Warehouse Clubs

2 February 2017

The leading warehouse clubs in North America competes through prices and operating costs. These companies cut their operating costs to shoulder the low prices they are offering to the buyers. They also offer broad merchandise selection which attracts small-business owners, organizations and individuals. The three dominating companies were Costco, Sam’s and BJ’s which have 56, 36 and 8 percentages of shares in the market respectively. According to the figures given in the case, a five-forces analysis of the industry would be:

Buyer Bargaining Power: -Buyers can easily switch brands. -Buyers have a strong leverage. Substitute Products: -Substitute products are abundant. -Substitute products would create a price ceiling. Supplier Bargaining Power: -There are many suppliers of the products. -The products are easy to substitute -Input materials are not in scarce. Threat of New Entry: -Economies of scale -Pricing trend -Branding Competitive Rivalry.

There are many wholesale sellers in the market -There is low switching cost Trend in price reduction by competitors Among these factors, competitive rivalry, supplier and buyer’s bargaining powers must be the most significant.

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Buyers are always looking for better prices within the industry, thus, wholesale clubs are forced to lower their prices to attract customers. Suppliers also play an important role in maintaining these low prices. Competition is a big factor because the competitors are similarly capable of countering each other. 2. The three warehouse club rivals did not employ similar strategies.

Costco used low-cost strategy which they were able to provide customers low-priced items with good quality. Sam’s, on the other hand, purchased merchandise from low-cost labor countries in order to reduce their product costs. For BJ’s strategy, unlike with the other two, they offered smaller packaged goods for retail customers and it was the only major warehouse club that accepts manufacturers’ coupons that added value for members. Costco, compared with the others, has the best strategy employed.

It has offered better prices, has good product quality and selection, has emphasized low-cost, has large quantity of members and has trained and well-compensated employees. 3. Given the information regarding the financial performance of the company, the strongest player among the three warehouse clubs is Costco. In terms of Total Revenue, Costco is performing well with $ 71,422 of Total revenue while Sam’s and BJ’s acquired $46,899 and $10,027 (in millions) in the year 2009 respectively. When using financial ratios, Costco’s Net Profit Margin of 1. 2% is higher compared to that of BJ’s Warehouse which is 1. 34% also in the same year .

The Net Profit Margin indicates how well a company is doing in transforming their revenue into profit. 4. By simply looking at the total revenue of other international operations of Costco, they are financially successful because their revenues increase every year. In 2005, warehouses outside North America contributed 5. 96% to Costco’s total revenue. While in 2009, it jumped to 7. 19%. So in 4 years, 14 warehouses were opened and they earned $1,982 million.

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