Background
Costco Wholesale Corporation is an American based store. The wholesaler operates on a membership-only model; all its customers are subscribers to the business, gold or executive membership category. Costco has hundreds of retail outlets in the US, North America, Mexico, some parts of Asia and Europe. Costco Wholesale trades a broad spectrum of goods and services; it sells a variety of products plus the company's own generated product lines in all its global outlets. James Sinegal, the company president, and Jeffrey Brotman, the chairman are the brains behind the wholesale, a store of its kind in the United States and the rest of the world. The two innovators coined the Costco idea in 1983 in Seattle in the state of Washington. The headquarters of the company is in Issaquah, Washington DC.
Costco Corporation is one of the largest and most profitable organizations in its field due to its simple and competitive business strategy, low cost of products, member's satisfaction and concern over the stakeholders. The company's secret to maintaining this business model is in its membership theory (Sinegal, Hoffman, & Kennedy, 2015). Apart from Costco's focus on its primary operations in retail goods, it also handles food lines which include; dry foods, sundries, groceries and packaged foods. The American-based Corporation is at the same time engaging in agreements with market leaders in other product lines across the US for contracts in providing a solution to their business. Costco Corporation is not alone in the chain store business, in its field are other market makers such as Walmart (WMT), Amazon Inc and Target only to mention a few.
Delegate your assignment to our experts and they will do the rest.
Introduction
Costco Wholesale Corporation as the name suggests is a warehouse club that leverages on costs of its operations to pass benefits to members and by so doing level up the competitive edge in the field. Lowering is its most significant weapon in fighting off the competitive force, that is, its competitors in the chain store trade. While it is a formula for most businesses to offer their customers competitive prices for goods and services as a way of their satisfaction and retention, it is imperative that they put in every effort to attract and retain them. Costco does not only go below the lowest priced retailer in the market, but it builds up an insurmountable customer base through its competitive strategy, the membership-only model.
Costco combines a series of strategic designs which helps the management of the wholesaler to coordinate all factors and resources towards a general wellbeing of the business and stakeholders. This report written on request by Costco aims at evaluating its competitive strategy. Some of the strategic plans adopted by the corporation include:
Membership
Customers subscribe membership to the store with an impressing 90% annual rate of renewal. The members are the organization's most significant revenue source which almost entirely forms the profit. In this way, the shoppers who have already paid through subscription to purchase from Costco outlets do so repeatedly as they feel included and that they matter to the company.
Employee welfare
Costco Inc. pays well its employees when compared to its competitors in the industry. The good salaries the staffs get, and a contingent of other benefits alongside some rights and privileges is an excellent motivating gesture from the company. Not to forget, Costco does not hire from outside the organization to fill in professional positions but instead promotes and trains from amongst its staff (Collings, 2014). It improves their standards of living and commands their retention. A satisfied employee is a happy employee, and the result of this satisfaction is improved performance.
Product and Costs
The fact that Costco corporation outlets are swift and prompt in responding to customer taste and preference enables them to concentrate the focus on generating and supplying products of a cutting-edge quality to assure customers satisfaction. They handle a narrow scope of a wide range of products which results in uniqueness and relevance in as far as consumer familiarity with the product is concerned. Costco Stores pack and display their products and items in bulk. It is a strategic secret to moving more products per purchase at a low cost (Dobni et al. 2016). The organization will benefit from high stock turnover, and the client ends up saving a few bucks with the shopping. Costco tries all the possibilities of narrowing down the cost of its products. The mechanisms include eliminating or reducing the channels of distribution and minimizing the net profit margin as much as possible to the benefit of customers.
Market Penetration
The American-based warehouse club is so far the most prevalent chain store retailer. Its worldwide presence with hundreds of outlet stores across continents, with most of the outlets spread within the United States, gives Costco a competitive edge. Apart from the already existing shops, the company is penetrating into newer markets, and more stores are mushrooming from the unexploited locations.
Analysis
The membership-only business model
One of the most significant and unique strategies that Costco adopts is the membership-only business model. Currently, the wholesaler boasts customer base and signs are that there is a lot more room for new clients. Customers of Costco are subscribers who sign up for the company's purchasing. Members register with the club on an annual renewable scheme at different categories. The business plan attracts membership at a fee of $45 per year. This group of members includes retailers who are running licensed sales store. They make bulk purchase from Costco either for resale or personal use. Gold members consist typically of high-end careers professionals. Members of this range of members pay $60 per year to buy from Costco.
The third category is the Executive members. As the name suggests, they acquire all the benefits received by group one and two and also get tailor-made products customized for their class. Car and home insurance, mortgage, merchant credit cards and an annual 2% cash back is part of the perks for the executives. In return, they part with $100 renewable annually. The members-only strategy by Costco contributes about 75% of the Corporations profit. With over 86.7 Million members and subscription of $2.6billion in 2016, any dared imagination by a competitor to match Costco revenue remains just that, imagination. This membership trend is steady and has been rising with an average of 7.6% growth rate in the past three years (Sinegal, Hoffman, & Kennedy, 2015).
Brand Equity and Corporate Culture
Costco has built a brand name for itself within the transactions of the business. The company's able management and talented administration place the staff, customers and all stakeholders to where they belong, the heartbeat of Costco. Since the warehouse club can cover expense and cost of service delivery with the membership fees, the benefits are passed down to customers, who are members, in the form of fantastic discounts. After a member has been purchasing from Costco all year, the cash-cuts received as well as the reality of the fact that he or she is paying to buy from the store becomes a reason to renew membership (Sinegal, Hoffman, & Kennedy, 2015). For customers, it pays to buy from Costco; the lowest cost of products and annual cash backs among other rewards is a justification for paid membership. Members harbor a feeling that they are an exclusive component of customers. Thus, they are compelled to buy from Costco. When the Company does not mind narrowing the net profit margin for the benefit and satisfaction of members, the articulation goes a long way to enhance customers' loyalty.
Costco's employees are enjoying stellar compensation in salaries and wages. They are an epicenter of the organization's sales force. The fact is, a happy staff is a productive staff. Figuratively, Costco employee earns $20.89 per hour while Walmart (WMT) employee takes home $11.83 per hour. Facts speak for themselves. An employee at Costco contributes twice as many sales compared to Walmart's (Collings, 2014). Costco has managed to maintain good economic moat by keeping staff turn-over at bay. Talent is retained in this way so that there is no need to incur recruitment and training costs for new employees (Collings, 2014). While Walmart, Target and other competitors are grappling with a lull, Costco is busy posting tremendous and consistent quarterly financial results because it consolidates all factors toward driving sales. Buffering and downtimes attributable to competitive loopholes are sealed off.
Market Share
Costco is the most extensive wholesale dealer by the number of outlets it has. With about 360 retail stores globally it is almost convincing that it should be worth its salt. There is nothing wrong if the stores of Costco resonate with the proverbial saying "to whom much is given, much is required." The financial reports for the year 2014 to 2017, display steady but surging total revenues for the retailer.
Costco Revenues from 2014 to 2017
In 2014, the retail store posted $112.6billion. The revenue improved in the following year to hit $116.2 billion. The total income in 2016 was $118.7 billion, and 2017 was the fever pitch year for the organization, a whopping $129 billion is what the company made (NASDAQ, 2018).
Conclusion
The current business world is as dynamic as its ever-erupting volatility. New firms are springing up from every corner in every niche across all industries, both product, and service. The revolution in the world of commerce is on another notch, and the race is ‘survival of the fittest.' In the treasure hunt, only the seasoned game savvy and strategic players in the game, responsive, willing and ready to incorporate clues will unearth the object. Taste fashion and preferences of products among consumers are increasingly becoming unpredictable. Business managers and project directors are day-in day-out outdoing each other in the battle of wits.
The ship of innovations and creativity in commerce has sailed. Consumers are now the front-runners in deciding the company's fate; the nature, quality, and exception of its goods and services are at their behest. In essence, an organization will stand if it can cut out unique and competitive strategies to wade through an ‘alligator infested' business zone or be the alligator to devour any challenger therein. Costco, a warehouse club with multinational presence has launched its offensive to defend, protect and further its interest in the world of trade. Most of the company's strategies are competitive and well to do in an environment where big names such as Walmart (WMT), Amazon Inc. and Target chain store among others thrive.
Recommendations
Currently, shopping behaviors are becoming virtual and adopting the online culture. Businesses, on the other hand, are transforming their stores onto digital platforms. Costco faces an imminent technical knock-out from its competitors who are not only offering the same services as Costco and with discounts but have a tremendous online presence. Costco's survival depends on quick conformity to these digital trends. Business is all about competition and value for customers and investors' money. The price of the company stock and dividends is what attracts and retain stakeholders. Costco should consider improving their dividends' payout if it is to edge out the stiff competition.
References
Collings, D. G. (2014). Toward mature talent management: Beyond shareholder value. Human Resource Development Quarterly , 25(3), 301-319.
NASDAQ. (2018). COST Income Statement . Retrieved from http://www.nasdaq.com/symbol/cost/financials?query=income-statement
Dobni, C. B., Dobni, C. B., Klassen, M., Klassen, M., Sands, D., & Sands, D. (2016). Getting to clarity: new ways to think about strategy. Journal of Business Strategy , 37(5), 12-21.
Sinegal, J., Hoffman, W. M., & Kennedy, T. A. (2015). Costco: How Our Ethics Evolved Over the First 30 Years. Center for Business Ethics, Bentley University.
