Summary Of Costco Threat Of New Entrants

3.3.1 – Threat of new entrants

The treat of new entrants for Costco is low because there are many advantages that Costco has compare to its competitors. Phalguni Soni indicates that “A new competitor would also find it much harder to have the same recognition for consistency in pricing and products that Costco has, as the company has been around for decades. It would also require scale in order to pose a significant threat to Costco” (Soni). It is clear that Costco’s brand recognition is strong in not only the U.S. but also other countries where it operates. The company have operated for a long time with a large number of warehouses in all of the states of the country, so it will be the first obstacle that any new entrants have to encounter.

When people can easily remember Costco, they may have a hard time to recall the name of any retail stores that just open for a few weeks. The longer a retail store operate in a particular place, the more recognition people may have when mentioning about it. There are also other factors that relate to recognition like the quality of products, customer service, and the number of customers that that store has served. As a corporation that has existed for a long time, Costco has a large number of customers and their loyalty. Furthermore, Costco also invest a huge amount of money in their operation, distribution, supply chain, and others. Therefore, it takes not only time but also a lot of capital for new entrants to compete with Costco.
Although new entrants may invest a lot of money in the same areas as Costco, the number of loyal customers need a long period of time to gain and maintain. Money can only help new entrants to become as huge as Costco. However, customers will take time before they become loyal to a completely new brand for them. When mentioning about capital, new entrants certainly will not have enough capital to invest to be the second Costco. Their funds usually enough to compete with local retail stores or may be with a corporation which has a few stores. Winning Costco at a certain state doesn’t mean that new entrants can significantly impact on the operation of Costco. Abhijeet Pratap also demonstrates that “The kind of supply chain and distribution system that Costco has managed is not easily imitable… There are other factors too that limit the chances of new players entering the market. Apart from capital investment, there is also a need of skilled human resources to build a brand like Costco. New brands would also have to struggle to obtain the same customer loyalty and reliance” (Pratap). Costco isn’t a small retail store near anybody’s house that they can imitate with a small amount of capital and few employees. When talking about Costco, people can easily imagine of a local warehouse near their house. It was a huge building which can cover a block of a street and include a lot of employees and a huge variety of products. All of the costs are huge for any new entrants to cover with their revenue. Furthermore, skilled and excellent labor is another factor that new entrants can’t compete with Costco. Having a long time to build their brand, Costco has a large number of skilled and motivated employees that help run the corporation effectively and efficiently. Recruiting and training take a long period of time to have the same number and type of employees that Costco has. New entrants will not the same level of employees compared to Costco even they try to do anything. Any employees who are satisfied with their corporations and have a stably good performance will not have any chances to leave their corporations to join a brand new one which doesn’t have any reputations. New entrants may be able to recruit many potential employees who can help them compete with Costco. However, it will take them a large amount of capital for the recruitment and doesn’t mean that those employees will stay and help the corporates to compete with Costco. Another part is from customers and their loyalty. Customers will be loyal to any brands that satisfy their needs and create values for their products or services. In order to achieve those objectives, the corporation firstly should have a long period of time of operation. Moreover, they invest a large amount of capital to expand their business and pursue their objectives. New entrants’ short term objectives are usually try to survive and expand their business. Although their long-term objectives may be competing with Costco, the path which they go is still really long until the day they are able to compete with Costco.

3.3.2 – Bargaining power of suppliers
Bargaining power of suppliers is also low for Costco for certain reasons.

Justin Young illustrates that “Because of the large population of suppliers, no single supplier can easily impose its demands on firms like Costco. Suppliers’ bargaining power is further weakened because the overall supply is high, which means that a single supplier’s action is unlikely to significantly impact the level of total supply available to Costco” (Young). Costco is one of the largest retailers in the U.S., so it is obvious that the corporation will never depend on any suppliers for a particular type of product. Costco knows that the corporation can’t base the whole operation on a small number of suppliers. Moreover, the limit in suppliers will cause a lot of problems for not only operation but also the ability to compete with other competitors. Therefore, Costco will have a large number of suppliers for their products. Furthermore, for each type of product, they will have multiple suppliers to make sure that they also a variety in any kinds of product. For suppliers, they can’t cause a significant impact on Costco because they know that they aren’t the only ones that Costco bases on. There are many suppliers which want to work with Costco and are willing to replace the spot of any suppliers which make mistakes leading to lose their spot. Getting products in Costco doesn’t only help suppliers reach a large number of customers but also be able to sell more products. With many warehouses and distribution channels, Costco is a dream place to sell products for any suppliers. Suppliers themselves are also in the competition to put their products on Costco’s shelves, so it will not be an impact on bargaining power of suppliers. Even though Costco may have strict rules and regulations for their products, suppliers are obviously benefit from those things. Their products will not only have high quality but also meet particular standards that customers demand. Costco wants to distribute

products, so they have to understand completely the demand for products. Phalguni Soni also indicates that “No single supplier accounts for over 5% of revenue. Besides, being one of the largest retailers in the world, Costco’s bargaining position is relatively strong with its suppliers” (Soni). The percent is so low that it explains how well Costco controls the power of its suppliers. The impact will be tremendous if a few suppliers account for too much revenue that Costco earns. It isn’t the problem with only Costco but any businesses. It is the best and safest thing for any businesses that they don’t depend on any single or a few suppliers. It will be hard for start-up and new entrants. However, there are many ways that those kinds of companies can deal with the limit in suppliers. For large corporations like Costco, it is crucial that they understand the problem and try their best to lower this type of power as much as they can. Depend on suppliers isn’t a good thing to do. Their power will demonstrate in the price that they require corporations to pay and it will clearly lower the revenue. Furthermore, delivery and quality are the next two things that corporations will recognize that they have to accept whether they like it or not. Corporations therefore have to gain their power and lower the power of suppliers so that they will not only have freedom in their choices of suppliers but also control in the quality and price. The power of control suppliers will help corporations increase not only their revenue but also their quality of product. More and more loyal customers will increase because corporations are able to maintain the high quality of product. Even though it is a easy concept to understand, it isn’t easy to implement because corporations have to have certain power and abilities to increase their power over suppliers.