Costco company analysis

8 August 2016

Costco Wholesale Corporation operates an international chain of membership warehouses, manly under the “Costco Wholesale” name, that carry quality, brand name merchandise at substantially lower prices than are typically found at conventional wholesale or retail sources. The company is in rapid growth in recent years. Its number of warehouses increased to 634 in 2013 with its net sales and net income grew to 103 billion and 2 billion respectively. However, as the company is entering different geographic market segmentations and expanding its business in North America,

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it is facing fiercer competition in nowadays than in any other period before. Meanwhile, its potential problems in membership format are in exposure. Effective measurements and solutions are in urgent need for the company. In this report, we will basically cover four areas: examine and identify key information and issues about “Costco Wholesale Corporation” for business intelligence requirements; study the company’s strengths, weaknesses, opportunities and threats and objectively report its operational business information; provide data on company financial performance and competitive benchmarking; make recommendations to the company.

Summary of Costco SWOT analysis: Strengths 1. premium services and products for club members 2. Price positioning leads to increased customer loyalty 3. Low cost operating model 4. favourable employee relationship Weaknesses 1. Limited product choice 2. strained relationship with suppliers Opportunities 1. Ancillary Business 2. Strong growth in Asian markets 3. Growing demand for private label brands Threats 1. Business and operating threats 2. External threats 3. Legal and regulatory threats COMPANY ANALYSIS Continued…….. working on it INDUSTRY ANALYSIS

As a giant warehouse-retailer, Costco Wholesale Corporation is in the warehouse club industry that comprises retail stores selling a selection of nationally branded and private label merchandise within a wide range of product categories on lower prices. The nature of warehouse club industry is a small part of retail industry, whose customers are annually paid members in exchange for receiving low retail prices on a wide range of merchandise. Studies have shown that on average, consumers who are members of a warehouse club typically save 30% off of brand name products (wiseGEEK).

Warehouse clubs offer their paid members low prices but require them to purchase comparatively large or wholesale quantities of products. This, to some extent, makes the industry to be attractive to bargain hunters and owners of small businesses (Kotler, et al 2013). In addition, rapid inventory turnover, high sales volume and reduced operating costs enable warehouse clubs to operate at lower gross margins of 8% to 14% than discount chains, supermarkets and supercenters, which operate on gross margins of 20% to 40% (Warehouse Club Industry Guide, 2010).

On the other hand, the global retail industry continued to grow despite challenging economic conditions and built on the rebound in growth that started in 2010. Sales-weighted, currency-adjusted retail revenue rose 4. 9% to US$4. 29 trillion for the world’s Top 250 retailers in fiscal 2012, building on the previous year’s 5. 1% growth. Nearly 80% of the Top 250 retailers (199 companies) posted an increase in retail revenue (Deloitte, 2014). According to research from MarketLine, market expansion is expected to record yearly growth of close to 5% through 2015 to exceed $13.

2 trillion in global retail market (ReportLinker). According to Deloitte’s 2014 Global Powers of Retailing Report, it identifies the 250 largest retailers around the world based on publicly available data for fiscal 2012 encompassing companies’ fiscal years ended through to June 2013; however, here mainly focuses on the Top 10 retailers’ analysis. As shown on the above table in Deloitte’s report, with 5% revenue growth, retail giant Wal-Mart increased its lead in 2012. Carrefour, formerly the world’s second largest retailer in 2011 (see Appendix A), fell to fourth place since its declining sales.

Tesco, second place in the ranking, was also impacted by discontinued operations, having decided to shutter its Fresh & Easy operations in the United States. It was also a year of transformation for Metro Group. The changes that Metro sold its parts of unit and operation dropped it from fourth to seventh place. Meanwhile, a double-digit sales gain boosted Costco from sixth place to third in 2012. And Target joined the top 10 leader board for the first time in 2012, replacing Walgreen (Deloitte, 2014). As a group, with retail revenue growth of 4.2% vs. 4. 9%, the top 10 grew more slowly than the Top 250 in 2012. Profitability for the broader group also has been lagged by that of the leaders. At 2. 8%, the composite net profit margin of top 10 was moderated by the restructuring activity that occurred in 2012. Lower overall profitability also reflects the focus of most of the top 10 retailers on lower-margin, fast-moving consumer goods. Despite a slimmer profit margin, the top 10 generated a higher return on assets, posting a composite ROA of 5. 8% vs. 5.0% for the Top 250. The leader group as a whole is much more globally active than the Top 250 retailers overall. On average, the top 10 had retail operations in 16. 3 countries in 2012, compared with 10 countries for the Top 250 (Deloitte, 2014). The world’s 10 largest retailers generated almost one-third of their combined retail revenue from foreign operations in 2012; this compares with less than one-quarter of total Top 250 revenue. Notably, two of the five U. S. companies in the top 10 had no international operations.

Conversely, four of the five European companies in the top 10 derived the majority of their revenue from outside their home countries (Deloitte, 2014). Throughout the analysis, with many retailers facing challenging economic conditions in local markets, there has been a clear drive to seek growth opportunities overseas in countries with stronger economic conditions and growth prospects. Overall, this is a strong and growing industry. The major challenge to the growth would be a loss in stability. This makes survival more of a concern and lessens the need for new challenges.

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