COSTCO SWOT Analysis [Update 2022] ❤️

COSTCO SWOT Analysis 2022

COSTCO SWOT Analysis: Costco Wholesale differentiated itself in an extremely competitive market by providing an exclusive membership model for its customers. 

Customers could purchase large quantities of products at a significant discount. Some of the products are exclusive and can only get it (at a reasonable cost) within Costco warehouses.

In this SWOT study, you’ll find out more about Costco’s benefits problems, advantages, and ways to profit from opportunities to increase its growth exponentially in the coming years.

COSTCO SWOT Analysis

About 

Costco is the largest retailer in the world as well as a wholesaler. Costco offers membership options to its customers and provides the best offers to consumers for various brands. 

Costco Wholesale Corporation was founded by James Sinegal and Jeffrey H. Brotman, in 1983. 

The company is currently developing its strategies to boost the growth of its financials. The revenue total of Costco totals $138.434 million. 

The main goal of the business is to provide the goods at a reasonable price and in large quantities and to provide customers with top-quality services.

The timeline of Costco is as the following:

  • 1983 – The establishment of the first Costco retail house
  • 1993 – Fusion with Costco and Price Club
  • 1997 – Changed the name of the company to Costco Wholesale Corporation
  • 2014 – third-largest retailer in the US
  • 2016 – Another 29 new locations were added
  • 2019. The first store opened in China
  • 2020 – Members will be increased by up 105.5 million

Background of Costco

Name Costco Wholesale Corporation
Website https://www.costco.com/
Founders James Sinegal, Jeffrey Brotman, Sol Price
Chief Executive Officer (C.E.O.) W. Craig Jelinek
Tagline Simplifying home and Life
Headquarters Issaquah, Washington, United States
Type of Corporation Public
Year Founded July 12, 1976 (as Price Club), September 15, 1983 (as Costco)
Revenues (2019) $44.769B
Key Products/Services food and sundries, hardlines, fresh food, soft lines, and ancillary. There are other memberships that offer other services like real estate, home, and car insurance, and travel services among others.
Key Competitors Walmart, Home Depot, Amazon.com, Publix Supermarkets, Target, The Gap, CVS health corporation, and Kroger

COSTCO SWOT Analysis 2022

The Swot analysis conducted by Costo will assist the business to stay ahead of the competitors and develop strategies that can result in the growth of revenue. 

Costco’s analysis of competitiveness will assist you in analyzing the strengths and weaknesses of Costco and the way this analysis can assist the business to expand rapidly in the coming years.

Strengths In The SWOT Analysis Of COSTCO

❤️ Warehouse Club Model: Costco has created an exclusive business model that’s different from other companies, in which the consumer must be a member of the company or have a Costco membership card to purchase at their stores. In this way, the company costs its members an annual membership fee of $ 60 (Costco Wholesale 2021). At the time of writing as per industry reports, Costco only has Walmart as a rival within the warehouse club model of business with a stable marketplace share of 22.5 percent (Daly 2021).

❤️ Low-Cost Leadership Model: Costco uses a low-price approach that has allowed the company to consolidate its position as a giant in the field. Costco focuses on stocking premium products and offering the bulk of them at cheap costs. For instance, the firm has not altered the price of its beef hot dogs and also a 590ml drink deal that costs $1.5 over the last 34 years (Pomranz 2020). Based on inflation, experts believe that the cost is $3.65 at the present. Yet, Costco has not budged. Costco also has the lowest mark-up, which is 11%, compared to rivals Walmart which earns 24% as well as Home Depot, 35% (Gabler 2016).

❤️ Retaining loyal customers: With Costco’s price policy and membership, the model allows the company to retain customers and develop an enduring customer base. In 2020, this customer base comprised 105 million cardholders as illustrated in the graph below (Statista 2021a).

❤️ Better Profits with less advertising: Costco is famous for putting no advertising budgets. When compared to Target’s and Walmart’s advertising budgets of billions and billion, Costco saves billions of dollars and invests the profits in internal operations (Taylor, 2019,). In a 2013 interview, the company’s founder Costco stated that advertising is a sin and instead they utilize other branding strategies (Byrnes, 2013,). Costco has been consistent since then.

❤️ Ideal Employers can lead to a low Ratio of Turnover: Since the business doesn’t invest in its marketing, it can use the profit to offer a high salary on its staff. A happy workforce improves the company’s reputation for customer service. The high pay, coupled with the other benefits that Costco offers employees, like paid vacation time as well as 401(K) Stock options make Costco the 4 fourth top employer in America and the 13 13 top in Canada (Forbes 2021).

Weaknesses In The SWOT Analysis Of COSTCO

❤️ Limited Selection of Products: When you shop at Costco offers an array of items including furniture, clothing as well as toys, jewelry televisions, and more. But the variety of products is limited compared to other retailers. In a typical Costco retail store, you will find around three hundred product SKUs, compared to 150,000 product SKUs in Walmart and 80 000 product SKUs at Target. target store.

❤️ The cost of Transportation: When you buy large quantities of items transportation may become challenging, especially for those who live in cities or in urban areas. Costs will be higher for transportation with Costco in comparison with other retail giants on the web such as Amazon or Walmart’s (e-commerce) subsidiary Jet.com which provides free or discounted shipping. This is the biggest weakness of Costco.

❤️ Cater to smaller customers: Due to its limited product range, Costco is unable to attune a wider audience who are looking for a larger variety of items and fewer of them in smaller quantities.

❤️ The absence of a global Presence and dependence on certain marketplaces: Although Costco has a huge number of warehouses throughout the globe, however, it is the US and Canada are the main sources of its storage facilities. They also contribute the majority of its revenues. Of the seventy-two Costco warehouses across the globe, 543 and 100 are within both the US and Canada and Canada, respectively. This means that the company does not have any global presence. According to data from Evercore ISI, Costco’s average customer’s age is approximately 50. Other estimates vary between 40 to 45 which is not ideal because the segment is tiny compared to young people. In recent times, Costco has been trying to reduce the average age of its customers by offering organic products and sustainable-made products to appeal to younger buyers. 

❤️ A dwindling customer base: Costco has an age-related issue. Its majority client base is located in suburban areas and has cars, and purchases in huge quantities. It’s mostly due to the lack of digital advertisements and its limited online shopping. People living in cities and busy urban areas and young people prefer shopping at local stores or online sites and having the products delivered directly to their doorsteps. Costco has a small eCommerce presence. This means that they are not able to draw younger shoppers.

❤️ Research and development: Costco spends a significant amount of money on research, however, it’s far less than the top players in the retail industry. This has helped some of Costco’s competitors enjoy a huge advantage in the development of new products as well as customer service.

❤️ Slower eCommerce Adoption The rate of Costco’s eCommerce adoption is slower than that of retail in general. In the second quarter of 2020, the percentage of eCommerce use for retail was at or above 20% almost three times higher than Costco’s 7 percent online penetration. In today’s digital world Costco’s slow adoption of eCommerce hinders the company to appeal to younger shoppers who are looking for quick buying alternatives.

❤️ Poor Implementation of Curbside Pickup: According to a survey conducted in 2020, 25.5 million households took advantage of the curbside pick-up option during August, a figure that was derived from 10.1 million households in August of 2019. Curbside grocery pickup is the most popular trend for 2020 that lets customers purchase groceries online and take them home at the grocery store. Numerous grocery stores like Walmart have increased their profits significantly in 2020 due to curbside pickup. However, Costco has failed to adopt curbside pickup. This is a serious flaw since consumers are hesitant to shop in stores and instead prefer to shop on the internet and pick up their groceries from the store without having to leave their vehicles.

Opportunities In The SWOT Analysis Of COSTCO

❤️ The use of digital technologies used for services and sales: Artificial Intelligence and digital technology have opened up new opportunities for retailers like Costco. Costco can make use of a variety of different channels to market. Additionally, the use of digital technology is making it simpler for brands to assist their customers and resolve issues. Overall, using digital technology can aid in growing the customers and provide better service. In addition to digital technology, AI and other advanced technology are helping companies such as Costco expand their supply chain, as well as business efficiency, and keep their customers longer.

❤️ Investing in digital marketing: Costco does not invest any money in marketing or promotions. However, it does have access to digital channels to lower the cost of marketing and advertising. It is able to use social media along with various digital platforms to increase its market share and promote deals. Digital advertising is more affordable than traditional channels for advertising. Costco can allocate a smaller budget to digital ads to increase its customers and sales.

❤️ investing in emerging markets: Costco has restricted its reach to a select few markets. It is able to expand into emerging markets as well as China to increase its revenue and sales. India is a growing market that is likely to be a lucrative market. Walmart has made its debut in the Indian market through the purchase of an increased part in Indian internet retailer Flipkart. Costco could also make use of the internet and other channels to expand its presence in the new markets. This will allow the brand to increase sales and revenue and the number of customers.

❤️ Product line expanding Expanding product line: Costco may also broaden its product range to include more items. Comparatively, Costco Costco and Walmart offer a greater variety of items that have resulted in higher revenues and sales. If Costco increases its range of products further, it could assist the company in attracting new customers and growing an even larger customer base.

Threats In The SWOT Analysis Of COSTCO

❤️ Costs of labor are rising: Since Costco is focused on having an affordable option the increase in prices will affect the profits of the business. Because the majority of customers love Costco’s savings plan, increasing costs will most likely harm its image as a business. Therefore, the cost of labor is rising across the United States, and Costco must determine what to do about this as fast as is feasible. Costs for labor are rising, which could lead to strikes that will ultimately impact the profit of the business.

❤️ In a highly saturated market, there is an increase in competition: The amount of competition also increasing. Every day there is new company comes onto the market and attempts to take over shares of other firms through the introduction of new features. This eventually reduces the market share of other companies. Costco has a history of competing with big players such as Target and Walmart However, its market share is still very small. With the same companies moving to the internet, Costco is under even more pressure.

❤️ The reputation of a brand cannot be compromised: Recalls of products can be frightening in addition to the risk of financial losses but also due to the permanent damage to a company’s reputation. It’s extremely difficult to recover a business’s performance after it has been damaged. In the retail sector, the long-term performance of a product is defined by its reputation. In November of 2015, the company was hit by a recall of its product Costco. Because of the E. Coli toxin, the roast chicken item was taken off of all places, infecting 19 people. Costco’s image is tarnished because of this.

❤️ Electronic commerce and technological advancements: The store has been transformed into a digital and people prefer to shop using their phones today more. Costco is at threat from the technology-driven competition. Customers are drawn to websites where they can buy and have the goods delivered to their residences. Costco’s inability to invest in thriving e-commerce could be the first step toward its decline.

The SWOT analysis is not as comprehensive as Costco Wholesale Corporation

While it is true that the SWOT analysis is extensively used as a tool for strategic planning, however, it does have some limitations.

  • Certain abilities or aspects of an organization could be both strengths and weaknesses at the same time. This is among the main drawbacks of SWOT analyses. For instance, changing environmental regulations could be an issue for the company but as well as an opportunity in the sense that it can allow the company to compete on the same level or even gain an advantage over competitors if it can develop its products more quickly than its competitors.
  • SWOT doesn’t provide a way to gain competitive advantages and therefore it shouldn’t be considered a solution in and of itself.
  • The matrix serves as an initial point of reference for discussions on how the suggested strategies can be implemented. It offered an evaluation window but did not provide an implementation plan that is based on Strategic Competitiveness Costco Wholesale Corporation
  • The SWOT model is a static evaluation and analysis of the existing conditions and a small number of potential modifications. As the environment, circumstances, as well as threats, and strategies, evolve, the dynamics of the competition cannot be analyzed in one matrix.
  • SWOT analysis could make a firm overemphasize one external or internal element in formulating strategies. There are interrelations between the important external and internal aspects that SWOT doesn’t reveal, which could be crucial in determining strategies.

A SWOT analysis that is weighted for Costco Wholesale Corporation

Given the previously stated weaknesses of the SWOT analysis/ matrix, the management of the corporation is determined to give weightage to every internal strength and weakness of the business. 

Companies also evaluate the probability of the events happening in the near future, and the impact they will be on the company’s performance.

This is referred to as the Weighted SWOT analysis. It’s superior to simple SWOT analysis since with weighted SWOT analysis Costco Wholesale Corporation managers can concentrate on the most important aspects and eliminate the less important ones.

It also eliminates the problem of a long list that causes organizations to make a lengthy list but not address any of the elements that are considered to be important.

References

  • Bernroider, E. (2002). Factors in SWOT Analysis Applied to Micro, Small-to-Medium, and Large Software Enterprises:: an Austrian Study. European management journal, 20(5), 562-573.
  • Costco Wholesale Corporation (2015). Kirkland Signature Means Quality and Value.
  • Costco Wholesale Corporation Form 10-K, 2015.
  • Hill, T., & Westbrook, R. (1997). SWOT analysis: it’s time for a product recall. Long-range planning, 30(1), 46-52.
  • Leigh, D., & Pershing, A. J. (2006). SWOT analysis. The Handbook of Human Performance Technology, 1089-1108.
  • Pickton, D. W., & Wright, S. (1998). What’s SWOT in strategic analysis?. Strategic change, 7(2), 101-109.
  • U.S. Department of Commerce (2015). The Retail Services Industry in the United States.
  • Valentin, E. K. (2001). SWOT analysis from a resource-based view. Journal of Marketing Theory and Practice, 54-69.

Conclusion 

After a thorough study of the swot analysis for Costco, We’ve discovered that Costco is in fact one of the biggest entire brands. 

Insufficient tech capabilities, controversy, and a lack of international presence as well as a lower level of in-depth research are its major issues. Costco should use its resources to grow its tech and market reach.

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