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Costco: Strategic Management

Introduction

Costco is a multinational enterprise which manages a global chain of affiliation warehouses, and offers the products at relatively lower prices than other retailers do. It is an American-based retail store headquartered in Washington, the USA. The corporation is the central organization of other members and it provides goods in bulk quantities at discounted prices to these affiliates. Its establishment dates back to 1976 when Sol Price, an innovator in the warehouse club, launched the first Price Club in California (Ellickson, 2016).

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Today, the firm operates the stores in some of the leading economies such as Canada, Europe, Middle East, the United States, and Mexico. It makes revenue from five product categories but 40% of it comes from food and sundries such as snacks, groceries, alcoholic and nonalcoholic beverages (Shih et al., 2015). This paper explores the strategic landscape of America’s Costco and offers the suggestions for an improved operation in the long-run.

Company’s Main Competitors

Costco is a firm which operates in the retail segment. This industry consists of some of the best players in the world in terms of market share. For example, Walmart is the biggest retail outlet in the world with a market share of approximately 331 billion USD of the United States total sales in 2019 (Ellickson, 2016). It offers the products in a wide range of categories such as bakery items, canned and packaged commodities, frozen food, consumer goods, and other general merchandise.

In contrast, Target is also a retailer operating in the United States with its headquarters in Minnesota. Statistics indicate that it generated approximately 26.7% of its sales from beauty and household products in 2019 (Rahman, 2020). Kroger company is a food-based syndicate operating within the retail sector in America. In 2018, it generated approximately 121.6 billion USD of revenue where its brick-and-mortar stores accounted for about 97% of the gross profit (Rahman, 2020). Therefore, the retail sector has aggressive competition and is influenced by several factors.

Costco’s rivals operate not only in the United States, but some are based in Germany. For example, Schwarz Group is a company which manages several categories of food businesses, retail stores, and other discount and hypermarkets. In 2019, this company amassed a total of 41 billion euros, following an increasingly growing figures in the preceding year (Ellickson, 2016). It manages about 12,000 depots in various nations such as Australia, Serbia, USA, and Russia (Ellickson, 2016).

Another competitor of Costco is Walgreens, which is both a retailer and wholesaler operating in the United States. It offers pharmacy items such as prescription drugs and they account for 74% of its gross profit (Ellickson, 2016). Therefore, these dominant and aggressive companies constitute of Costco’s competitive landscape.

Return on Sales

Costco is among the leading retailers making a significant percentage of revenues in the retail segment. The company accumulated a total of $3.67 billion in net income in the year ended 2019 accompanied by the revenue of about $152.703 billion (Rahman, 2020). Moreover, its shares in the stock market were traded at about $205 with a capitalization of approximately $95.7 billion as of 2018 (Rahman, 2020).

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It recorded total sales of about $149 billion which is regarded as an increase compared to the preceding year (Rahman, 2020). However, Walmart is the immediate competitor of Costco and it amassed approximately $514.4 billion at the end of 2019 in revenues (Rahman, 2020). This fact implies that this competitor outperformed Costco in 2019.

Resources and Capabilities

Costco enjoys several core capabilities which have improved its strategic presence in the retail segment. An example of the resource which contributes to its competitiveness is its strong market presence and brand image. While it contends in an aggressive market dominated by world-renowned corporations, its image is still appealing to the customers. It is because it has always focused on customer service, product quality, cost leadership, and human resource planning (Rahman, 2020).

Since its inception, the company has valued establishing lasting relationships with the customers. In essence, Costco’s Kirkland signature has been a game changer for availing high quality products at low prices (Rahman, 2020).

Another core competency of the firm is its consistent financial performance. Its monetary progression has been strong due to its customer services and experience (Rahman, 2020). Its human resource model and corporate culture has always been the symbols of success. The organization’s success is attributed to its operational efficiency and talented management which focuses on driving performance and its corporate image (Rahman, 2020). Therefore, these resources and capabilities have contributed to establishing a competitive edge for Costco over its principal rivals.

Strategic Suggestions

The company’s business model, brand image, Kirkland signature, and its corporate culture exemplify its strengths in retail segment. Irrespective of the benefits and values of its business model, it is still regarded as a limiting factor, especially in the light of its competitive landscape (Rahman, 2020). Costco operates in a stiff market, dominated by the legendary Walmart and other renowned brands. Therefore, the company can consider improving its business framework to compete effectively in the industry. Generally, its enterprise model involves the customers purchasing a membership plan which allows them shop at the company’s stores (Rahman, 2020).

Costco can adopt lean management techniques to minimize its operational costs which will further improve its cost-leadership strategy. The method will be of importance especially in waste reduction and improving productivity. Since the employees are a vital component of management, lean techniques will be vital in improving their satisfaction, especially by minimizing workloads. In essence, this system of management will be significant because it creates an environment for increased profits.

Costco should also utilize its brand image and market presence to exploit a magnitude of opportunities. These market openings are essential for eliminating its weaknesses in the long-term strategic existence. The corporation can use its website and its supply chain system to contest against new company which is regarded as a substitute (Rahman, 2020). Moreover, since it is presented globally, the company can consider implementing product diversification programs to expand its catalogue to potential clients. This initiative will enable the company to increase its market share, thereby, aggressively competing against the bigwigs such as Target and Walmart.

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In essence, Costco’s principal tactic is low cost, therefore, it should be able to bolster its competitive advantage by offering differentiated products and services. The firm can counter substitute products by introducing revamped and new products or advertising practices. Since it continues to penetrate global markets, the organization must sustain its cost-leadership approach while also understanding that rival companies may adopt the same strategy.

For example, Walmart is also known for adopting the same tactic, therefore, a recommendation for Costco would be to develop the strategies of becoming leading low-cost products provider.

In conclusion, this paper has explored the key strategic aspect of world-renowned retailer, Costco. It operates in a competitive landscape influenced by such players as Walmart and Target. With the development of modernized technologies, the business market is bound to constantly change to accommodate new trends and strategies. Therefore, a company operating in the 21st century should always be vigilant and tactful of every business decision.

In the case of Costco, the firm enjoys a magnitude of resources and capabilities which allow it to maintain profitability in the saturated retail segment. However, the company has the option of improving its business model to further enhance its product offerings and compete aggressively in the industry.

References

Ellickson, P. B. (2016). The evolution of the supermarket industry: From A & P to Walmart. In Handbook on the Economics of Retailing and Distribution. Edward Elgar Publishing.

Rahman, M. H. (2020). Financial analysis of Costco Wholesale Corporation: Exploring the strengths and weaknesses. The Bangladesh Journal of Agricultural Economics, 41(1), 17–34.

Shih, S. P., Yu, S., & Yen, F. J. (2015). How does Costco win customer satisfaction: A case study of the South of Taiwan. Journal of Economics, Business and Management, 3(3), 360-363. Web.

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