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Case Study 1: Costco Wholesale In 2012

1389 words - 6 pages

Key Issues:
At the end of 2012, Costco was a successful business; however there are some issues that they would need to deal with. These issues mainly arise from their previous successful ventures as a warehouse wholesale company. The first issue is that Costco has competitors that can actually be and are a threat to their success. Competition allows a company to improve itself and prove its prowess to its customers. However, when a competitor is able to provide the service at a much reduced cost, problems will arise. As for the second issue, it seems that Costco’s efforts to become an international company are moving slowly. They have not reached a point where their US and Canadian warehouses provide a backbone for their finances. Costco’s third issue is their expenses which include merchandising costs and preopening expenses have been increasing steadily and they need to balance this out to keep a positive net income.
Analysis:
Key Issue #1:
Costco has many competitors with the primary two being Sam’s Club, a wholesale business being managed by Walmart, and BJ’s wholesale club. Sam’s Club is offering the same services as Costco. They offer their customers lower prices than traditional stores and like Costco they sell their products in bulk to keep members interested. What makes them a threat to Costco is the cost of becoming a member to shop at their stores. For Costco’s basic membership, known as a Business membership, a price increase had to occur to outweigh price increases from their suppliers. This led to the Costco Business membership annual fee being set at $55. When looking into the case study assembled by Thompson, Peteraf, Gamble, and Strickland (2014) they point out that Sam’s Club is able to offer similar benefits to its members. Like Costco, Sam’s Club still achieves a positive net gain and they only charge an annual fee of $35 a year. Sam’s Club has been able to have an increasing sales figure these past eleven years, with figures in the millions; they range from $26,798 in 2001 to $53,795 in 2011(Thompson… 2014). What should be most concerning for this competition issue is that Sam’s club is on track to have more warehouses than Costco; with 611 in early 2012 to Costco’s 592 at the end of 2011.
Key Issue #2:
Costco is spreading out of the United States and Canada and moving to become an international company. This growth is admirable although it is still a long way from being able to be a sustainable financial structure for Costco. According to Costco’s 2012 Annual Report, at December 31, 2012, Costco had 622 warehouses. Of these 488 were in the United States, 85 in Canada, 32 in Mexico, 23 in the United Kingdom, 13 in Japan, 9 in both South Korea and Taiwan, and 3 in Australia (Costco Wholesale 2012). These numbers are indeed impressive nevertheless the finances that the 88 international warehouses provide are only a fraction of Costco’s total revenue. At the end of 2011, Costco’s international total revenue was 11.2% of...

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