations in the United States, Canada and Mexico, Costco has about 56% share of warehouse club sales.
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Costco’s strategy was aimed squarely at selling top-quality merchandise at prices consistently below what other wholesalers or retailers charged.
The company stocked only those items that could be priced at bargain levels and thereby provide members with significant cost savings. The philosophy was to keep members coming in to shop by wowing them with low prices and thereby generating big sales volume. The key elements of Costco’s strategy were ultra-low prices, a limited selection of nationally branded and private-label products, a “treasure hunt” shopping environment, strong emphasis on low operating costs, and a three-pronged growth initiative to boost sales and profits.
The three-pronged growth initiative included open more new warehouses; build an even large, fiercely loyal membership base; and employ well-executed merchandising techniques to induce members to shop more often and purchase more per shopping trip. Keeping with its mission, “To continually provide our members with quality goods and services at the lowest possible prices,” capped the margins on brand-name merchandise at 14 percent while other retailers often set margins from 20 to 50 percent for the same items. Strength Compensation and workforce practices have proven to be a great strength of Costco.
Having over average wages, bonuses and benefits, for warehouse industry employees has proven effective in retaining workers, better productivity, reducing cost of training new hires. Giving employees an opportunity at a career rather than just a job is good business. Costco’s policy is to fill higher-level positions by promotions from within the company; a great strategy for maintaining a happy workforce. Weakness The major concern for Costco is that there are not enough warehouses to meet its demand.
Costco has a relatively low urban presence, and most customers can consider themselves lucky if a trip to one of its warehouses doesn’t take up most of their day. The company is much more exclusive than most stores, and doesn’t do enough to rake in new customers through ads and promotional events. Opportunities The good news is that Costco’s low presence in certain areas leads to great opportunities for future growth. The company has already achieved success in its efforts to expand worldwide, and will likely continue its efforts into the future.
Also, adding an online membership option for a reduced price may greatly increase the company’s membership and ability to market itself, while also helping to curb Amazon as a major threat. (Shields 2012) Threats Wal-Mart is Costco’s most apparent threat, not only because of its locations and discounts, but also through its ownership of Sam’s Club, Costco’s No. 1 rival. Sam’s Club will also soon be carrying Apple (NASDAQ:AAPL) products, which could boost its sales in the future.
Also alarming is the strong possibility that Amazon will soon sneak up on its competitors and take even more of the wholesale market, especially now that its Prime service has been expanded and offers free shipping and handling to add to its low price and convenience. (Shields 2012) Sam’s Club Sam’s Club is an American chain of membership-only retail warehouse clubs owned and operated by Wal-Mart Stores, Inc. , founded in 1983 and named after Wal-Mart founder Sam Walton.
As of 2012[update] Sam’s Club chain serves 47 million U.S and Puerto Rican members and is the 8th largest U. S. retailer. As of January 31, 2008 (2008-01-31)[update] Sam’s Club ranks second in sales volume among warehouse clubs behind Costco, despite the fact that Sam’s has more retail locations. Like other warehouse clubs, Sam’s Club sells most of its merchandise in bulk and directly off pallets. The clubs are arranged much like warehouses, with merchandise stocked in warehouse-style steel bins. As of January 31, 2009 (2009-01-31)[update] there were 602 Sam’s Clubs in the United States.
Products sold include jewelry, designer goods, sunglasses, crystal and collectibles, electronics, floral, apparel, food and meats. Most locations have Pharmacy, Tire and Battery, Photo, Bakery, Optical, Cafe and Floral departments. Sam’s Club markets items under the private labels Simply Right (Formerly Member’s Mark), Bakers & Chefs, and Sam’s Club — including products by Richelieu Foods, a private label manufacturer of frozen pizza, salad dressing, sauces, marinades, condiments and deli salads.
Sam’s Club does not sell the Sam’s Choice or Great Value brands, which are available in Wal-Mart stores. However Sam’s Club is changing some of the Member’s Mark items, such as baby wipes to the name Simply Right. The Member’s Mark Deli products is also changing names to Artisan Fresh. Another notable feature in most locations is the presence of stands at which Shopper Events employees prepare various food products for members to sample before purchasing. Sam’s Club has more than 47 million U. S. members and operates more than 580 clubs nationwide, as well as more than 100 international locations in Brazil, China, and Mexico.
There are also stores in the U. S. commonwealth of Puerto Rico. A typical Sam’s Club stands between 71,000 square feet (6,600 m2) and 130,000 square feet (12,000 m2). The Sam’s Club division of Wal-Mart Stores, Inc. had total sales revenue of US $46. 9 billion for the fiscal year ending January 31, 2009.  Sam’s primary competitor is Costco Wholesale. Strength The biggest strength of the warehouse is its entire association with Wal-Mart.
The company is at a competitive advantage because it does not have to indulge in strategic planning for diverse competitors as Costco and BJs are the only competitors they face. Weakness The Wal-Mart Supercenters have more or less similar product range so it overlaps with it. Opportunities The segmentation of the members has been made to provide the best services. The categories include business, advantage and plus; the plus members at the greatest advantage over the others.
Threats The economic downturn effecting the flexibility of consumer spending. BJ’s Wholesale Beginning its operation in 2004, BJ’s Wholesale has expanded to 187 warehouse clubs. BJ’s operations are exclusively located on the eastern seaboard from Maine to Florida. Like Costco and Sam’s, BJ sells high-quality brand-name merchandise at prices that are significantly lower than those at supermarkets, discount retail chain, department stores, drugstores, and specialty retail stores. Unlike its two competitors, BJ’s focus is on its Inner Circle (individual) members through merchandising strategies that emphasized a customer-friendly shopping experience.
BJ’s stocked a broader product assortment than the other two competitors. The company made shopping easier for members by displaying isle markers, express checkout lanes, self-checkout lanes and low cost video based sales aids. BJ’s offers a variety of specialty services. Many which are offered by its two competitors. Where they differentiate is by offering services such as BJ’s Vacations, automobile-buying services, car rentals, television and home theatre installation and home improvement services. Strengths Unique products help BJs to differentiate themselves from their competitors.
Weaknesses High staff turnover is a weakness of BJ’s Wholesale. Opportunities Fragmented markets means BJ’s can easily expand market shares. Threats Intense competition from general retailing can create some serious threats for the Warehouse. Conclusion In conclusion, the window to enter the warehouse club industry is pretty small unless an outsider opted to acquire BJ’s Wholesale Club with the intention of rapidly expanding into areas and states where there are currently no BJ’s locations. The barriers to a new entrant are high.
Costco and Sam’s are formidable competitors and enjoy sizable scale economies not easily accessed by a newcomer. Capital requirements are sizable if an entrant wishes to compete on a scale comparable to the industry incumbents. ? The marketing and advertising costs to attract members and build a significant volume of sales (and otherwise overcome the loyalty of existing warehouse club members) would be very high. Moreover, the three industry incumbents are in a strong position to vigorously contest any newcomer’s entry, making it not attractive for others to enter this industry.
The suppliers consist mainly of the manufacturers of the products that warehouse clubs elect to stock. While a big proportion of these manufacturers are undoubtedly large enterprises with well-recognized brand names and good reputations among consumers, they are not necessarily in any strong bargaining position that allows them to dictate the terms and conditions on which they will supply their products to the warehouse clubs. Costco and Sam’s, in particular, have considerable bargaining power over suppliers in obtaining the merchandise they desire to stock.
No single supplier constitutes a large percentage of the merchandise that the wholesale clubs stock, thereby limiting any one supplier’s bargaining power. Moreover, these wholesale clubs are big volume buyers and thus have substantial bargaining clout with their suppliers. If a particular supplier chooses not to sell to the wholesale clubs at an attractively low price, they can easily switch their purchases to alternative manufacturers with little disruption of their business.
Such ease of switching suppliers lessens the bargaining power of suppliers. In sum, the suppliers to the wholesale clubs cannot put much pressure on their wholesale club customers in negotiating for better/higher prices and other more favorable terms of sale. Nevertheless, the originators of these clubs found a niche and cornered the market on it. All three warehouses have bright futures and will continue to grow.