Costco Wholesale differentiated itself in a crowded market by offering a membership-only model to its customers. With it, customers were able to buy bulk products at an attractive discount. Some of these products remain private and you can only find it (at an attractive price) at Costco warehouses.
In this SWOT analysis, you’ll learn more about Costco’s advantages, issues, and how it may take advantage of opportunities to grow exponentially in the future.
Strengths of Costco
Well-known and well-liked.
Costco Wholesale has stores in over 600 locations across the United States and Canada. It has many strengths, but it’s most known for its private product selection, exclusive membership, and positive treatment of its employees. Compared to other brands like Walmart, Costco offers benefits to employees, maintains an average wage of $20 an hour, and has a significantly reduced employee turnover rate. Walmart can’t say the same.
Membership only makes customers feel special.
If you want to shop at Costco, try the many food samplings they offer, or grab a $2 hot dog from their small food court, you need a membership first. The membership makes customers feel like they’re part of an exclusive club. Unlike Target, you can’t just walk into Costco and buy something; there’s a whole process involved, and many people like this. It also helps Costco focus more on customer retention and loyalty — something a lot of companies are forgetting these days.
Good prices at bulk.
Another way Costco has differentiated itself in the crowded market is by offering bulk products at discounted prices. It’s one of the main reasons people sign up to go to Costco; they know they can walk out with hundreds of bulk products for much cheaper than buying them individuality elsewhere. It’s also a way for Costco to acquire more market share and increase markup — all maintaining a lower industry average than other stores.
Decreased operation costs.
Buying products in bulk for Costco also translates to lower operation costs. In most industries, companies get a discount for buying high quantities of products. Costco is the same. Because of this discount, Costco can offer these products at a discounted rate, allowing the company to maintain a specific positioning and strategy regarding prices.
A focus on saving the environment.
The company focuses on maintaining eco-friendly business practices with a four fold approach. In this approach, these are the four main objectives:
- Creating proper waste management systems
- Significantly reducing their carbon footprint
- Changing how they package designs
- Improving energy management systems in warehouses
Eco-friendly shoppers will love Costco for this endeavor. Likewise, it’s beneficial for the planet. Using this approach is a win for the company, customers, and the environment.
Weaknesses of Costco
A sad selection.
Although you have the option to buy many products at Costco, compared to other stores, the selection is rather limited. The average amount of products circulating on the floor is 4000. It sounds impressive until you learn that Walmart houses over 50,000 products. Having such a small selection means any store can easily become a competitor to Costco. This may be Costco’s biggest weakness at the moment.
Costco is located in over 600 places between the United States and Canada, but it doesn’t have a notable global presence. It’s easier for competitors to emerge when Costco’s presence is so limited. Now, not only does Costco have to worry about the bigger brands, but new ones offered by these same brands.
Reputation hit by recalls.
Costco is affected by any product recalls, but especially produce recalls. Not only do the recalls affect sales, but it also harms Costco’s reputation. Customers are less likely to shop at Costco if they feel their health could be at risk. And with so many other competitors around the corner, they’ll easily go back there until they feel safe again. Not good for Costco.
Opportunities of Costco
More online offerings.
Costco is creating a stronger presence through eCommerce. It’s the future of shopping, after all. And with everything Costco has to offer, it’ll be easier for it to build a strong community of online shoppers and supporters. It also allows Costco to offer even more products without having to put them on the floor of physical stores.
A better selection of private bands.
Another thing Costco can do to stand out is to offer even more private label products. It already does in the U.S, and with more brands offering private labels, it’s easier for Costco to scoop them up.
And with more access to increased household income, customers can afford luxury items, clothing, and fancier brands. This is a benefit for the entire retail industry, Costco included.
Threats of Costco
Rising labor costs.
Since Costco prides itself on its low-cost model, any type of increase will affect the company’s profits. Considering most people love the discounts Costco offers, increasing costs will likely impact the company’s reputation negatively. Unfortunately, labor costs across the US are currently on the rise, and Costco needs to figure out how to handle this sooner than later.
Growing competition in a crowded market.
Competition is also on the rise. Costco is used to dealing with the big guys like Target and Walmart, but it still means Costco’s market share is limited. Now with these same guys focusing on ecommerce, it puts even more pressure on Costco.
Final thoughts about this SWOT analysis of Costco Wholesale
Costco Wholesale Corporation offers unique products and discounts. The membership-only model enforces customer retention and loyalty in ways other brands haven’t achieved. The company has gone above and beyond to maintain a positive brand image, find ways to remain eco-friendly, and drive down costs of bulk purchases. However, it’s still lagging behind with its global presence and small product selection.
Luckily, Costco can take advantage of the opportunities created by e-commerce to reach more people and offer more products. So long as they acknowledge the competition and find ways to keep their costs low, they should continue to increase profitability.