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Costco Wholesale Written Case Analysis #1 Laniyah Robinson Professor: Joyce Meyer GBA 490 Section February 19, 2024

Table of Contents Executive Summary………………………………………………………………………….1 Issues Issue #1……………………………………………………………………………………...2 Issue #2……………………………………………………………………………………...2 Issue #3……………………………………………………………………………………...2 Recommendation……………………………………………………………………………...2 External Analysis: Appendix A: PESTEL Analysis…………………………………………………………...3,4 Appendix B: Dominant Economic Characteristics……………………………………….4 Appendix C: Five Forces Analysis ……………………………………………………….5 Appendix D: Drivers of Change………………………………………………………….5,6 Appendix E: Competitor Analysis……………………………………………………….6 Internal Analysis: Appendix A: Weighted Competitor Strength Analysis………………………………….8 Appendix B: SWOT Analysis……………………………………………………………...8,9 Appendix C: Financial Analysis………………………………………………………….10 Appendix D: Current Strategy…………………………………………………………...10

Issue #1: Costco’s Online Presence Costco Wholesale has done an exceptional job over the years maintaining their high profits and revenue through word-of-mouth advertising. However, because this industry is evolving and consumers today have a higher demand for convivence, driving consumers to purchase memberships and shop deals online or through an app is the investment needed to drive marketing and advertisement for Costco's brand. Costco investing in improving its website could not only drive sales up but allow an opportunity for cheap same-day delivery options to individuals or small businesses ordering in bulk. Issue #2: Membership Focus Many of the companies in the wholesale industry incorporate memberships for customers to purchase products/services at a flat annual rate to access the best deals on the market. Using the members-only strategy may drive some consumers away and make companies seem less attractive regardless of the number of services/products they may offer in one place. Though, charging customers an annual fee creates a steady stream of income and drives Costco’s sales, finding other areas to improve in, like marketing/ads could also increase sales and allow for a cheaper annual membership rate over your competitors, and eventually driving more foot traffic into their store or website. Even lowering membership fees to target more customers over the competitors and finding other areas to improve in to increase sales may also help with being dependent on membership sales. Issue #2: Limited Products Costco Wholesale has thoroughly selected and sourced high-quality products to bring to their warehouses to offer their members the best price possible. There is a limited selection of products due to the wholesale industry selling most of their products in bulk. Compared to other big-name stores like Target, which may have an SKU count of 80,000 compared to Costco's count of about 4,000. Because of the lack of individualized products, increasing options in-store and online providing multiple sized items, rather than one bulk product, offering more product variations. Recommendation: I recommend that Costco utilize technologies as much as possible as the economy continues to advance. With evolving companies like Instacart, Walmart, and Amazon taking the market share. Costco will fully capitalize on sales of consumers who may not have a store location near them, allowing for online shipping and driving sales. I recommend that once technology is incorporated and invested into Costco’s business strategies, it could elevate them to a new level. Although they do a job well done maintaining their profitability and increasing revenues is needed to gain members or increase the overall revenue of the company. 2

External Analysis: PESTEL Analysis -Political Factors: Political regulations can have a significant impact on this industry because companies operate on a worldwide scale. The wholesale industry assures exceptional service and confidence in its operations to continue to stay competitive in this industry while also continuing to uphold business ethics. Political factors within this industry also include animal rights policies and the political stability of main market segments. Yet, Costco has the opportunity to grow with minimal political disturbance in some major markets. - Economic Factors When general economic factors in delicate industries like Costco and Sam’s Club advertise in a low-cost industry, they further benefit from consumers being more conscious of prices, hence the “treasure hunt” strategy. Retailers like Costco are then able to grow their supply chains and facilities because of growing numbers of international trade agreements. The fast growth of expanding markets enhances the financial performance of these companies by establishing new locations. - Sociocultural Factors All competing industries share the same corporate values and culture. Costco’s CEO Jim Sinegal was regarded as being on a par with Walmart’s legendary founder Sam Walton. Some similar corporate values and cultures included taking care of employees and members, rewarding shareholders, building healthy relationships with suppliers, and following the law. - Technological Factors Technology helps increase the efficiency of systems, products, and services in a business. The wholesale industry which involves companies like Costco, has used technology for websites that customers can utilize to familiarize themselves with products and services the company may offer. Companies in the wholesale industry can then captivate larger market shares by using things like AI, e-commerce, and applications for training purposes or a more convenient shopping experience (Curbside, In-Store pickup, etc.) - Environmental Factors An increasing number of wholesale warehouses have been built with energy efficiency in mind. Management at many of these establishments in the wholesale industry, like Costco are investing in multiple environmental and energy-saving systems. Other companies have also been committed to improving the welfare and safe care of animals being sold as food products in their stores. Farmer's crop availability also has an impact on the supply of groceries within the industry. 3

External Analysis Appendix C: Five Forces Analysis (is the power weak/moderate/strong and name the players) - Threat of New Entrants (Moderate): Due to the industry's high fragmentation, new entrants pose moderate threats. The three largest wholesale retailers: Costco, Sam's Club, and BJ's, create 1/3 of the total revenue in the business. Moderate business expenses and high economies are both external variables that make it difficult for new entrants to compete directly, particularly with major organizations like Costco and Sam's Club. - Competition from Substitutes (Strong): Substitution of products sold and distributed by wholesale industries continues to be a challenge because the products they sell are easily substituted due to their availability elsewhere by other competitors. Food products and other items typically offer various substitutions in these industries, and buyer costs to switch brands are often low. Retailers are differentiating their products like Costco offering their brand Kirkland, an affordable low priced, quality brand for their members. Mostly, the number of competitors is becoming more demanding and equal in size in terms of competition. - Buyer Power (Strong): Buyer power has a significant impact on customer behavior and effectiveness in the retail industry. Customers shopping at low-priced stores like Costco can easily become a customer of competition like Walmart or Sam's Club due to the large number of retailers and limited number of customers, buyers have a stronger buyer power. - Supplier Power (Weak): Supplier Power amongst retailers in the wholesale industry is weak. Due to the large population of suppliers, they are not able to assume the future demands of companies like Costco. Suppliers have minimal control over the distribution of their products in warehouses and retail stores. Last, industry members also account for many suppliers’ total sales. - Rivalry (Strong): The rivalry and competition among retailers in the industry have many factors to account for. Many retailers like Costco and Sam's Club sell the majority of the same products for the same low price, causing a strong rivalry amongst the businesses. Retailers in the industry may find that stores with similar prices and similar products also may influence consumers to have low switching costs. External Analysis Appendix D: Drivers of Change in the Industry (refer to text for examples and apply to this industry) Industry: 5

Advertising: Companies like Costco rely on word-of-mouth advertising or limited monthly emails and are relied upon by several competitors in the sector. Yet, Costco found it unnecessary to engage in extensive advertising or sales campaigns due to “Treasure Hunt” merchandising. They’re able to succeed due to low prices, efficient operations, and membership fees/requirements. Business Analytics: All business regardless of the industry needs to be able to access data effectively if they want to make their business more efficient. Costco uses “Treasure Hunt” merchandising to foster high purchases more frequently and among competitors to stay ahead. When using this strategy, companies must select products that consumers will be excited to buy immediately. Therefore, companies like Costco will need to analyze popular market trends to purchase these products. E-Commerce Shopping: Costco’s E-commerce presence has a lot to improve on. Many companies in this industry have had to increase website sales to keep up with the online demand today. They are only able to do this by allowing their sites to be user-friendly and easily navigable. External Analysis Appendix E: Competitor Analysis Competitor Identification and Strategy Table Key Success Factors 6 RIVALS COSTCO BJ’S SAM’S CLUB Annual Revenue (In billions) $102.3 $333 (million) $73.6 Market Share 68% 7% 26% Resources & Capabilities Kirkland Label Berkley Jensen & Wellsley Farms Label Sam’s Club Brands & Member’s Marks Major Products Food and subsidiaries Bulk sized products Groceries Distribution Method Distribution warehouses and online Distribution warehouses Distribution warehouses and online Competitive Advantage Treasure Hunts & High-quality products Buying in bulk. Cheaper membership cost Generic Strategy To provide quality goods and services at the cheapest possible price To provide amazing products at an unbeatable price To provide quality products and great value

Competitive Strength Assessment (Rating scale: 1 = very weak, 10 = very strong)     COSTCO BJ’S Sam’s Club Key Success Factor/Strength Measure Importance Weight Strength Rating Weighted Score Strength Rating Weighted Score Strength Rating Weighted Score Strength Rating Weighted Score Product/Quality Performance .10 10 1.0 9 0.9 9 0.9 Brand Image .25 9 2.25 7 1.75 10 2.5 Membership Services .20 9 1.8 7.5 1.5 8 1.6 Low-Pricing Strategy .10 8 0.8 8 0.8 9 0.9 Low-Cost operations .35 9 3.15 8 2.8 8 2.8 The sum of importance weights 1   9    7.75    8.7 Overall weighted competitive strength ratings 9 7.9  8.8 - Overall Takeaway : The overall takeaway from the competitive strength assessment revealed that Costco has the highest overall weighted competitive strength ratings over Sam’s Club and BJ’s. This concludes that Costco holds the highest customer value proposition based on five key success factors. Costco also had the leading weighted score of 9 over its closest competitors, Sam’s Club at 8.7 and BJ’s at 7.75. Internal Analysis Appendix B: SWOT Analysis STRENGTHS WEAKNESSES  Low Price: Costco’s low-price strategy is a major strength compared to other retail giants.  Memberships: Costco charges a flat rate annual membership fee to its members to provide a variety of services that traditional retail giants don’t normally have like grocery, pharmacy, insurance, tire shop, and  Marketing: Although Costco has been successful, they don’t put a lot of capital into their marketing budget. Costco has been relying on word-of mouth advertising or monthly email newsletter to push their sales and may be the difference from being number 1.  Limited Product Selection: Costco compared to other competitive retailers may 8

things like vision centers.  Costco doesn't waste money on advertising, instead, they have no budget and uses more of email newsletters rather than sales campaigns.  High Quality/Range Products: Costco offers a lot of services/products in one place to provide members with highest quality products at the lowest prices. Fresh produce, pharmacy’s, hardware, apparel, are some services offered as well as equivalent or better-quality products from sourced bargained brands or Costco’s brand. have a wider variety of products at one location, but consumers choice of individual products is much more limited due to majority of products being sold are in bulk.  Aging customers: Improving their digital marketing and eCommerce, Costco would be able to target a younger audience and even offer products to target a younger age group to shop at there stores rather than a more older age group like 40 and up. OPPURTUNITIES THREATS  Costco could expand their personal product line Kirkland to offer a larger assortment of product and services to members, which leads to higher profits and sales.  Adopting flexible purchase options could allow Costco to grow their sales by introducing delivery, curbside pickup options, overall convenient digital ways for everyone to shop. Plus, competition has implemented these options and have seen progress, it’s also demanded by customers.  Costco could be exposed to political issues because they operate internationally.  Labor, hourly wages, and raw materials cost are increasing substantially making it hard for places like Costco to stay afloat in a low-price high-quality industry.  Competition: Costco’s competitors like Walmart and Amazon may pose as a threat in the future due to their ability to continuously adapt to the economy and what consumers are demanding. - Overall Takeaway : Costco Wholesale SWOT analysis identifies several significant strengths, weaknesses, opportunities, and threats. Costco must capitalize as much as possible on its core strengths: a low- price strategy, high quality products, and maintain brand image. Addressing debilitating flaws from within Costco including marketing, limited product selection and availability as well as making improvements to attract younger consumers to their store over an older consumer group. Costco's opportunities include taking advantage of expanding their brand line Kirkland, adopting to flexible purchase options as other competitors like Amazon and Sam'. Expanding into new geographic regions is also an opportunity that Costco can benefit overall from. Lastly, some potential challenges Costco must avoid continuing to steadily grow in this industry include avoiding competition as well as discovering new ways to keep prices low and quality high amongst rising labor and materials costs. Internal Analysis Appendix D: Current Strategy (highlight cells that apply) 9

Costco Wholesale operates in a high sales volume and rapid inventory turnover industry. To meet the needs of consumers they need to lower costs compared to its competitors and focus on a narrower buyer segment. Costco's current members are the narrow buyers, retaining and growing the memberships by using positive customer experiences and marketing will provide propositions against their competitors like Sam’s Club and BJ’s. Individual strategies for low costs include: Membership Costs: Costco’s ability to use the membership strategy that other retailers in the wholesale industry also utilize, will help with the overall success of their business by providing an increased number of sales and revenues. All of Costco's memberships generate almost 100 percent of the company's net income. Low Prices: Costco takes pride in providing its members the lowest prices possible and even missing out on profits to ensure customers are receiving the best price possible on the market. Costco also offers a limited selection of international products as well as their private brand product Kirkland, which allow them to remain competitive and offer discounts other stores and supermarkets are not offering. Treasure Hunt Merchandising: Costco Wholesale offers approximately 3700 products with a rate of about 20-25% of these items constantly changing. Costco's members constantly sell out hot products at a fast pace due to the very low prices and they even hope to entice customers to send more than normal by offering hard-to-pass-up deals that may not be there the next day. Using this strategy gives Costco an advantage against other big brands in the same industry and keeps shoppers coming back for more. Product Quality: Costco provides high-quality products at a low cost to fulfill their customer's needs and allow for the opportunity to increase customers' brand loyalty and needs. This ensures the quality of their products is up to consumers' standards, it’s what differentiates Costco from other rivals and keep their customers. 11