Costco Case study

 Costco Case study

Introduction

Costco is operating in a competitive business environment. As such, it needs to embrace business strategies that can enhance its competitive advantage. Furthermore, the organization has lagged behind its competitors due to its failure to adequately align its business practices to emerging trends in its industry, such as e-commerce. The failure by this organization to adequately respond to new entrants and the rise of new business models threatens the long-term performance of the company. The observation points to the gravity of the challenges which it faces because its industry is characterized by low entry costs and low switching costs.

                                                                       Analysis       

The core issue with the business operations of Costco is that it has failed to transform into an agile enterprise in a business environment that is characterized by increased competition. Having an agile enterprise would enable it to adjust to changing regulatory and economic situations in its business environment. For example, this organization is operating in a business environment that is likely to be affected by the increased focus on safety standards and the impending economic recession. There is a risk that this organization may face difficulties in getting investors and strategic partners in the current business environment.

The organization has succeeded in creating a high-quality value proposition based on their commitment to selling high-quality products and services. However, its highly-priced goods means that it often scares away low-income customers. Moreover, it continues to remain vulnerable to technological developments that could create an opportunity for market disruption. Despite the immense resources and brand visibility enjoyed by Costco, its slow response to the emergence of e-commerce suggests that it lacks the agility to lead in taking advantage of new opportunities.

Costco is operating in a business sector that continues to enjoy positive growth and performance. In 2017, the warehouse club and Supercenters of which it is a member-generated $457 billion in the United States alone. The sector is dominated by Costco, Sam’s Club, and BJ’s Warehouse, which have a combined 1, 460 warehouse stores spread across the country. The combined sales of these major rivals was $198 billion in the United States and Canada alone. The sector is expected to enjoy a 4% growth through the 2017 to 2022 period. However, the overreliance on its North American market means that it is uniquely exposed to economic downturns that may suppress demand in this market.

Costco has demonstrated a willingness to embrace emerging technologies to improve its sustainability practices. In this regard, it is aligned with evolving customer values and best practices in the retail sector. The publicly listed company is subjected to rigorous corporate governance standards, a factor that plays an integral role in streamlining its management. A major strategic advantage held by this organization is that it has a high inventory turnover, which allows it to make early payments to its suppliers who, in turn, give it discounted prices. In a global business environment that is characterized by an integrated supply chain, having an efficient one is an essential competitive advantage for those organizations that can build positive relationships with suppliers.

Costco has a subscription model that enables it to improve customer loyalty and to retain its customers. In this regard, its business fundamentals are strong and can support strategic investments in increasing its market share. The business model that is focused on selling a variety of products means that it has a large set of competitors. Nonetheless, its massive economies of scale advantage is an essential barrier to new entrants who would face significant challenges in implementing the programs that would enable them to achieve desirable outcomes.

Costco has established a robust presence across different markets in the world. As such, it can overcome any downturns in any part of the global economy. Moreover, it has leveraged the rise in globalization into an opportunity that allows it to reach new markets and supply chain ecosystems.

The fact that its website only accounted for 4% of its annual sales in 2017 point to a failure of responsibility in the organization. Furthermore, it communicates a failure to address the challenges facing the organization adequately. Creating a robust online presence is critical to the long-term success of any retail enterprise.

The industry within which it operates is uniquely vulnerable to the disruption due to the threat posed by substitutes. The competition posed by substitutes is so high because of the low switching costs. In essence, Costco must be continuously aware of the threats posed by substitutes.

On the whole, Costco is expected to continue making a healthy profit despite the growing threat posed by substitutes. Besides, the continued expansion of this industry is expected to yield significant opportunities for the organization. Moreover, the economies of scale that this company has managed to build provide a significant source of strength.

The low-pricing, high-quality strategy adopted by this organization has played an essential role in enabling the organization to attract and maintain a robust clientele. Furthermore, its robust domestic presence can serve as the impetus for the global expansion of its international operations. However, the effectiveness of this strategy will depend on its capacity to embrace localization strategies and to hire the right team that would enable it to succeed in everything it does.

Alternatives

Costco can choose between different options to be able to improve its business performance. For example, it can continue in its current state by relying on its subscription business model and economies of scale. However, it faces the risk of missing emerging opportunities in their sector. Similarly, the organization can embrace a multi-pronged strategy aimed at streamlining its operations and improving the customer experience. This may involve embracing online commerce and other efforts aimed at enhancing its consumer experience. The approach is necessary in enabling it to build a loyal customer base among the emerging population.

Furthermore, there is a need for the organization to leverage its resources to invest in talent development, employee empowerment, and the development of a positive organizational culture. This third approach focuses on its people as the key to supporting its long-term success. The approach is supported by the fact that it has a website strategy that it has failed to implement adequately—as such, investing in knowledge development could yield better outcomes in building its agility as an enterprise. The long-term success of an organization is determined by its willingness to embrace new technologies and business practices consistently.

Recommendations

The key message in the recommendations for this organization is that it needs to become an agile enterprise. Although it is a large organization with robust operations across the world, there is a clear need for it to embrace an innovative organizational culture that will enable it to respond to emerging opportunities more effectively. Moreover, the organization needs to embrace a learning orientation. This approach will allow it to benefit from emerging tools, knowledge, and practices in the sector.

Costco needs to double down on its website strategy. Such an approach would have a positive effect on its capacity to compete effectively in an increasingly competitive business environment. Should the organization fail to adopt an effective business strategy, it would lose its strategic advantages in the e-commerce sector. Moreover, there are concerns that it is missing out on the most significant growth opportunity for the sector.

Having an online sales strategy will enable it to enhance its competitiveness. Furthermore, it will create an opportunity for the enterprise to be able to reach new opportunities in the sector. Succeeding requires a consistent effort aimed at leveraging the increased digital shopping experiences of young consumers. The implementation of this strategy requires a memorable user experience for the visitors to its website. Moreover, it should integrate data analytical tools into this website to enhance its capacity to understand and meet the needs of customers. A failure by this organization to embrace an effective strategy would hurt its capacity to build a loyal following among young consumers.

Another critical recommendation for Costco is for the organization to embrace innovative practices that are aimed at improving the quality of its customer service. Providing a memorable consumer experience has increasingly become an essential source of competitive advantage for stakeholders. In this regard, it should increases its focus on the people in its ecosystem by creating a positive work environment for the employees who, in turn, would be able to provide memorable consumer experiences.

Conclusion                    

In sum, Costco is a significant participant in the warehouse and superstores business sector.  The competitive advantage of this organization is its robust economies of scales that undermines the capacity of new entrants to disrupt it. However, it has failed to take advantage of the emergence of e-commerce to increase its consumer reach and build customer loyalty among young consumers.