...Costco Inc. 2012: A Wholesale Membership Industry Analysis Using the Porter’s Five Forces Model Costco’s Company Background Costco is the third largest retailer in the U.S. as well as the seventh largest retailer in the world. It is leading the discount warehouse and wholesale club segment of the North American retailing industry. As of 2012, Costco had a total of 598 warehouses internationally. Costco’s fiscal 2011 total revenue was $88.9 billion and net income was $1.46 billion. Additionally Costco had $1.9 billion of membership fees revenue acquired from 25 million households and 6.4 million businesses making it the leader in the wholesale, membership industry. The annual sales for one of Costco’s competitors, Sam’s Club, averaged $146 million with a $78 million average per store. Costco’s business model aims to generate high sales volumes and rapid inventory turnover by offering fee-paying members attractively low prices on a limited selection of nationally branded and selected private-label products in a wide range of merchandise category. Rapid inventory turnover, low operating costs through purchasing high volumes, efficient distribution, and reduced merchandise handling costs are the major factors that make Costco profitable with relatively lower gross margins than other wholesale competitors. Also, the membership fee required from customers is a major revenue source thataccounts for approximately 70 percent of its total revenue annually. Additionally, Costco...
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...COMPANY BACKGROUND Costco was founded by Jim Sinegal and Seattle entrepreneur Jeff Brotman. Operation of the first store of Costco began in 1983. There were nine Costco stores in five states by end of 1984. Costco became a public company for raising additional fund for business expansion in December 1985.Costco successful to reach one billion dollar in sales in less than six years which make the company the first ever United States (U.S) that reach that huge amount of sales. Costco merge with Price Club in year 1993 and came out with name of PriceCostco. Later, the name was changed to Costco Wholesale Corporation in August 1999.This warehouse club chain have 57 million members. It sales volumes only based on its members as it only open to their members and guests. Costco is the fourth largest retailer in the US and is the seventh largest in the world. Currently, Costco holding market share or in other words industry standing of US and Canada is about 55% . Whereas its close competitor Sam's Club market share is about 36% and 9% by BJ’s Wholesale Club. Costco offer tremendously lower price products with good quality and branded name. The price which are offer by Costco much lower compare to other conventional wholesale or retail that sell similar items and products. Profit generated by the company from its membership fees is about one billion with E- commerce sales contributing about five hundred and thirty four million. It was estimated that the renewal rate of the card holder...
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...Executive Summary This paper conducted an external analysis of Costco which is in the retail industry, more specifically, variety stores. The five forces of this industry include Threat of New Entrants, Bargaining Power of Buyers, Bargaining Power of Suppliers, Threat of Substitutes, and Intensity of Rivalry. After having conducted research, the intensity of each of the forces are as follows: Threat of New Entrants – moderate; Bargaining Power of Buyers – weak; Bargaining Power of Suppliers – weak; Threat of Substitutes – strong; and Intensity of Rivalry – weak. Furthermore, the greatest concern involves threats from online purchases, due to the convenience and ease of the transaction. Although, suppliers that have large economies of scale are working with Costco in securing preferential prices. Threat of New Entrants The first of Porter’s Five Forces is the threat of new entrants, which refers to the likelihood of new competitors entering the industry. The strength of this force depends on the levels of barriers to entry. When barriers to entry are high, the threat of new entrants are low, and vice versa. We determined the threat of new entrants to be moderate for the Variety Stores industry. The first two barriers to entry are large economies of scale and high capital requirements. When consumers shop at wholesale clubs, products are usually sold in bulk and are bought in larger quantities than usual. This type of consumer purchase is also linked to the high capital...
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...the PESTEL analysis were:(Refer Fig 1 ) * Socio Cultural factor: One of the most important concerns among consumers during that period was price. Since its establishment Walton focused on Everyday low prices (EDLP) and always geared towards the low- income groups of the society. This provided Walmart better opportunities and helped them gain a competitive advantage in the industry. * Demographic factor: Another opportunity facing the industry was that Consumers (working Mothers and other American workers) wanted ease of shopping (fast, efficient and one-stop shopping). Walmart provided its customers with what they want in the Walmart supercenters combined with its wholesale unit “Sam’s Club”. * Technological Factor: Heightening of Internet users (70% of the population) and more people were comfortable shopping online. This yielded both favorable (lower over head costs and convenience to the customers with wide choices of items and prices that were appealing) and unfavorable (Walmart has invested heavily on the infrastructure like the EDI links and POS systems) circumstances. * Economic Factor: Domestically the U.S market had a very slow growth. Although the economy was said to be in recession it favored the growth of the organization because it offered consumers commodities at a very affordable cost compared to their competitors. INDUSTRY ANALYSIS: Walmart belongs to the discount retail industry offering heterogeneous products of hard and soft goods with very...
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...| Walmart | | | | | Danielle S Holley | 11/28/2011 | | Firms choose from different business-level strategies in order to proposer in today’s markets. One of these being the Cost Leadership Strategy, an integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, in comparison to their competitors. Firms that chose to use this strategy must sell standardized goods and services which have to also include competitive levels of differentiation to the market’s regular customers. Cost leaders have to examine all support activities to find extra resources in order to cut production costs allowing them to maintain low costs for their customers. In any industry fixed and variable costs can cause companies to go out of business. Cost Leadership Strategy can put a strain on companies because they have to keep developing new technology that can support low cost goods and services (with differentiation) as well as low production costs to satisfy the needs of customers in the market place. Using this strategy effectively can earn firms above-average returns in spite of rivals in the industry. Having the low-cost position in an industry is valuable way to deal with competitors. The cost leader’s strategic position causes competitors to think twice before they compete on the basics of price and technology against the potential outcomes of such competition (Hitt). Walmart is known for its ability...
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...Xcellon Institute A Study on Supply Chain Management at wal mart Submitted to: Prof Mhihr Das Submitted By: Kunal Bhatia (M00116, Hitesh Bambhaniya (M00126), Saloni Umraniya (M00128), Sagar Nathani (M00134) 3/6/2014 Table of Contents Introduction 3 Value Chain System of wall mart 4 Porter 5 force 4 SWOT 5 Competitors 6 Suppliers 8 Back haul of wall mart 9 Role of HR 10 Role of RFID 11 Strategy 12 Strategy of other companies 13 Conclution 16 Introduction The retail industry is dominated by few retail giants, with Wal-Mart competing in several retail categories. Wal-Mart competes against Kmart and Target in the general merchandise retailing; against Costco in the warehouse club segment; and against Kroger, Albertson’s and Safeway in the supermarket retailing. Competition among retailers centers on pricing, store location, variations in store format and merchandise mix, store size, shopping atmosphere, and image with shoppers. Further analysis provided by the following figure diagnoses the competitive environment of the retail industry. As a fact, Wal-Mart is considered as the world’s largest retailer nationwide that has been guided by its founder Sam Walton’s passion toward customer satisfaction, and his beliefs in excellence, as well as his philosophy in lowering his prices that has been proven with his famous slogan “everyday low prices.”1Visible outstanding success has required a lot of effort, strategies, dedication...
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...account for 10% of the market. The rest is divided widely between supermarkets, wholesale retailers, discount stores (including Wal-Mart) and smaller independent companies. * Office Depot has made efforts to increase its profitability by offering copy and print services, * One advantage Office Depot has over Staples is its international market. * Company has integrated copy and print services into retail and commercial businesses. Staples provides those services as well= intense competition among rivals. * In an effort to increase their sales, Office Depot decided to implement direct sourcing, which allows companies such to offer its own line of private label goods, and branded goods. Office Depot and Staples are very competitive in this regard, with about one-fifth of all goods sold coming from respective private labels. * We buy substantially all of our merchandise directly from manufacturers and other primary suppliers, including direct sourcing of private brand products from domestic and offshore sources * We offer customer loyalty programs that provide customers with rewards that can be applied against future Office Depot purchases or other incentives. * We currently offer general office supplies,...
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...Five Forces Key Issues 1. Sustaining the company’s phenomenal performance ▪ 1993 growth rate: 7-8% – First time under 10% since 1985 ▪ The main issue faced by Glass and Siderquist 2. Expanding stores outside the U.S. ▪ Planning to open several of its retail formats in Mexico ▪ Management concerned about the success of these formats outside the U.S. 3. Increasing value of stock prices ▪ From early March to late April, the stock prices fell 22% to 26% ▪ So many sellers were eagerly trying to sell their stock that the NYSE temporarily halted trading in the stock Suggestions and Recommendations 1. Increase the number supercenter stores ▪ Producing impressive growth—sales in 1992 increased 16% to 11.4 billion, up from $9.8 billion ▪ Leaders in sales of supercenter chains—Meijer and Fred Meyer—were expected to remain regional ▪ Higher profitability potential than supermarkets 2. Evaluate the performance of its retail formats in Mexico ▪ If successful, management will be confident in expanding operations in Mexico as well as other international markets (Thailand, China, Indonesia) 3. Acquire companies such as Family Dollar and Dollar General ▪ According to Investopedia, the key principle behind buying a company is to create shareholder value ▪ These discounter companies have a high financial performance ----------------------- Buyer Power...
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...“Everyday Day Low Prices” in each and every division. Currently the company is broken down into four divisions: Wal-Mart Supercenters, Discount Stores, Neighborhood Markets and SAM’S Club Warehouses. The magnitude and global presence of Wal-Mart allows it to be a dominant player in the retailing market place. It is essential that fundamental relationships within the industry and the company’s environment need to be analyzed in order to efficiently evaluate the correct market price for the company’s stock (WMT (NYSE)). Industry Outlook Household products, retail drugs stores, and personal care segments are expected to produce above-average revenue growth and increase market share in the coming months. The uncertainty between the U.S. and global economies should not affect the sector because many of the products are basic necessities. The retail sector is expected to perform in line with the overall market in the next 6-12 months. Mega retailers such as Wal-Mart are expanding their product variety by focusing on groceries and pharmaceutical drugs. To combat the market intrusion, Walgreen, CVS and other drug stores are adding groceries to their shelves. The mass merchandising industry is only getting bigger as the major players are offering more selections in order to gain a competitive edge. Many companies...
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...Marketing Strategy 5. Anwar Rahman Financials 6. Airon Melo Financials/Competition 7. Sohani Somai Current Status of Costco 8. Kyle Hecter Recommendations Dameon James Background Costco Wholesale Club wasn’t always the wholesale club company that generated $71 billion dollars in 2008 as well as having 544 warehouses in 40 states; Like any other company, Costco was a blueprint waiting to dominate the wholesale industry. The Person that came up with the membership warehouse concept was Sol Price. The very 1st price club per say was conducted in San Diego California on Morena boulevard at an airplane hangar in 1976. Sole Price started to experiment with discount retailing called Fed-Mart and that is where future CEO Jim Sinegal got his start as he was employed at the fed-mart loading mattresses earning only an abysmal $1.25 an hour while attending San Diego Community College at the same time. Soon after that, Price decided to sell away fed-mart to focus more on his new empire, which was the San Diego Price Store in which Jim Sinegal tailgated with him to help him build that empire. This proved to be a successful move as within the next few years, the Sol Price club stores rose to the top of the list as the number one leader in member warehouse retailing and the most intriguing thing about this is that it has gained success by mainly operating in the west coast. As Price was figuring ways to maintain success and gain more profit. One of the strategies was realizing...
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...Goodyear: The Aquatred Launch (Condensed) Elaborated by: AMIRA ATHIMNI MERIEM BEN YEDDER REEM NASSAR RYM BELHADJ 0 Dr. Mehdi ZAHAF Mediterranean School of Business 17/10/2012 Outline Executive Summary ......................................................................................... 2 1. a. b. c. Situation analysis .................................................................................... 3 The market ................................................................................................ 3 Micro-environment ................................................................................... 3 Macro-environment .................................................................................. 4 2. a. b. c. d. SWOT analysis ........................................................................................ 4 Strengths ................................................................................................... 4 Weaknesses ............................................................................................... 4 Opportunities ............................................................................................ 5 Threats ...................................................................................................... 5 3. Main decisions ......................................................................................... 5 1 Executive Summary “The Aquatred” is the new innovative tires...
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...future business. Consider about the issues that customers’ behaviors change, the usage of large warehouses and the merge with other publishers, I have some analysis and alternatives to provide. Because your company is going to merge Penguin, the Chinese market it your next main market I have three business plans to help penetrate the new market. All three strategies suggest enter Chinese market. First is to use broad cost leadership in the printed book market and use focus differentiation in the e-book market. The second strategy is to work with government to produce “political” books, which build an authoritative image. In addition, developing online distribution channel is another mission. The third strategy is to work with universities to provide books in different languages as well as develop an online-learning system. All these three business plans are evaluated by three criteria: Net Present Value, the degree of easiness to enter the market and easiness to manage. When all assessed by these three standards, I recommend the third strategy. Although it dose not generate the highest NVP, it is relatively easy to penetrate the market and operate well. In my opinion, this project can grow steadily though not the fastest. Finally, I make a five-year implementing plan. In this action plan I give the suggestion to enter the market step by step. The first step is building warehouses and sign contract as well as build the online system. Then lunch...
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...Firstly, my evaluation on the external environments of discount stores in the U.S in 70S and 80S is as [A right timing for entering but the market was very competitive]. I’d like use couple of frame works to explain my evaluation as following. Let me use the PEST frame work to analysis the Macro-Environment at first. On Politics (Positive for discount retailers expanding) It seems fiscal policy has been heavy on spending on 70S&80S. According to my research, the average spending deficit in this period is around 3% of the GDP and which is a very high level and also trending upwards. Also, the national debt was also increasing from around 1.8 Trillion USD (1975) to over 3 Trillion USD (1985) on this period. I think the government’s focus on growth of the economy must led to massive subsidies to incentivize Wal-Mart’s expansion Also, on the monetary policy point, interest rates throughout this time period (1970-1985) upward form a low under 4% to high of just above 18% as following Chart 1. It was just a good timing for Wal-Mart borrowed money it needed to lease new stores in its initial expanding period, and correlate with its high growth periods from the bank. [pic] Chart 1 Then, on the trade policy, from 1976, the importation of goods surpassed the exportation (kick start trade with China from 1971 and US/China each other most-favored-nation status in 1979) that means for the retailers, they had more selection on purchasing from development country what should...
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...Costco Case Questions 09/26/2013 Question 1: Competition in the North American wholesale club industry is high, with Costco being its leader at 56% of the market share. Main ways to compete are lower prices, more efficient operations, and reduced labor and overhead costs as well. Some of the clubs do the bare minimum in advertising while others, like BJ’s, spend more money on it (special Christmas radio advertisement and such). Out of the five competitive forces, the strongest is the rivalry between the competitors, because all of the players in this market attempt to offer high-quality products at lower prices. According to Figure 3.3, one of the reasons for rivalry amongst competitors to be strong is a relatively low cost to buyers to switch brands, and also if buyer demand is growing slowly, both of which are true in this case. All competitors in this industry are focusing on low margins on the products and high volumes of sales. Suppliers do have some power and influence on the wholesale club members, especially in the case with Costco, which buys some of its goods on the gray market and is known to sell some big-ticket items, but with globalization happening and more and more of suppliers being available around the world, they do not present a reason for concern as high as the rivalry between market players. Customers are always looking for lower prices and higher quality of merchandise, which Costco has been excellent at providing. BJ’s strategy is to give a better...
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...Sam’s Clubs GLOBAL INDUSTRY ANALYSIS - CASE STUDY Wal*Mart Stores, Inc. a presentation p 1 Sam Walton Founder of Wal*Mart Stores, , Inc. Performance of Wal*Mart 20-year average return on equity of 33% Compound average sales growth of 35% Market value = $57.5 billion $ Wal*Mart Sales per square foot $300 Industry average $210 WAL MART Background 2 Year 1988 CEO: David Glass COO: Don Soderquist How to sustain the company’s phenomenal performance? 1987 Net sales Net Income Number Of Stores Number Of Stores Discount Stores Sam’s Wholesale Clubs Supercenters 1,114 84 N.A. 1,953 419 68 15,959 628 1993 67,345 2,333 WAL MART Background 3 Number of Stores (1994) 0 500 1000 1500 2000 Hypermarkets Warehouse Clubs Warehouse Outlets Wal*Mart Stores WAL MART Background 4 Where Emerged in the U.S. g When Mid-1950s Top 10 discounters in 1962 Wal*Mart remained only The industry became more concentrated Discount store companies p operated 50 or more stores accounted for 82% CR5 (1986) 38% 62% CR5 (1993) 29% 71% WAL MART 5 Discount Retailing Discount Retailing Industry Sa ales Grow wth 30 20 10 0 25% 9% 11.2% 7% WAL MART 6 Discount Retailing Comparative Pricing Study, 1993 WAL MART 7 Discount Retailing Overall Performance of Discounters WAL MART 8 Discount Retailing Year 1945 Ben Franklin franchise store In 1950s 15 stores Year 1962 Wal*Mart Discount City store Year 1969 18...
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