A SWOT Analysis of Costco Wholesale 2016.
After consistently beating its closest rival Sam’s Club, the brand has moved up in its Fortune ranking from 19 to 18 in 2016. Its Kirkland brand sells nearly everything from detergent to pet food and nuts, and is very popular. Kirkland also accounts for 20% of the entire sales of Costco. Costco enjoys high profitability mainly based upon the enormous clout it holds upon its suppliers. It also allows it to keep its products’prices low. Other factors behind its profitability are big sales volumes and low costs which are a result of efficient supply chain management. Its efficient distribution system and no frills warehouses have enabled it to manage one of the world’s most efficient supply chain systems.
What is a SWOT?
‘SWOT’ is an acronym for Strengths, weaknesses, opportunities and threats. It is a powerful strategic management tool that can help at identifying a business’ important strengths and weaknesses. This helps at planning to exploit the opportunities available to the business and countering its threats. Strengths and weaknesses are internal factors while opportunities and threats are external. A SWOT analysis can improve the business’ chances of success by exploiting available opportunities and increasing the business’ strengths. Based on a SWOT analysis companies can take steps to increase their customer base and improve profitability. Below is a SWOT analysis of Costco Wholesale:
Key Financials (last fiscal year)
Total Stockholder Equity
Market Value (as of March 31, 2015)
Its high geographic concentration of stores is a major weakness. For example 30% of its sales come from California region only. 10% of the brand’s sales come from gas. However, if the prices are already low, there are no incentives for the customers to shop at Costco for gas. Costco’s product mix is also limited as compared to its rivals and the profit margins too are lower. Moreover, a membership is required for shopping at Costco.
E-commerce still accounts for a minuscule 3% of Costco’s sales. This is the area where Costco can find really huge opportunities. Moreover, focusing on e-commerce could also reduce some of the competition from the major rivals like Amazon. Apart from that, international expansion can also provide Costco with new opportunities of business growth. It can expand its product mix to generate higher sales. However, apart from these, there are opportunities for Costco that can be exploited only through diversification.
Costco’s closest rival is Sam’s club and recently Sam’s club has started using more aggressive techniques to expand services to its members as well as to improve its private level brands. This poses the threat of increased competitive pressure on Costco. Its limited e-commerce is another major threat which could lead to the customers gravitating towards the other brands.
Costco should focus upon e-commerce. This will reduce the competitive pressure as well as help at retaining customers and attracting new ones. Moreover, Costco can gain higher profits by expanding its product mix and through diversification. Costco is a well known and a well performing brand. Still, it is not immune to the competition from Amazon and Sam’s Club. E-commerce holds some excellent potential that Coscto could profitably exploit.