Macro Environmental Analysis

Macro Environmental Analysis

            Costco is a membership warehouse headquartered in Issaquah, Washington. The mission of this multinational company is to provide high-quality goods and services with the highest pocket-friendly prices by offering excellent customer services and adhering to ethical standards. In carrying out a situational analysis of Costco, a 3C analysis will be employed.

In mid-2017, the company had over 700 membership warehouses in different countries globally. A significant number (510 warehouses) were based in the United States. Their cardholder customers totaled 89 million and encompassed small-business owners, restaurants, individual households, churches, among others. The firm mainly deals with products like food, sundries, hardlines, and ancillary offerings (pharmacy, gasoline, and food court). There are 1,460 warehouses in Canada and the United States, Costco owns 59%, Sam’s Club 34% and BJ’s Wholesale Club with the other small warehouses sharing 7%. All these warehouses bring competitive forces to Costco as they stock similar products.

According to exhibit 1, Costco’s net sales show an upward growth since 2000. However, the firm key issue is keeping the prices of its product lower than those of the competitors. The philosophy of the transnational company is to attract customers by lowering prices. In achieving this strategy, the management is forced to implement other strategies. Costs are cut by establishing warehouses in upscale suburbs and on high traffic routes rather than in prime real estate sites. Costco does not procure treasure hunt items from high end manufactures such as Waterford or Calvin Klein but from sources of the gray market or from retailers who are disposing of slow-moving inventory. Further, Costco carries an extensive and numerous sales campaign to attract customers.

Different macro-economic and industry forces have, over time, threatened Costco. Nonetheless, success factors have been incorporated at the organization to mitigate a couple of threats. Jim Sinegal, former CEO, and co-founder pays employers good wages and benefits. He firmly believes that a well-compensated workforce will accomplish Costco’s strategies. Concerning the managers of the warehouses, they are given the utmost authority putting them in entrepreneurial like positions. They are expected to make independent decisions in their stores, which will maximize sales and lead to quick turnovers. Managers bestowed with these powers drive above-average volumes of sales.

Apart from utilizing the factors named above, key drivers have also been applied, which could have acted as threats to the industry. In the supply chain and distribution, traditional threats have been drastically weakened or eliminated by transforming the process. Shipments from manufacturers are assembled into pallets then transported to individual depots via the help of a semitrailer truck, usually taking less than 24 hours. In the warehouse, forklifts are used to arrange the merchandise on shelves and racks. It has optimized the handling efficiencies and freight volume. Sinegal advocated for the use of a website to carry out sales. It mostly included items like beds, sofas, outdoor furniture, kitchen appliances, and entertainment centers. Through online selling, the percentage net sale in fiscal 2016 had increased by one as compared to 2015 and 2014.

In addition, Costco is faced with competitive forces that threaten its processes. The world’s largest retailer, Walmart, sells similar categories of merchandise at appealingly low prices as compared to Costco. Walmart does this through its Supercenters and Sam’s Club. Further, it stocks above 125,000 items, whereas Costco has 3,700.

Reference

Thopmpson .R. (2017). Costco Wholesale in 2017: Mission, Business model, and Strategy. The University of Alabama

Economic

The substantial growth of Supercenters and warehouses – entry of competitors most likely reduces the customer flow to other firms. The industries will thus see a decrease in their profit margins.

Procuring high quality and cheap commodities from the gray market-  these commodities will help firms in saving costs. However, products from gray markets lack warranties; therefore, if a product will be defective, it will cause the buying company to incur losses

Demographic

Customers prefer warehouses that offer high bargaining levels –  there will be an increase in the demand for the products.

One-time purchases by the customers- businesses that are able to research the needs and wants of the patients, and how the purchases are changing will have high turnovers. Nonetheless, firms that stick to the same commodities in areas where the demands of the customers are not consistent will not prosper.

Technology

Contemporary marketing techniques like the use of mails and publishing magazines- applying these techniques increase the awareness to the public, thus expanding the market base.

Online selling through websites and applications- recently, goods costing as small as one dollar are being sold online. Firms should use this method to boost their sales due to that they will be able to tap into foreign customers. The costs involved are negligible.

Increase in Automation services- practically every field or process unit has a form of automation in these times. Automation in businesses improves efficiency and productivity.

Environmental forces

High demand for environmental and energy-saving systems – every organization is focusing on reducing its carbon footprint because doing this tends to attract more customers. However, the installation costs and effectiveness of these devices raises many questions. In some instances, the devices fail to meet the full needs of the organization