EXTERNAL ANALYSIS FOR COSTCO WHOLESALE CORPORATION

Introduction Costco or Costco Wholesale Corporation (CWC) is an Fortune company based in America. It operates various membership warehouses in the country with an aim to offer low prices on the selective and speciality brands in the wide range of products. It is one of the largest of its kind. Stores Org in 2010 ranked it among the top three largest retailers in the United States and it is currently the 9th largest retailer in the world (Stores media, 2009). It was also listed as the largest retailer of wine in the world (WBI, 2007). It has direct network of merchandize through which the company buys its products directly from the manufacturers and then send them to its warehouse facilities directly. Its warehouses are of average size over hundred and forty thousand square feet and works seven days a week on sixty nine hour per week basis. The stocks of the company are traded in the NASDAQ under the symbol COST. SWOT Analysis SWOT Matrix The SWOT analysis of Costco Warehouse Corporation is as follows: Strengths y y y y Strong management Marketing strategies Diverse offerings Company policies Opportunities y y y Expansion E-commerce Governmental stability y y y y y y Weaknesses Huge business setup Meticulous decision making Weak advertising Threats Economic conditions Not enough diversification Fierce competition

Strengths

Costco Warehouse Corporation has very strong managerial grounds. The Majority of its top management officials are home grown which means they started and excelled their carriers through the company Warehouses and learned how to do business at Costco (Costco, 2011). The employee turnover rate is very low as compared to the other retailers in the industry, for example, nearly seventy percent of Wal-Marts employees leave after completion of their first year (PBS, 2007). Costco is engaged in low cost promotion and marketing practices. The low cost strategies usually allows the company to market itself through the most effective word of mouth techniques which help it save great fortune that it would have spent on its marketing campaigns. The company offers wide range of national and international brands of products and goods at low price. The company keeps its policies up to date to facilitate its employees, management, customers to run an efficient operating structure with high sales volumes generation at each of its stores.

Weaknesses Some of the issues Costco currently faces are needed to be resolved for the betterment of the company. It has a huge network of business across the US and various other regions. These operations are large scale operations which sometimes hinders the implementations of changes to grass root levels. It has enormous stores for already aging markets in United States. Secondly Costco does little or no formal advertising, which means that the company is not getting the number of customers that it should receive as per its expertise. Costco has very limited focus in terms of its stores and the regions it covers. Lastly the meticulous decision making impacting its ability to more quickly react to market conditions

Opportunities

Costco can expand its market presence in the various regions of the world especially the developing markets of India, China and Japan. These markets show great potential for growth of the company. It can also start online business opportunities for its customers across the globe. The company is constantly working to make its distribution channels stronger and enter new potential markets. The political frameworks in the United States and the other contries lol like Canada and Japan are good types of government for the business.

Threats

One of the biggest threats in the industry is the fierce competition faced by the existing market players. The Costo is not only competing in one sector or market but it competes with a wide range of other types of retailers. Their competitiveness changes because the different types of products they deal in. Secondly, the economic conditions prevailing in the countries are the huge setback for the customers to decrease their shopping needs in order to meet their living protocols. Costco is currently operating in limited number of regions, it will become history in the presence of other market players extensive geographic diversification if it continued the same business strategies.

PESTEL Analysis The PESTEL analysis contains the analysis of Political, Economic, Social, Technological, Environmental and Legal environments of a country with reference to a particular object. The PESTEL analysis of Costco Warehouse Corporation is as follows: Political

Costco Wholesale Corporations business practices get influenced by the political environments of the host and the home countries where it carry outs its business. The company is engaged in providing high wage rate to its employees as a result of its contract with the union bars and it has set new standards for its employees in its stores despite the political policies of a country (Herbst, 2005). Due to its wage rate and policies regarding to it, the performance of the employees is far better than usual and the overall performance of the company is very good (Herbst, 2005). Costco operates in different regions of the world where the political scenarios differ greatly. It has established good corporate relationships with the other organizations and countries. It mainly follows the rules and regulations of United States political parties. The company forms its industrial policy, foreign capital and technological policy, fiscal policy and the export import policy according to the business regulations of the United States (Gilad, 2003). Sometimes the company has to face several risks due to the political policies of the native country. Economic Chidrawer, Hatch and Kramer (2009) suggested that the economic conditions of a country have great influence on the operations of a company and its business strategies to handle the marketing environment. Economic factors play important role in the evaluation of marketing mix strategies that can be adopted by a company at global level. The economic scenario for Costco Wholesale Corporation remains consistent as the sales of the company are in consistent with the economy. This is mainly due to the growth of the warehouses of the company is moderate and the growth of the membership of the company also

runs on the proper track (Taking Stock in Costco Wholesale Corp. (COST), 2008). According to the Costco staff (2009) the economic factors on which the performance of Costco is based are the systems of tax payment, investment and allowances, sophistication of moving and raising capital, prices of the commodities, fiscal and monetary policies and rates of exchange, etc. Social Chidrawar, Hatch and Kramer (2009) asserted that the company has been performing successfully in its overseas operations by following the efficient trade practices. These tarade practices has helped the company to improve its relations and reputation with the customers, employees and with the governments. The income level of families of both developed and developing countries in which the company operates is different. This difference in the income level of the families of host countries affects the business process of the company at a great level (Hirji, 1999). When a business operates in the diverse range of regions then it has to adapt itself to cope with the cultural and societal issues (Herbst, 2005). Cultural diversity is a significant factor in the business culture of this company and multi cultural work force is the key to its employee relations. The women employees are given more opportunities in the company. It was found that above fifty percent of its associates and its management staff are women and the company also supports various organizations committed to women (Pagell & Halperin, 2000). Technological Technology plays significant role in the industry where the competition is on fire. Therefore, the technological advancement is very important for Costco Wholesale Corporation. The company made an agreement with McKesson HBOC to excel itself in the field of online

pharmaceutical services against its competition. This provided the ease of automation to the company (Grant, 2005). It is taking reasonable steps to reduce the energy consumption of the manufacturing and other business operations and to reduce the carbon content of its operations. Recently, it has employed virtual technology system through out its business units to expand it IT related functions. The company also expanded its investment portfolio in the information technology based items (Costco Uses Virtualization to Save Space, Reduce Costs, and Increase IT Agility, 2008). This technology has also helped the company to increase the gracefulness of the information technology. Environmental In order to improve environmental safety, Costco is taking parts in the establishment of solar panels and skylights at its distant warehouses club positions mainly in Hawaii and California. Environmental factors have a powerful impact on the normal functioning of the any business, especially in the marketing decisions (Pagell & Halperin, 2000). These factors pose challenges and threats to the success of any business. Business operates not only with the sole aim of generating profit but also with the aim of providing benefits to all those who are directly or indirectly connected with it (Hirji, 1999). Therefore, every organization has some social responsibilities must be fulfilled in order to excel in the other areas of business as well. Costco is trying to employ all the environmental safety related programs and is the market leader in this regard (Staff, 2009). Legal

Costco operates in the number of countries around the world therefore it is very important for the company to follow all the legal implications of the host and home countries for its profitability and market rapport. There is a Foreign Corrupt Practices Act that influences the decisions or the companies related to starting a new business or introduce a new product in the international environment. It gives leverage to both the domestic and international companies from various illegal and unethical practices or corruptions (Norton & Myers, 2004). The company also follows some legislation to fulfill its legal obligations towards the society as well as employees (Pagell & Halperin, 2000). These legislations may be related to the minimum wage given to the workers, their working time, food stuffs provided, industrial or occupational training and so on. These legislations are very important to be followed by the organizations so that they can function effectively. The successful implementation and accomplishment of these requirements is the reason behind its successful operation right from the time of its incorporation (Kristen, 2004).

Porters five forces analysis Rivalry among established competitions The degree of rivalry in the industry is low. There are main three players in this industry; Costco, Sams club and BJs. The growth rate of this industry is over seven percent which is below the market requirements. There are rare incidences of store closing in the industry. The industry is highly competitive based on the price, merchandize, quality and selection. Bargaining power of suppliers

The bargaining power of suppliers in the industry is medium to high. There are high numbers of buyers in the industry who have moderate switching costs. There are already substitute raw materials available in the markets. This means the substitute raw materials are high on ratings. There is low threat of forward integration in the industry. The bargaining power of buyers The customer needs and wants tend to change over time; therefore they impose moderate level of threat to the business operations of Costco Warehouse Corporation. The buyers have low cost of switching from one company to other therefore their switching cost can impose huge impact on the business of the players in the market. There is moderate threat of backward integration from the side of customers so the companies enjoy high profits from their existing high number of customers.

The threat of substitute products or services The threat of substitute products or brands in the industry is quite low. There are little or no products available that offer same functionality offered by the already existing market players. By offering convenient, low price products at a nice shopping environment to consumers, warehouse clubs created their niche for the consumers that cannot be substituted. The threat of the entry of new competitors The level of threat of new entrants in the market is very low due to varying reasons. The industry imposes certain barriers to the entry of the new companies in the markets. This means that the level of threat of new entrants is relatively low in the industry. There are varying reasons to the low rate of entry. Among them is the entry barriers imposed by the industry. The new entrants will have to comply with the governmental regulations in order to make their entry in

the markets. Then the existing players are protected by the number of barriers which makes it difficult for the new entrants to give hard time to them. Among them are: entry restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit them to compete against the existing market players.

Recommendations This study provided brief overview on the external environment analysis of Costco Warehouse Corporation. The findings of the study suggested that Costco Warehouse Corporationshould focus on the following factors in order to excel its business and social image in the world: 1. Change the managements style of making decisions. The meticulous decision making is time consuming and requires so much attention. This can harm the business in the long run in case of quick decision making requirements. 2. The large business operations need to give empowerment in order to make changes in times of need for the betterment of the organization 3. Expand the geographical presence of the company especially to the developing markets 4. Devise competitive strategies to stay in the game with the existing players.

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