SOUTHERN NEW HAMPSHIRE UNIVERSITY PRUTHVI RAJU URUGONDA COURSE: MBA-700 PROF: BRYNN GESTEWITZ Assignment 1: Competition among

the North American Warehouse Clubs Date: 7-08-2012

1. Competition like in the North American wholesale club industry: In North America discount warehouse and whole club segment has $125 billion market shares captured by Costco, Sams and BJs. There is high competition in the whole club sector, because every firm wants to enter a more profitable market by offering low prices with top quality products to grab customer attention. To attain this they have low operating cost and low labor cost to operate their facilities. They dictate the suppliers for price, deliveries and payment terms. As it indicates the suppliers have to wait for 30 to 60 days for their payments after the delivery is done. Other than general customers these clubs are attracted small business owners, churches and non-profit organizations. To increase the profit margins they introduced annual membership fee collected from customers to purchase products in whole sale clubs. Among the three whole sale clubs Costco and Sams club are in various states and have also established themselves internationally. But BJs has limited their store to eastern seaboard of the US only and its market share is not affected by other two clubs at their positions. BJs accepts coupons which add value to its customers. This is an advantage to BJs and a disadvantage to the other two firms. BJs does have same competition levels of the other two clubs to participate in rivalry. When compared to Costco and Sams club the major market share in wholesale club is captured by Costco, but it has stiff competition from Sams club.

2. Five competitive forces:For every firm the 5 forces are very important to have more profitability. In this case also we can clearly identify the 5 forces module among each of the whole sale club. But out of 5 forces three of them plan major role competitive rivalry, supplier power and buyer power.

1.Threat of rivals: - The rivalry among the Costco and Sams club is pretty high when compared to BJs. Since the Costco and Sams have international rivalry, but BJs has restricted their presence to just one location (eastern sea coast of US).So, Costco needs face Sams club as major competitor, because it is expanding the stores more rapidly than Costco (exhibit 1).But in point revenue Costco is first place. Sams club had an advantage because of Wal-Marts backing, unlike Costco which does not have any backup. 2. Threat of new entrants: As this is whole sale market, it needs very huge investments, skilled teams for negotiations and vast place. Other than this they need to capture the market share rapidly and build the brand. So, for new entrants to establish themselves as a competitor is near impossible. 3. Threat of substitution products or services: There are too many substitutes, as these clubs operates in huge quantities for low price. all clubs try to purchase their goods from a dealer who gives the lowest prices. 4. Bargaining Power of Buyer: - As super markets are also providing the similar type products, but their target market is different. If these whole clubs could not be able to offer the low prices, there is chance to lose customers. Customers always look for better price and quality, so the pressure from customers is pretty high. 5. Bargaining Power Of suppliers: It is very important to have good relationship with suppliers to get the best possible price and quality to offer the customer. It helps to capture customer attention.

3. Best Strategy and Performer among the three rivals:All of them are succeeding in the whole sale market. The common strategy they have is low-cost strategy. Among the three, Costco stood first and captured the major market share (Exhibit 2). From Exhibit 5 we can understand that the net sales of Costco are much better than Sams club and BJs. In the year 2009 the net sales of Costco is $ 69,899 million, Sams club net sales is 46,889$ millions and BJs net sales is 9,802$ millions. Costco has maintained a good relationship with suppliers from a long time to provide better prices and quality with bulk items to grab the customer gravity towards it. Costco is following cross stock distribution, unlike the other two rivalries, which is the best strategy to have cost effective distribution. The advantage of this strategy is to maintain minimal inventory, improving the product quality and responding as per the market conditions. Sams club also has a good strategy, but not better than Costco. It is focused only on reducing the product costs by buying from developing countries like China and Mexico. It has a large number of stores when compared to the other two whole sale clubs, but stood second in capturing the market and generating revenue (Exhibit 2). BJs focuses only on offering more grocery and package food items .It does not have a better strategy than the other two competitors. They have limited themselves to Eastern USA. Other rivals have market share in international market also. BJs is operating on very thin margins. It focused on its Inner Circle (individual) members through merchandising strategies that emphasized a customer-friendly shopping in several respects

4. Will Costco stands industry leader after Five years:The Vision of Costco is To continually provide our members with quality goods and service at the lowest possible prices. This shows us that they have a long term goal to provide high quality products and services for lowest prices as compared to the market. Costco had the winning strategy, heres detailed analysis of the winning strategy. i. Fit Test:

As we see Costco has a low-cost strategy and is glowing in the present market conditions (Exhibit 2 & 5) and the whole sale industry is going to roar further in the future, because theyre having an emerging market in developing countries like china, India and other Asian countries. So, it is externally fit.

If we understand exhibit 5, it has good cash and is recording continuous growth financially. They had good skilled teams to handle situations as per the market conditions. So, it is internally fit.

Costco management is in line with their vision to satisfy customers and it is fit in internal and externally. So, it is dynamically fit.

ii.

Competitive Advantage Test:The major competitor for Costco is Sams club. It is establishing stores rapidly across the world. But Costco is lacking in quantity of stores compared to Sams club. So, if Costco acquire BJs they will have two advantages

They can increase the number of stores along with revenue and market share in the eastern part of USA.

They can eliminate BJs from rivalry permanently and concentrate only on Sams Club.

iii.

Performance Test:As per my view Costco will be the leader in the whole sale market for the next five years or so. The strategy which is followed by Costco is very difficult to adopt by others. Costco had opened 14 stores in other countries in 4 years and generated $ 2,000 million in revenue. They are expanding their international business at rapid speed while building their brand name and becoming more popular. When compared to USA they reduced their operating cost by 10% in the international market. In Taiwan they tripled their sales within 4 years.

Costco has a very good opportunity to continue as whole sale leader for the next five years. It has stronger financial background and expertise teams. The management of Costco is miscible with their vision.

5. Other Two rivals have gain or lose ground on Costco:As per the above description, if Costco acquires BJs, then Sams club needs to tackle Costcos new improvement. If we see, many of the Sams clubs are located closest to Wal-Mart supermarkets. The mission of Sams club is To make savings simple for members by providing them with exciting, quality merchandise and superior shopping experience, all at a great value. The concept of Sams club is to sell merchandise at very low profit margins, resulting in low prices to members. Sams club whole clubs average size is approximately 133,000 square feet. Their facilities are simple compared to Costco to take advantage of operating cost. Sams club has more number of stores compared to Costco, but they are not able to generate revenue. If this continues there is chance to degrade the financial status of Sams club.

If we look into BJs, they stick to one location and they do not have any international market experience. As compared to other competitors BJs has high prices. If they want to stay in the competition they need to match the prices of competitors. In any way like financially, market share, no. of stores, operating cost, relationship with suppliers BJs are far away from Costco and Sams club (Exhibit1). For Costco whole sale club there is rivalry from Sams club. If Sams club also follows the Costco strategy there is chance to stand first in whole sale market.

6. Recommendations for Costco:Costco had effective CEO Jim Sinegal, who is the initiator of the whole sale clubs and he had an active part in the strategic management. He should take some more risky steps to expand its market share in USA and internationally.

They maintain the same reputation towards the customers all over the world. If possible they can sell gas at their stores. They should follow the quality systems (six sigma) to improve their stands and brand value in market.

They focus on improving the customer transaction time at sales counter. They accept all kinds of payments like all types of credit cards. Acquire the BJs whole sale market to dictate the whole sale market. They need to open the store for business customer like Sams. SWOT analysis needs to done to ensure that they are enjoying a good share in the market or not.

They need to extend their customer services to grab more attention.

They can expand their business in to backward integration like insurance, financing to small stores. This will ensure that they can completely own their clients and work on special pricing for them.

Costco needs to improve their advisement media to attract youth and educated customers. It needs to bring awareness in people about purchasing in bulk and saving money. Costco need to focus more on the online marketing.