Costco's Strategy Essay

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According to the company’s website (2019), Costco originated in 1976 by Sol Price and its basic business model was developed at that time, offering members the opportunity for efficient bulk buying at low prices. Jim Sinegal, who was an executive VP working for Price, took his knowledge and founded Costco in 1983 in Seattle. In 1993, Costco and Price Club merged, providing the fuel for an extended run of growth that the company is still experiencing today.

The warehouse business in the US is mainly competed by Costco and Sam’s Club, which is owned by Walmart. Costco is the larger of the two competitors. The industry is mature, with the major competitors having been around for a few decades each, and there being slow growth of 2.2% (IBIS, 2019) and relatively slow pace of innovation. The major innovations in this industry were more in the 80s and 90s.

The critical success factors in this industry are the ability to deliver goods to consumers at low prices. This means supply chain excellence is the most important factor, but also the ability to manage costs internally. Every percentage of margin is critical for a company that is competing as a cost leader, which is how these firms typically operate. A third competitor in the industry is BJ’ Wholesale Club, which sits a distant third and mostly operates on the East Coast, with 215 stores in 16 states (Isidore, 2018). Neither BJ’s nor Sam’s Club has enjoyed nearly the success that Costco has, and recently Walmart announced that it was closing 63 Sam’s Club stores as that company has lost sales to online shopping as well as other competitors (Howland, 2018).

There are few major political or legal forces that impact on the industry. The companies in this business basically engage in plain vanilla retail, with few legal impacts.

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Occasionally there are some business lines that might be more affected, such as pharmaceuticals. Local laws and zoning will impact the ability of stores to locate in the most desirable locations. And of course, the extent to which the political environment impacts the health of the overall economy will always be a factor, but for the most part…

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…of change is illogical. However, if there are opportunities to incorporate new technology, streamline operations further or expand geographically, the company should explore those. For the most part, however, the changes are more likely to be tactical in nature than strategic.

Obviously, staying the course has the pro of being proven and the con of exposing the company to risk from a changing environment. There are more risks from change at this point than from the status quo – geographic expansion can undermine a lot of companies because retail markets can be so dramatically different. Technological change is probably going to be approached in a measured way by Costco just as a means of reducing risk.

It is recommended that Costco should maintain the status quo. It’s boring, but this is one of those situations where a company’s strategic position is so strong that change brings more risk than might be worth it. Costco has few weaknesses and few threats, and instead should simply focus on building on its existing strengths in the same calculated, measured way that made it one of the….....

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