Costco Swot Analysis Essay

Analysis:

Costco’s success is related to the company capabilities and resources to help Costco managers single out and focus on all the factors needed to craft a winning strategy that fits the company’s overall internal and external situation. We will proceed with the Costco’s SWOT analysis, as the SWOT analysis is a simple and powerful tool for sizing up a company’s entire relevant strengths and weaknesses, its market opportunities, and the external threats to its future well – being (Thompson, 2018).

Internal Analysis:

Strengths:

A distinctive competency in price: Costco sells products at very lower prices than competitors do and builds big warehouse style superstores that contain an extensive selection of products at a lower price. Costco’s

mission statement is to provide customers with quality goods and services at the lowest possible price. According to Costco wholesale 2017 annual financial report, Costco net sales increased $10,999 (9%) during 2017 compared to 2016, due to a 4%, increase in comparable sales and the benefit of one additional week of sales in 2017.
Low employee turnover: Costco offers high wages and competitive benefits packages as an incentive for loyal employees. For example, Costco provides its employees with an excellent benefits package consisting of health care plans, vision programs, vacations, long-term and short-term disability programs, sick days etc.
High quality product at low cost: “Costco is able to offer lower prices and better values by eliminating virtually all the frills and costs historically associated with conventional wholesalers and retailers, including salespeople, fancy buildings, delivery, and accounts receivable” (Thompson, 2016).
Strong Brand Name: Costco has created a very loyal customer base by providing customers with high quality products, low prices and vast merchandise selection. This has allowed Costco to grow its market share and increase its customer base from its inception.
Strong Supply Chain: Costco’s supply chain is a key element for the growth of the company. Costco had direct buying relationships with many producers of national brand name merchandise and with manufactures that supplied its Kirkland signature products (Thompson, 2016).
Weaknesses:
Limited product mix: Costco offers a limited product mix, compared to the wider selection available from competitors like Walmart. For example, Costco stocks about 4000 products in its warehouse, while Walmart stocks about 5000 products and BJ’s 7000 products. Creating more limited options in Costco.
Geographic dependence: Costco success is highly dependent on its U.S market. For instance, in 2017, US contributed to (93889/ 129025) = 73% of its total revenue, Canada contributed to (18775/ 129025) = 15%, other international operations contributed to (16361/129025) 12%. This can be threatening to Costco considering the fact Costco depends heavily on one geographic markt and rivals can take advantage of this weakness.

External Analysis:
Opportunities:
Expanding into new geographic markets: In 2017, Costco has identified additional opportunities to grow their core warehouse business globally, including the opening of 26 new warehouses.

In 2018, Costco expects to open 20-25 new warehouses and relocate warehouses (Costco, 2017 Annual Report Final).

Expanding the company’s product line: Costco can expand its product mix, which is currently limited compared to competitors such as BJ’s and Walmart.

E Commerce: Costco has a strong presence in E- commerce, which is growing globally. For instance, Costco operates e-commerce in U.S. and Canada. Online businesses provide customers additional products and services, that may not be found in our warehouses. In addition, online marketing can be a great tool in venturing into new markets and attracting more customers.

Private label: Costco’s Kirkland Signature private labels provide clubs with the opportunity for higher gross margins. In addition, Costco can increase the number of Kirkland Signature selections and gradually build sales penetration of Kirkland brand items.

Threats:
Competition: Competitive battles among retail stores can assume many forms that extend well beyond lively price competition. For example, competitor’s firms may resort to such marketing tactics as merchandise quality and selection, price, special sales promotion, heavy advertising and rebates. Furthermore, Costco’s top competitors are BJ’s and Sam’s Club. As 2016, there were 1,440 warehouse locations across the United States and Canada. Costco had about a 59 % share of warehouse club sales across the United States and Canada, Sam’s Club had a 34% share and BJ’s Wholesale Club as well as several smaller warehouse club competitors close to a 7% (Thompson, 2018).
Shopping Online: is another threat that can harm Costco in the long run. Internet retailers such as Amazon directly affect the Costco ecommerce sales. Considering, online shopping is increasing popularity ever since.
Based on the SWOT analysis shown above, Costco has a strong market share, better than its competitors. However, Costco must improve its product mix by adding more of a variety to attract more customers and compete with other rivals such as Walmart, Sam’s Club and BJ’s. In addition, Costco must globally expand to exploit the benefits of high growth economies. Costco must create an excellent marketing strategy to improve the online shopping experience, considering most customers are looking to make their purchase online to save time. Lastly, Costco is known for providing the best value for their customers, all while providing quality products at low prices. Therefore, Costco needs to continue providing customers with quality products at low prices to create customer loyalty and satisfy customer needs and wants.
Costco Quantitative Analysis:
Costco: Financial analysis:
Current Ratio: Is an accounting metric that provides one measure of liquidity.

Current ratio formula = current assets /current liabilities. According to Costco balance sheet 2017, Costco current ratio in 2017 was (17, 317/17,495) = .99%. Costco current ratio is under 1 in 2017. Costco needs to take a closer look at the business and increase its working capital to eliminate any liquidity issues. For most industrial companies, 1.5% is an acceptable current ratio.

Quick Ratio: is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. Quick ratio formula = current assets – Inventories / current liabilities. For 20017, Costco Quick ratio was (17,317- 9,834) / 17,495 = 43%. This low quick ratio is an indicator that Costco is over leverage.

Debt-to-equity ratio: Evaluates the capital structure of a company. A ratio of more than 1 implies that the company is a leveraged firm; less than 1 implies that it is a conservative one. Debt-to-equity ratio formula is Total liabilities / Total Equity. In 2017, Costco Debt equity ratio was 2.28. This means Costco will not be able to generate enough cash to pay its debt

obligations.
Earnings Per Share (EPS) shows the rate of earnings per share of common stock. Costco Earning Per Share was 6.8 in 2017 and 5.33 in 2016 fiscal year. There was an increase of 1.47 earnings per share in 2017 compared with 2016.
Competitor’s ratio for the fiscal year 2017:
B j’s earnings per share 2.06, return on equity 16.78, current ratio, 47%, quick ratio 39%.
Costco operated 741, 715, and 686 warehouses worldwide on September 3, 2017, August 28, 2016, and August 30, 2015, respectively. Costco common stock trades on the NASDAQ Global Select Market, under the symbol “COST.” (Costco, 2017 Annual Report Final.). Moreover, Costco has been reaching suitable financial outcomes for fiscal years August 2017 to September 2015 (in million) with total revenue (including membership fees) of 126,172 in 2017, 118, 719 in 2016 and 116,199 respectively. It is obvious that the total revenue of Costco has increased by, (126,172- 118,719) = $7,453 or 6% in 2017 compared with the previous year. Furthermore, Net Sales for Costco was (in millions) $126,172 for fiscal year September 2017, $116,073 for fiscal year 2016. It shows that there was a growth in sales of $10,099 or 9% in 2017 compared to 2016. This increase was due to a 4% increase in comparable sales, new warehouses opened in 2016 and 2017, and the benefit of one additional week of sales in 2017 (Costco, 2017 Annual Report Final). Since the company has experienced an increase in sales, membership and other income, accounts receivable and inventories increase. Finally, in 2017, Costco Net income increased 14% to $2,679, or $6.08 per diluted share, compared to $2,350, or $5.33 per diluted share in 2016.

References:
2017 Annual Report Final. (2018). Costco Wholesale. (Web) Retrieved from ile:///C:/Users/enger/Downloads/2017%20Annual%20Report%20Final%20(1).pdf
Thompson A., A. (2016). Costco Wholesale in 2016: Mission, Business Models, and Strategy. Case study. McGraw-Hill
Thompson A.A. (2018-2019). Strategy Core Concepts and Analytical Approaches. Burr Ridge Illinois. McGraw-Hill
Analysis. Costco Balance Sheet week ending September 2017 – August-2016. Retrieved from http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_COST_2017.pdf