Case Study 1: Costco Wholesale in 2012

Key Issues:
At the end of 2012, Costco was a successful business; however there are some issues that they would need to deal with. These issues mainly arise from their previous successful ventures as a warehouse wholesale company. The first issue is that Costco has competitors that can actually be and are a threat to their success. Competition allows a company to improve itself and prove its prowess to its customers. However, when a competitor is able to provide the service at a much reduced cost, problems will arise. As for the second issue, it seems that Costco’s efforts to become an international company are moving slowly. They have not reached a point where their US and Canadian warehouses provide a backbone for their finances. Costco’s third issue is their expenses which include merchandising costs and preopening expenses have been increasing steadily and they need to balance this out to keep a positive net income.
Analysis:
Key Issue #1:
Costco has many competitors with the primary two being Sam’s Club, a wholesale business being managed by Walmart, and BJ’s wholesale club. Sam’s Club is offering the same services as Costco. They offer their customers lower prices than traditional stores and like Costco they sell their products in bulk to keep members interested. What makes them a threat to Costco is the cost of becoming a member to shop at their stores. For Costco’s basic membership, known as a Business membership, a price increase had to occur to outweigh price increases from their suppliers. This led to the Costco Business membership annual fee being set at $55. When looking into the case study assembled by Thompson, Peteraf, Gamble, and Strickland (2014) they point out that Sam’s Club is able to offer similar benefits ...

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... This could become the third solid country of operation that Costco needs to offset its increasing costs. Strengthening the Costco name in its burgeoning market of Mexico will help offset merchandising costs by increasing store loyalty and sales. By increasing its market share in Mexico, Costco will be able to have more income to offset the merchandising costs and it can then have the necessary capital to continue its growth; thus solving key issues 2 & 3.

References
Annual Report 2012 Costco Wholesale: Year Ended September 2, 2012 [PDF document]. 1-7. Retrieved from Costco Wholesale Financial Reports: http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-reportsannual Arthur, A., Thompson, Margaret, A., Peteraf, John, E. Gamble, A., J., Strickland III. (2014). Crafting & Executing Strategy: The Quest for Competitive Advantage 19e: Concepts & Cases. C6-C25.