SWOT analysis Of Costco analyzes the brand based on its strengths weak points, weaknesses, opportunities, and threats. With Costco SWOT Analysis it is clear that the advantages and disadvantages are internal factors, while threats and opportunities are external elements. Here we are going to talk about Costco SWOT Analysis.
Did You Know? The pie in “American Pie” was from Costco.
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.
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 warehouse.
Costco At A Glance – Costco SWOT Analysis
Competitors: Walmart | Target Corporation | BJ’s wholesale club | The Kroger Company | Amazon | Home Depot | Kmart | Lowe’s | Sam’s Club | Best Buy | Aldi |
Costco SWOT Analysis
Below Is The Detailed SWOT Analysis Of Costco.
Costco Strengths – Costco SWOT Analysis
1. Low Costs: Costco’s low price strategy is one of the major strengths of the retailer. Costco employs a method that focuses on high-quality products, that are offered in huge quantities with low profit margins in warehouse-style stores. Costco is determined to be known as high-end, low-cost products. quality product that is affordable and of good quality. For instance According to the Fortune the average markup for Costco stands at 11 percent and compared to. 24 percent at Walmart and 35 percent in Home Depot.
2. The Membership Business Model: Costco’s commercial model is unique from other retailers. They offer a monthly membership cost in the amount of 60 dollars from their members. Only members who pay are able to buy items from Costco.
3. A loyal customer base: Costco has built an extensive, dedicated as well as loyal customers base. Costco is home to more than 5 millions customers (2019) all over the world and their membership has increased every year. In 2019, renewal rates were 91 percent (US) while 88 percent (Canada).
4. Don’t use up money for advertisements: Costco has no budget for advertising. By comparison, Walmart spent $2.9 Billion in 2018, and Target has spent $1.4 billion on advertisements in the year 2018. in the course of an interview, Jim Sinegal, co-founder the former chief executive officer, states the following ” Advertising is Evil because it cost huge sums of money, which would lead to higher prices of the merchandise and that’s bad for the company and our customers.”
5. Offer discounts to the customers: Costco keeps a advantage in the market by keeping its operational costs as low as is feasible. It allows the business to not be dependent on generating huge profits in sales, and thereby allows customers to benefit from greater savings on purchases.
6. Premium Quality Items: One Of Costco’s philosophies is to offer its customers the best quality products at affordable costs. Quality is achieved by buying directly from the manufacturers. Costco’s aim is to maintain an excellent image of its services and products that has resulted in that customers are loyal to the brand.
7. High-Paying retail jobs: Costco has built a satisfied workforce and a loyal staff by offering the highest wages and benefits over its rivals. Costco is currently paying an hourly the minimum salary of $15 an hour and has helped the company to recruit a highly skilled workforce. The approach has inspired other retailers such as Walmart in addition to Target in their decision to increase the salaries of their employees.
8. Generous Benefits and Perks for employees: Costco provides generous benefits to its employees. They have full health and dental insurance, for both part-time and full-time employees and great pay leave (PTO) to take vacations, personal time, as well as 401(K) which includes options to purchase stock. Costco employees also enjoy an increased level of responsibility at work, keeping employees motivated and content.
9. Low turnover of employees: A happy workforce means less turnover for employees and greater customer satisfaction. The Costco employee turnover is lower than 6.6% which is extremely low for retail.
10. America’s Best Employer: According the Forbes survey, Costco has held a top 5 spot for several years in a row. In 2017 Costco was ranked in the number 1 and in 2019 the company is listed at #4.
11. Strong Distribution Network: Costco has been able to extend its global and local presence by utilizing its extensive distribution network. In the year 2019, Costco operated 782 warehouses throughout the US, Japan, Mexico, Spain, China, Taiwan, France, South Korea and Iceland.
12.Large pizza chains: Costco is the 14 14th biggest pizza chain in the US. With more than 700 locations that have restaurants, Costco is even bigger than California Pizza Kitchen.
Costco Weaknesses – Costco SWOT Analysis
1. Limited Selection of Products: When you shop at Costco offers many options that include furniture, clothing as well as toys, jewelry TVs, and more. However, your selection of products is limited compared to other retailers. In a typical Costco retail store you will find approximately 3700 item SKUs, compared to 150,000 product SKUs in Walmart and 80 000 product SKUs at Target. the Target store.
2. cost of Transportation: When you purchase large quantities of items transporting them can be challenging, especially for those who live in cities or in urban areas. There is a higher cost for transportation with Costco in comparison to other retailers on the internet such as Amazon as well as Walmart’s (e-commerce) subsidiary Jet.com that provides free or discounted shipping. Costco is one of the major weaknesses of Costco.
3. Cater to a small customers: Due to its small selection of products, Costco is unable to attune a larger number of customers who are looking for a wider range of goods and smaller quantities.
4. Insufficient global Presence and dependence on certain market segments: Although Costco has a huge number of warehouses throughout the globe but it is the US and Canada make up the bulk the warehouses. They also make up 80 percent of its revenues. From the seventy-two Costco warehouses in the world, 543 and 100 are within both the US and Canada respectively. This indicates that the company has an international presence. According to the statistics of Evercore ISI, Costco’s average customer’s age is between 50 and 55. The estimates of other companies are between 40 to 45 this is not ideal because the segment isn’t as large as young people. In recent times, Costco has been trying to decrease the average age of its customers through adding organic food items and sustainable-made products to appeal to younger buyers.
5. Customer base aging: Costco has an aged problem. A majority of their client base is located in suburban areas has cars, and also buys in large quantities. It’s mostly due to the lack of digital ads and a lack of 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 right to their doorsteps. Costco has a small eCommerce presence, which means they’re not able to draw younger shoppers.
6. Research and development: Costco spend a significant amount of money on research, however it’s not as much as other major retailers. This has helped some of Costco competitors enjoy a huge advantage in the development of new products in addition to customer delight.
7. Slower eCommerce Adoption: Costco’s eCommerce adoption is slower than that of retail in general. In Q2 of 2020, the percentage of eCommerce use in the retail industry was higher than 20%, that’s three times more than Costco’s percentage of online shoppers. In the present digital age Costco’s slow progress in embracing eCommerce is making it difficult for the company to appeal to younger shoppers who are looking for quick and convenient purchasing alternatives.
8. Poor implementation of curbside pickup: According to a 2020 survey, 25.5 million households took advantage of the curbside pick-up option alone in August from 10.1 million households that used curbside pickup in August of this year. Curbside grocery pickup is the most popular trend for 2020 that lets customers buy their groceries online and then pick them up from the grocery store. Numerous grocery stores like Walmart have seen their revenues grow significantly in 2020 due to curbside pickup. However, Costco has failed to introduce curbside pickup. This is a huge weakness since consumers are hesitant to buy in-store, and would rather order on the internet and then pick their groceries from the store, without having to leave their vehicle.
Costco’s Opportunities – Costco SWOT Analysis
1. Internet Presence (E-commerce): There has been an rise in the number of users who use the internet and shopping on eCommerce websites. It is an chance for Costco to increase its eCommerce platform to allow shopping. In 2019 just 4 percent of the company’s total revenues were attributed to online shopping. In the quarters of Q3 and Q4 in 2020 Costco concentrated on capturing the growing consumer demand for online shopping, through the expansion of the company’s eCommerce platform. Costco’s online sales increased in the past 12 months, which to August. 30, (its annual fiscal year) however, the company did not release specific figures for online sales. The fourth quarter of the year, Q4, eCommerce accelerated Costco’s online sales. The Q3 that ended in May 2020. which increased 64.5 percent, and increased 90.6 percent over the year in the fourth quarter of 2020. For the 12 months ending in August 2020, the online sales grew by 49.5 percent, which is marked a major increase from the 7.9 percentage growth in the eCommerce market in fiscal 2019 , and 9.7 percent in fiscal 2018. Costco is still in a position to expand its online presence and draw more customers who are reluctant to visit stores because of the health issue.
2. Digital advertising: The number of social media users is increasing each day. Facebook is home to an estimated 63 billion users and Twitter boasts more than 126 million per day active users. This is an excellent chance for Costco to connect with new members via digital advertising. Costco has no twitters in addition to 2.15 million likes on Facebook. By comparison, Walmart has 34 million likes, while Target is a fan of 24 million on Facebook. By using social media platforms, Costco can promote its products and services to a large extent. Costco has already inaugurated the its first location in Shanghai in the year 2000, with another store planned for 2020. The retailer’s rapid expansion strategy in China represents a significant chance for growth over the long term due to the huge demand for basic products on the market.
3. Global Expansion: Costco has an excellent chance to explore new markets which include China and will continue to expand its warehouses.
4. Customer Health-conscious: Americans and people across the globe are becoming more conscious of their health. This means that Costco could benefit from and promote healthier options in its food courts as well as supermarkets.
5. The Tax Law: This is the US tax reductions by the federal government can be beneficial to Costco. It means paying less tax, and then using the savings to grow.
6. Transport Industry: Transportation companies are using newer technology through consolidation of shipment. Consolidation has significantly decreased the costs of shipping products, which is advantageous for Costco and reduce operating costs.
7. supply uncertainty: While the health situation in the world is a concern to many companies, businesses that provide essentials are better equipped to satisfy the demands of customers and grow. The frenzied shopping caused by the lack of essentials allowed Costco to boost its total revenue by over 10 percent to $39.07 billion and its gross margins increased by 6.25 percent up to 816 million during the quarter that finished February. 16. Costco will continue to profit from this potential for growth in the short-term.
8. Expand through acquisitions: Costco can expand into other related areas like delivery services through acquisitions of small or mid-sized businesses that have been established in the industry. In the year 2020, Costco acquired Innovel Solutions that had been serving the company since the year 2015 in exchange for 1 billion. This acquisition will provide Costco an additional revenue stream as Innovel continues to support retailers such as Sears and other third-party companies.
9. Accept Flexible purchase options: Costco’s rivals like Sam’s Club, Kroger along with Whole Foods have grown their sales by offering curbside pickup options. The analysts believe that curbside grocery pickup will continue to be a feature for the future. Costco could boost its sales from groceries by implementing a curbside pick that is flexible and desired by its customers.
10. Coronavirus Outbreak: Although this outbreak poses the biggest threat to companies due to supply chain issues however, this issue (at least in the short term) will turn out to an enormous opportunity and boost to business for Costco. Customers (due to the fear of a short supplies) have started stocking on items that are essential to their lives, such as water and food items, medical supplies and disinfectants, toilet paper and more. Forbes says that in the final month of February Costco experienced 20% more sales than the previous week. 20% growth on sales.
Costco’s Threats – Costco SWOT Analysis
1. Brand Reputation: Product recalls can be frightening not only because of the potential cost of the product, but also because of the damage to your reputation that will last for a long time. If a company’s reputation gets damaged, it can be difficult to restore it. For retail businesses reputation is an essential aspect of a company’s long-term performance. Costco was the target of an recall of a product in November of 2015. Its chicken salad rotisserie was removed from all of its stores because of the epidemic caused by E. Coli toxin, and 19 people were affected. The Costco’s reputation.
2. Controversies: Costco became embroiled in controversy when it put the Bible under the fiction segment of its business. Many people had a huge issue with the labeling of the Bible as a novel and the story was made to the forefront of social media. Costco issued the apology by sending an apology letter at Fox News and subsequently removed the Bible from the fiction section.
3. Security: Costco collects, and then transfers its employees and customers data to a third-party cloud service for secure storage. This includes the customer’s bank account details that are cashless. If these information fall into the wrong hands this could mean the end of the world.
4. Political uncertainty: Costco is internationally operated, and that means Costco is open issues of political nature that affect the country in which in which they operate in.
5. Technology and Ecommerce: The world is now digital and nowadays customers prefer shopping on their phones. The technological advancement of their rivals is a major risk to Costco. Customers are enticed to buy on websites where goods are delivered to their doorsteps. Costco’s inability to build a strong e-commerce could be the first sign of its demise.
6. Pricing Competition: Costs of manufacturing have fallen in recent times and retailers are utilizing ways to reduce operational expenses. This has led to a heightened price competition, which poses the biggest threat to Costco.
7. Economically skewed: bad economics impact every company, not just Costco. A bad economy means lower sales.
8. Exchange Rates: The fluctuation of exchange rates will have an impact on retailers who are internationally based.
9. Competitive: Walmart and Amazon are extremely competitive competitors and they’re constantly stepping up their game. Walmart is the current largest retailer worldwide ($514.40 billion in annual revenue). It has been investing massively to acquire online stores like Jet.com, Bonobos, Mod Cloth, Shoes.com, Moosejaw, and Flipkart and Amazon is the largest retailer on the internet.
10. fake items: Costco was sued when it was discovered that the company had sold a ring made to look identical to the most famous Tiffany engagement ring. It was ruled by the courts in the favor in favor of Tiffany & Co. and ordered Costco to pay 20 million dollars in compensation. It is probable that some customers won’t attempt to buy expensive brand jewelry or brands at Costco because of the fear of being sold fake goods.
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