Costco’s Operations Management, 10

Decisions, Productivity
UPDATED ONUPDATED ON FEBRUARY 6, 2017 BY DANIEL KISSINGER

A Costco in
Markham, Ontario, Canada. Costco Wholesale Corporation’s operations management
(OM) addresses the 10 strategic decision areas in its business to maximize productivity.
(Photo: Public Domain)
Costco Wholesale Corporation maintains its position as the second biggest retailer in
the world through successful operations management (OM). The 10 strategic decisions
of operations management tackle the operational concerns in various areas of the
business. Costco has different operations management practices based on varying
market conditions around the world. However, Costco has developed standards and
policies for operations management throughout the organization in general. As such,
Costco’s standardization helps ensure consistency and a unified direction for operations
management toward the long-term fulfillment of its mission and vision.

Costco Wholesale Corporation successfully applies the 10 strategic decisions of

operations management in all of its business areas through standards and policies for
efficiency and productivity, despite variations in market conditions.

Costco Wholesale’s Operations Management, 10

Decision Areas
1. Design of Goods and Services. Costco Wholesale’s products are retail service,
optical services, photo center services, and insurance services, among others. In this
strategic decision area of operations management, Costco’s aim is to achieve the
highest possible quality even with low costs. This is especially true with the company’s
Kirkland Signature brand.
2. Quality Management. In this decision area of operations management, Costco
Wholesale’s strategy involves service quality control through HR training and
development, as well as co-branding using the Kirkland Signature brand to indicate high
quality. The Kirkland Signature is especially effective in establishing consistency in
quality in all Costco warehouses/stores.

3. Process and Capacity Design. Costco’s processes emphasize speed and efficiency
for maximum capacity. In this strategic decision area of operations management, the
company’s main objective is to optimize cost-effectiveness. Costco Wholesale’s
warehouse-style stores contribute to this objective. For example, pallets used in the
stores maximize the efficiency of moving goods while ensuring capacity utilization of
these Costco facilities.

4. Location Strategy. Costco Wholesale’s strategy for this decision area of operations
management is to maximize market reach. This is achieved through warehouses that
are located in or near urban centers. Most of Costco’s locations are in cities. This
strategy enables the company to maintain high revenues per facility, thereby
contributing to the organization’s continued profitability.

5. Layout Design and Strategy. Costco Wholesale uses the warehouse-style layout for
its stores. The company’s goal in this strategic decision area of operations management
is to minimize the use of extra spaces. Costco uses its warehouse-style stores as retail
spaces doubling as storage spaces. In this way, the firm does not spend for extra
storage space.

6. Job Design and Human Resources. Costco’s strategy in this decision area of
operations management highlights fast-paced jobs as well as internal leadership
development to promote employees. Costco’s objective is to motivate employees and
reduce turnover. Through internal leadership development, the company develops most
of its leaders from its current employees.

7. Supply Chain Management. Costco has a supplier diversification strategy for this
decision area of operations management. However, the company’s supply chain
management is focused on quality and low prices. As a result, Costco offers a limited
array of products at its warehouses/stores. The company does not sell products with
high bulk/wholesale prices.

8. Inventory Management. For this strategic decision area of operations management,

Costco Wholesale Corporation ensures inventory efficiency by using warehouse-style
stores as retail and storage spaces in one. Also, the company displays goods in their
shipping pallets, instead of arranging individual items on shelves. In this way, Costco
reduces inventory costs.
 9. Scheduling. Costco’s scheduling approaches are comparable to those of other firms
in the retail industry. The company uses automated systems for scheduling most of its
sales personnel, so that HR capacity utilization is maximized. In this strategic decision
area of operations management, Costco Wholesale applies conventional strategies and
tactics.

10. Maintenance. Costco has minimal maintenance costs for its facilities, considering
that it uses warehouse-style stores. In this strategic decision area of operations
management, Costco’s business model contributes to the ease of maintenance. Also,
human resources are maintained through continuous hiring and a number of training
and development programs to support Costco’s business needs.

Productivity at Costco Wholesale

Costco Wholesale Corporation’s measures for productivity are based on effectiveness
and efficiency of retail service operations management. The following are some of the
notable productivity criteria used at Costco:

1. Revenue per square foot (Costco warehouse/store productivity)

2. Stockout rate (inventory management productivity)
3. Prints per day (Costco Photo Center productivity)

Costco Wholesale’s Stakeholders: A CSR

Analysis
UPDATED ONUPDATED ON FEBRUARY 6, 2017 BY ROBERTA GREENSPAN

A Costco in Neihu,
Taiwan. Costco Wholesale Corporation’s corporate social responsibility programs
successfully address stakeholders’ interests. (Photo: Public Domain)
Costco Wholesale Corporation has a number of key corporate social responsibility
(CSR) programs that successfully address the interests of its stakeholders. The
company and these stakeholders significantly affect each other. As such, it is necessary
 for Costco to ensure that its corporate social responsibility efforts directly address the
stakeholders’ concerns. Success in doing so could lead to long-term beneficial effects
for Costco, such as a stronger brand image and customer loyalty. In light of the
changing market conditions, Costco continues in evolving its corporate social
responsibility programs and policies for long-term viability in the global retail industry.

Costco Wholesale Corporation has considerable corporate social responsibility

programs. The company adds new policies and programs over time, especially for
improving its CSR performance concerning its supply chain and sustainability.

Costco Wholesale’s Stakeholder Groups & CSR

Initiatives
Costco Wholesale’s organizational activities aim to maximize performance in all areas
of its business. The company’s corporate social responsibility programs address the
following stakeholder groups, arranged according to significance based on Costco’s
approaches:

1. Employees (Costco’s top priority)

2. Customers/members
3. Investors
4. Communities (least priority)

Employees. Costco prioritizes employees as the most significant of its stakeholders.

These stakeholders are significant because they directly influence business
performance. The interests of this stakeholder group are equitable employment and
career opportunities. Costco’s corporate social responsibility efforts effectively satisfy
these interests through a number of policies and programs:

 Internal leadership development policy to promote employees

 Health benefits
 401(k) plans
 Reimbursement for medical expenses, child care, and elderly care
 Disability insurance, life insurance, long-term care insurance, and accidental death and
dismemberment insurance

Customers/Members. Customers are the second-priority stakeholders in Costco

Wholesale’s business. Customers are significant because they affect Costco’s
revenues. The interests of this stakeholder group include quality and affordability of
products. To address these interests, Costco maintains agreements with suppliers to
offer low wholesale/bulk prices. The company does not stock products that do not
satisfy its low-price policy for bulk/wholesale purchases. In addition, Costco’s Kirkland
Signature label guarantees high quality. Thus, Costco Wholesale Corporation’s
corporate social responsibility efforts satisfy the interests of customers as a major
stakeholder group.

Investors. Costco needs to satisfy the interests of investors as one of its main
stakeholder groups. Investors are significant stakeholders because they determine the
capital available to grow the business. The interests of this stakeholder group are
profitability and business growth. Costco’s corporate social responsibility efforts address
these concerns. For example, the company continues to expand its operations in the
United States and overseas. Costco also continues to grow, as indicated in its
increasing net income in the past years.

Communities. Communities are the least priority stakeholder group in Costco’s

approaches. These stakeholders are significant because they affect consumer and
employee perception about Costco. They also influence the firm’s supply chain. These
stakeholders are interested in support for households and community development, as
well as environmental protection. Costco’s Charitable Contributions Committee
addresses these interests through corporate social responsibility donations. For
example, the company gives grants to local and regional organizations to support
children, education, and health and human services.

Costco’s CSR Performance in Addressing

Stakeholders’ Interests
Costco’s corporate social responsibility efforts are effective in addressing the interests
of all its major stakeholder groups. Employees’ needs are properly supported. Costco
also satisfies the interests of customers and investors as major stakeholder groups. In
addition the company’s Charitable Contributions Committee is a flexible way to support
various community development initiatives. Therefore, in the retail industry, Costco is a
corporate social responsibility success.

BUSINESS, MANAGEMENT

Costco Wholesale’s Marketing Mix (4Ps)

Analysis
UPDATED ONUPDATED ON FEBRUARY 6, 2017 BY ANDREW THOMPSON
 The food court of a
Costco in Overland Park, Kansas. Costco Wholesale Corporation’s marketing mix (4Ps)
successfully supports the business even without advertising. (Photo: Public Domain)
Costco Wholesale Corporation is the second biggest retailer in the world, behind
Walmart. Costco’s marketing mix (4Ps) is one of the factors behind its success. The
marketing mix is the set of strategies and tactics that a firm uses to implement its
marketing plan. In Costco’s case, the business has a marketing mix that is relatively
uncommon in the retail industry, especially in terms of the promotion element. Even
though the company directly competes against other giants like Walmart, Costco
maintains a marketing mix that capitalizes on pricing and the value of its products.

Costco Wholesale Corporation’s marketing mix (4Ps) effectively supports the

company’s endeavors to maintain one of the top positions in the global retail market.

Costco Wholesale’s Products (Product Mix)

As a large retailer, Costco Wholesale offers a wide variety of products. This element of
the marketing mix identifies the firm’s outputs. Compared to Walmart, Costco has a
limited product mix, but has expanded its product offerings through time, to include the
following main product categories:

1. Appliances
2. Auto & Tires
3. Baby, Kids & Toys
4. Clothing & Handbags
5. Computers & Printers
6. Electronics
7. Furniture
8. Grocery, Floral & Pets
9. Holiday, Gifts & Tickets
10. Home Improvement
11. Health & Beauty
12. Home, Kitchen, Bed & Bath
13. Jewelry & Watches
14. Office Products
15. Patio & Outdoor
16. Sports & Fitness
17. Travel & Luggage
18. Photo Center services
19. Optical services
20. Hearing Aid Center services
21. Gasoline
22. Business Services
23. Home Services
24. Life Services

In addition to the typical basic goods found in its warehouses/stores, Costco offers
services, such as photo printing services, life insurance (under Life Services), and
payroll services (under Business Services). This element of the marketing mix shows
that Costco Wholesale Corporation has expanded its product mix to a considerable
degree of diversification.

Place/Distribution in Costco’s Marketing Mix

Warehouse-style stores are the main places where Costco sells its products. This
element of the marketing mix refers to the venues through which the firm distributes or
sells its products to customers. Costco’s main places for product distribution are as
follows:

1. Warehouse-style stores
2. The Costco online store
3. The Costco mobile app

All of the company’s goods and services are typically available in its warehouse-style
stores. However, consumers can also purchase products through Costco Wholesale’s
e-commerce website. Mobile users may use the Costco mobile app to access
information about products and to make a purchase. Customers may opt to have their
online or mobile purchases delivered to their doorstep. In this element of the marketing
mix, Costco Wholesale Corporation harnesses information technology for a broad
market reach.

Costco Wholesale’s Promotion (Promotional Mix)

Costco Wholesale promotes its products through four main marketing communications
tactics. This element of the marketing mix presents how the firm communicates with its
 target customers. Costco’s main promotion tactics are as follows, arranged according to
significance in the company:

1. Sales promotion
2. Direct marketing
3. Personal selling
4. Public relations

Costco uses bulk/wholesale discounts as a form of sales promotions to lure consumers

to its warehouses/stores. Members are guaranteed low prices for products sold per
pack or in wholesale amounts. In addition, Costco uses direct marketing through emails
to members, as well as The Costco Connection, which is a monthly publication that
promotes products available at Costco warehouses/stores. On the other hand, personal
selling happens when sales personnel persuade customers to purchase certain
products at the warehouses. Costco applies public relations to boost its corporate and
brand image. For example, the company has sustainability programs for its supply
chain, and gives donations to support programs for children, education, and health and
human services. The lack of advertising is a major factor that separates Costco’s
marketing mix from those of other retailers like Walmart. Costco does not advertise, and
relies more on its low prices and product value to attract consumers. Thus, this element
of the marketing mix shows that Costco Wholesale Corporation effectively promotes its
business and products even without advertising.

Costco’s Prices and Pricing Strategy

Costco Wholesale uses the market-oriented pricing strategy. This pricing strategy
uses market conditions as basis for setting prices. In general, the company aims to offer
the lowest possible prices for bulk/wholesale purchases, relative to the prices of other
firms in the retail market. In a way, Costco’s pricing strategy is also a modified version
of the high-low pricing strategy, which involves giving discounts to help customers
save money. In Costco’s case, the discounts are achieved through bulk or wholesale
purchases.

Costco Wholesale Five Forces Analysis

(Porter’s Model)
UPDATED ONUPDATED ON FEBRUARY 6, 2017 BY JUSTIN YOUNG
 A Costco in Neihu,
Taiwan. In Costco Wholesale Corporation’s Five Forces analysis (based on Porter’s
model), the external factors in the retail industry environment emphasize competition,
customers, and substitution as the strongest forces. (Photo: Public Domain)
Costco Wholesale Corporation continues adjusting to the external factors in the retail
industry environment, as shown in this Five Forces analysis. The Five Forces analysis
is Michael Porter’s model for determining the degree of influence of external factors. In
Costco’s case, the Five Forces analysis model indicates the most important external
factors that the company must address. While all of these external factors influence
Costco, they differ in terms of their effects on the firm. As such, Costco Wholesale’s
strategic direction must overcome these forces to maintain the company’s position as
the largest membership warehouse club chain in the United States.

Costco Wholesale Corporation’s Five Forces analysis indicates that the company faces
strong forces in its industry environment. Suppliers have the weakest force in affecting
Costco’s business.

Overview: Costco Wholesale’s Five Forces Analysis

Costco Wholesale faces external factors with varying intensities. These intensities may
change over time. At present, the following are the Five Forces in Costco’s industry
environment, with their respective intensities:

1. Competitive rivalry or competition (strong force)

2. Bargaining power of buyers or customers (strong force)
3. Bargaining power of suppliers (weak force)
4. Threat of substitutes or substitution (strong force)
5. Threat of new entrants or new entry (moderate force)
 The above synopsis of the Five Forces analysis of Costco Wholesale shows that the
company faces challenges linked to most of the five forces. The bargaining power of
suppliers is the least of Costco’s concerns. To remain effective and to keep its position
in the retail market, Costco needs to continue enhancing its competencies to combat
the effects of competition and new entrants. Costco also needs to improve its goods
and services over time to address the potential negative effects of substitutes.

Competitive Rivalry or Competition with Costco

Wholesale (Strong Force)
Costco Wholesale Corporation must counteract the effects of competition on the retail
industry environment. This element of the Five Forces analysis refers to the influence of
competing firms on each other. The following are the external factors that contribute to
the strong force of competitive rivalry against Costco:

 Large number of firms (strong force)

 High variety of firms (strong force)
 Low switching costs (strong force)

The retail industry is saturated, with many firms aggressively competing against Costco.
Also, the high variety of firms makes the competition tougher, as firms capitalize on their
unique competencies to compete against Costco. In addition, the low switching costs
are an external factor that makes it easy for consumers to transfer from Costco to other
firms. Thus, based on this element of the Five Forces analysis, competition is among
Costco’s most important concerns.

Bargaining Power of Costco’s Customers/Buyers

(Strong Force)
Costco must ensure that it satisfies consumers. This element of the Five Forces
analysis considers the influence of customers on firms’ effectiveness in the retail
industry environment. In Costco’s case, the external factors that lead to the strong
bargaining power of customers are as follows:

 Low switching costs (strong force)

 High availability of substitutes (strong force)
 High quality of information (strong force)

The low switching costs mean that Costco’s customers can easily transfer to other
retailers like Walmart’s Sam’s Club. In relation, Costco consumers have many
substitutes to choose from. Also, because of the Internet, Costco’s customers can easily
access information about prices and offers among competing retailers. As a result, it
becomes even easier for them to transfer to the retailers that have the best offers.
 These external factors indicate that Costco Wholesale Corporation must consider the
bargaining power of buyers as among the top issues in this Five Forces analysis.

Bargaining Power of Costco Wholesale’s Suppliers

(Weak Force)
Suppliers affect Costco’s business and the retail industry environment. The demands
and impact of suppliers on businesses are covered in this element of the Five Forces
analysis. The following are the external factors that create the weak bargaining power of
suppliers in Costco’s case:

 Large population of suppliers (weak force)

 High overall supply (weak force)
 Low forward integration (weak force)

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. In addition,
most of Costco’s suppliers have low forward integration, which means that they have
minimal control on the distribution and sale of their products in Costco
warehouses/stores. This element of the Five Forces analysis shows that the external
factors leading to the bargaining power of suppliers are among the least of Costco’s
concerns.

Threat of Substitutes or Substitution (Strong Force)

Substitution is a challenge to Costco. In this element of the Five Forces analysis,
substitutes’ influences on firms and the retail industry environment are addressed. In
Costco’s case, the external factors that contribute to the strong threat of substitution are
as follows:

 Low switching costs (strong force)

 High availability of substitutes (strong force)
 High performance-to-price ratio of substitutes (strong force)

Substitutes to Costco Wholesale’s products are easily accessible with no added

expense in the process of transferring to the substitutes (low switching costs). In
addition, there are many substitutes to most of Costco’s goods, especially food products
and related commodities. Moreover, these substitutes can satisfy consumers’
expectations, thereby making the threat of substitution a strong force against Costco.
Based on this element of the Five Forces analysis, the external factors leading to the
strong threat of substitution should be among Costco Wholesale Corporation’s most
important challenges.
 Threat of New Entrants or New Entry (Moderate Force)
New entrants or new firms pose a threat against established firms like Costco. The
effect of new entrants on the retail industry environment is determined in this element of
the Five Forces analysis. The following are the external factors that create the moderate
threat of new entry against Costco:

 Low switching costs (strong force)

 Moderate cost of doing business (moderate force)
 High economies of scale (weak force)

The low switching costs mean that it is easy for consumers to transfer from Costco to
new retailers, thereby giving these new entrants a strong chance of success. However,
the moderate cost of doing business could be an entry barrier that offers some
protection for Costco. Also, the external factor of the high economies of scale makes it
difficult for new entrants to directly compete against giants like Costco. Thus, this
element of the Five Forces analysis shows that the threat of new entrants is a
considerable issue for Costco Wholesale Corporation.

Costco Wholesale PESTEL/PESTLE

Analysis
UPDATED ONUPDATED ON FEBRUARY 6, 2017 BY NATHANIEL SMITHSON

A Costco in
Markham, Ontario, Canada. Costco Wholesale Corporation’s PESTEL/PESTLE
analysis shows that the company has mostly opportunities based on the external factors
in its remote or macro-environment. (Photo: Public Domain)
Costco Wholesale Corporation develops strategies that address the opportunities and
threats identifiable in its PESTEL/PESTLE analysis. The PESTEL/PESTLE analysis
model enumerates the external factors in the firm’s remote or macro-environment that
act as opportunities or threats in the business. Costco Wholesale needs to consider
 these opportunities and threats to maintain its market position as the biggest
membership warehouse club chain in the United States. This PESTEL/PESTLE
analysis indicates that Costco has many options for growth and improvement, based on
opportunities in its business environment. However, Costco must develop competencies
to protect itself from the threats in the retail industry.

This PESTEL/PESTLE analysis of Costco Wholesale Corporation shows that the

company can experience growth through opportunities in most of the dimensions of its
remote or macro-environment.

Political Factors Affecting Costco Wholesale’s

Business
The performance of Costco’s warehouses/stores is partly dependent on the political
influences in its remote or macro-environment. In the PESTEL/PESTLE analysis model,
this dimension refers to the effects of governmental action on a firm’s external
environment. The political factors in Costco’s case are as follows:

1. Political stability of major markets (opportunity)

2. More complex environmental policies (opportunity)
3. Animal rights policies (opportunity)

Costco Wholesale Corporation has the opportunity to grow with minimal political
disturbance in major markets. In addition, the company has the opportunity to improve
its policies and strategies to exceed the expectations based on environmental and
animal rights policies. In this dimension of the PESTEL/PESTLE analysis model, Costco
has major opportunities to grow its business.

Economic Factors Important to Costco Wholesale

Costco Wholesale needs to align its business with the economic situation. This
dimension of the PESTEL/PESTLE analysis model covers the external factors that
affect firms’ economic viability. In Costco’s remote or macro-environment, the following
are the notable economic factors:

1. Increasing international trade agreements (opportunity)

2. Rapid growth of developing markets (opportunity)
3. Slow growth of American market (opportunity)

The increasing international trade agreements give greater support for Costco to
expand its supply chain and warehouses/stores. The company also has the opportunity
to establish new locations in developing markets to boost financial performance. In
addition, Costco can improve its growth and stability in the U.S. even though economic
 growth remains low. In this dimension of the PESTEL/PESTLE analysis model, Costco
Wholesale Corporation has opportunities for further growth.

Social/Sociocultural Factors Influencing Costco’s

Business Environment
Sociocultural issues impact the remote or macro-environment of firms like Costco. In the
PESTEL/PESTLE analysis model, this dimension identifies the social or sociocultural
external factors that could change consumer and employee behaviors. In Costco’s
case, the following are significant sociocultural factors:

1. Increasing demand for business social responsibility (opportunity)

2. Animal rights trend (opportunity)
3. Environmentalism (opportunity)

Based on the external factor of increasing demand for business social responsibility,
Costco Wholesale has the opportunity to improve its corporate social responsibility
programs to strengthen its brand image and consumer perception. Also, Costco has the
opportunity to improve customer satisfaction by implementing policies and strategies for
better animal rights and environmental performance. In this dimension of the
PESTEL/PESTLE analysis model, Costco Wholesale Corporation has major
opportunities to satisfy customers and interest groups.

Technological Factors in Costco Wholesale’s

Business
Costco Wholesale’s remote or macro-environment is subject to the effects of
technologies. This dimension of the PESTEL/PESTLE analysis model deals with the
influence of technologies and technological innovation on firms. In Costco’s case, the
following are significant technological external factors:

1. Increasing e-commerce transactions (opportunity)

2. Increasing business automation (opportunity)
3. Rapid rate of technological innovation (opportunity)

Costco has the opportunity to attract a larger market share through e-commerce. In
addition, the company can implement new automation technologies to increase its
business efficiency, which should translate to savings and better financial performance.
Also, Costco can innovate in terms of other technological applications, such as in
information processing, knowledge management, and HR training. This dimension of
the PESTEL/PESTLE analysis model shows that Costco has technological opportunities
to improve its business processes.
 Ecological/Environmental Factors
As a retailer, Costco needs to consider the effects of ecological concerns on its remote
or macro-environment. In the PESTEL/PESTLE analysis model, this dimension refers to
the ecological conditions that influence business performance, such as through supply
chain performance or market growth. In Costco’s case, the following are the main
ecological external factors:

1. Climate change (threat)

2. Low-carbon lifestyles (opportunity)
3. Collapsing bee colonies (threat)

Climate change threatens Costco Wholesale Corporation because part of the business
sells produce, which is dependent on optimal climate conditions. In relation, Costco
must adapt its product mix to satisfy the changing lifestyles of consumers. Also, the
continuing colony collapse disorder (CCD) affects bees and, in turn, the supply of food
products that Costco sells. However, the company cannot do much about this specific
threat of CCD. In this dimension of the PESTEL/PESTLE analysis model, Costco must
consider adjusting its strategies to strengthen its supply chain.

Legal Factors
Legal systems impose requirements on firms like Costco. This dimension of the
PESTEL/PESTLE analysis model shows the effects of laws or regulations on firms’
remote or macro-environment. Some of the important legal external factors in Costco’s
case are as follows:

1. Changing employment laws (opportunity)

2. Tax reforms (opportunity & threat)
3. GMO regulations (opportunity)

Costco has the opportunity to improve its employment practices to exceed the
requirements of employment laws. Also, Costco can adjust its policies and strategies to
optimize its performance despite tax reform issues. In addition, the company can
impose new policies that require more accurate GMO labeling for its food products. This
dimension of the PESTEL/PESTLE analysis model shows that Costco Wholesale
Corporation can change its business practices to exploit legal opportunities.

Costco Wholesale’s PESTEL/PESTLE Analysis –

Recommendations
Costco Wholesale has many opportunities to improve its processes, increase its
financial performance, and grow its business. However, this PESTEL/PESTLE analysis
also shows that Costco needs to address a number of significant threats. To address
the threat of climate change, the company can expand and further diversify its supply
chain. Costco must also expand its business in high-growth economies to exploit the
opportunities linked to their rapid development

Costco Wholesale SWOT Analysis

UPDATED ONUPDATED ON FEBRUARY 6, 2017 BY DANIEL KISSINGER

A Costco in Neihu,
Taiwan. Costco Wholesale Corporation’s SWOT analysis shows that the business has
the strengths needed to address its weaknesses, but the opportunities and threats
warrant some strategic changes. (Photo: Public Domain)
Costco Wholesale Corporation is the second biggest retailer in the world after Walmart.
This success is linked to Costco’s ability to strike a profitable balance in addressing the
internal and external factors shown in this SWOT analysis. The SWOT analysis
examines the internal strategic factors (strengths and weaknesses) and the external
strategic factors (opportunities and threats) relevant to the business. Costco’s SWOT
analysis gives insights on the most significant issues that the company must include in
its strategic formulation. Effectively addressing these issues in the SWOT analysis can
support the continuation of Costco’s position in the global retail market.

This SWOT analysis of Costco Wholesale Corporation identifies the most important
concerns affecting the company. Investors and managers use the results of the SWOT
analysis to understand Costco’s potential in the global retail market.

Costco Wholesale’s Strengths (Internal Strategic

Factors)
Costco Wholesale’s strengths are linked to the company’s current operations and
strategies. The strengths in the SWOT analysis model are the capabilities (internal
strategic factors) that firms use for profitable business. In Costco’s case, the following
are the most notable strengths:
1. Strong market presence
2. Expansive supply chain
3. Strong brand (Kirkland Signature)

As the leading membership warehouse club chain in the United States, Costco
Wholesale Corporation is strong because of its market presence. The company’s name
is popular among consumers. Also, Costco’s expansive supply chain is a strength that
relates to the firm’s ability to achieve economies of scale. Another strength of Costco is
its Kirkland Signature brand, which consumers view as a label of quality. These
strengths in the SWOT analysis of Costco highlight the benefits of the company’s
current position in the market.

Costco’s Weaknesses (Internal Strategic Factors)

Costco Wholesale’s weaknesses are based on the company’s strategic focus. The
weaknesses in the SWOT analysis model are the internal strategic factors that act as
limitations or barriers to business. Costco’s most important weaknesses are as follows:

1. Limited product mix

2. Exclusivity to members
3. Low profit margins

Costco has a limited product mix compared to the wider and more extensive selection
available from competitors like Walmart. This weakness prevents maximization of
revenues from consumers who might not find what they are looking for at Costco
warehouses/stores. Also, Costco’s business model creates exclusivity to members and
prevents other shoppers from easily purchasing at its warehouses. Moreover, because
of Costco’s generic strategy, the company has the weakness of low profit margins,
which leaves little room for price adjustments. This SWOT analysis of Costco Wholesale
Corporation shows that the company’s weaknesses are directly linked to its business
model.

Opportunities for Costco Wholesale (External

Strategic Factors)
Costco’s opportunities emphasize the need to change business strategies. The
opportunities in the SWOT analysis model are external strategic factors that enable
business growth and development. The following are Costco Wholesale’s main
opportunities:

1. Diversification
2. Expansion of product mix
3. Expansion of locations
 Costco has the opportunity to diversify its business, such as through the addition of new
services or an entirely new business in another industry. The company could also
expand its product mix, which is currently limited compared to those of firms like
Walmart. In addition, Costco has the opportunity to expand its business around the
world by opening new warehouses/stores in overseas locations, especially in high-
growth economies. This SWOT analysis of Costco Wholesale Corporation points to
opportunities for growth and expansion.

Threats Facing Costco (External Strategic Factors)

The threats against Costco are sociocultural and market-based. The threats in the
SWOT analysis model are the external strategic factors that could reduce business
performance. The main threats against Costco are as follows:

1. Competition with retail stores

2. Online competition
3. Animal rights trend

Costco Wholesale Corporation faces tough competition with retail firms like Walmart,
especially Walmart’s Sam’s Club. In addition, in the online market, many small and
medium-sized firms are now selling goods for low prices, thereby competing against
Costco. The animal rights trend is a threat because it has potential to reduce demand
for some of Costco’s products, although the company has the opportunity to address
this matter by further improving its supply chain policies. This SWOT analysis of Costco
shows that the company must improve its strategies and policies to overcome threats in
its external environment.

Costco Wholesale’s SWOT Analysis –

Recommendations
Costco Wholesale Corporation’s current market position represents the strengths of the
company. However, this SWOT analysis shows that the firm’s business model imposes
limits to its growth and potential, especially in light of tough competition. Costco
Wholesale must improve its product mix by adding more products to attract more
customers. Also, the company needs to globally expand to exploit the benefits of high-
growth economies. To maximize its market share, Costco can implement new policies
that require suppliers to satisfy animal rights and related concerns.

Costco Wholesale’s Organizational Culture

Characteristics
UPDATED ONUPDATED ON FEBRUARY 6, 2017 BY PAULINE MEYER
 The food court of
Costco in Overland Park, Kansas. Costco Wholesale Corporation’s organizational
culture supports employee morale and customer satisfaction. (Photo: Public Domain)
Costco Wholesale Corporation is the second biggest retailer in the world. This level of
success is partly attributed to the effects of the company’s organizational culture. A
firm’s organizational culture establishes the values, habits and traditions among
employees. Costco’s organizational culture enables the company to satisfy consumers
through employees’ excellence in service. As the largest membership warehouse club
chain in the United States, Costco uses its corporate culture to optimize employee
morale and customer satisfaction. It is expectable that Costco will continue growing with
the same organizational culture that has helped the company withstand strong
competitors like Walmart.

Costco Wholesale Corporation’s organizational culture reflects the company’s

commitment to excellent service. The strength of its human resources are also linked to
the positive attitude promoted through Costco’s organizational culture.

Features of Costco Wholesale’s Organizational

Culture
Costco’s organizational culture is a major success factor for the business, especially by
way of employee morale, satisfaction and performance. The following are the main
characteristics of Costco’s organizational culture:

1. Common goal of excellence

2. Positive attitude
3. High energy and fast pace
4. Service orientation
5. Teamwork
Common goal of excellence. Costco Wholesale’s organizational culture focuses on
excellence in performance. The company believes that good enough is not enough.
This characteristic of the organizational culture allows Costco to push its employees
further to achieve high quality service to satisfy customers. The focus on excellence
also creates a sense of direction among workers in terms of their personal and career
development.

Positive attitude. Courteousness and friendliness are emphasized in Costco

Wholesale’s organizational culture. The company believes that these behaviors are
important in attracting more customers to its warehouses/stores. This feature of
Costco’s organizational culture contributes to employee morale.

High energy and fast pace. Efficiency is also included in Costco Wholesale
Corporation’s organizational culture. Through high energy and a fast pace, employees
are motivated to maintain optimal productivity. This characteristic of Costco’s
organizational culture also contributes to the energetic buzz that helps satisfy customers
based on speed and efficiency of service.

Service orientation. Service orientation is a typically feature in the organizational

culture of retail firms like Costco. The emphasis on service helps align workers to the
business goal of providing effective retail service. Costco also uses this service-oriented
characteristic to encourage employees to interact with customers in a productive and
profitable way, such as by promoting certain products to customers on the warehouse
floor.

Teamwork. Costco facilities use work teams. This characteristic of the company’s
organizational culture maximizes performance by utilizing the synergy of teams.
Through teamwork, employees achieve flexibility that enables Costco to address
variations in customer preferences. These work teams also enable the company to
facilitate camaraderie among its employees.

Costco Wholesale’s Organizational Culture:

Implications
The organizational culture of Costco Wholesale Corporation has worked through the
years, indicating its suitability to the business. However, this organizational culture is
relatively high-maintenance compared to the organizational culture of other firms,
especially Walmart. Nonetheless, the characteristics of excellence, high energy and fast
pace are sustainable because Costco has one of the best compensation packages in
the industry.
Costco Wholesale’s Organizational Structure
Analysis
UPDATED ONUPDATED ON SEPTEMBER 8, 2018 BY ANDREW THOMPSON

A Costco
warehouse/store in Neihu, Taiwan. Costco Wholesale Corporation’s organizational
structure is mainly based on its corporate business functions. (Photo: Public Domain)
Costco Wholesale Corporation’s organizational structure is based on the company’s
current operations and locations. A firm’s organizational structure is the configuration
used to interconnect different organizational components to address business needs.
Costco’s organizational structure reflects the company’s current market presence. This
corporate structure enables Costco’s effective management of operations in different
markets. As the biggest membership warehouse club chain in America, Costco
Wholesale has designed its structure to ensure successful management of its business
in the U.S. and overseas. However, Costco must change its organizational structure
over time to suit its expanding global operations.

Costco Wholesale Corporation’s organizational structure is based on its operational

presence in the U.S. and other markets. However, global expansion of
warehouses/stores leads to changes in the firm’s organizational structure.

Features of Costco Wholesale’s Organizational

Structure
Costco Wholesale Corporation primarily has a weak matrix organizational structure.
This type of organizational structure involves a strong functional structure and a
secondary divisional structure. Through the functional organizational structure, Costco
 groups employees according to business functions, such as marketing and accounting.
On the other hand, through the divisional organizational structure, Costco groups
business components according to location or market. Thus, the following are the main
characteristics of Costco’s organizational structure:

 Functional grouping (primary feature)

 Geographic divisions (secondary feature)

The functional characteristic of Costco’s organizational structure presents the basic

functions to maintain the retail business. These functions are carried out starting at the
corporate level and affect the entire organization. The main functional groups at Costco
are as follows:

1. Human Resources and Risk Management

2. Operations
3. Costco Wholesale Industries & Business Development
4. Finance
5. Foods & Sundries Merchandising
6. Merchandising – Fresh Foods
7. Construction
8. Information Systems
9. Legal
10. Accounting
11. E-Commerce and Publishing
12. Depot Operations

Geographic divisions are a feature of Costco Wholesale’s organizational structure that

relate to the strategic locations of its operations. At present, the following are the main
geographic divisions used in Costco’s business:

1. U.S. – Northeast
2. U.S. – Northwest
3. U.S. – Southeast
4. U.S. – Southwest
5. U.S. – Midwest
6. U.S. – Northern California
7. U.S. – Bay Area
8. U.S. – Los Angeles
9. U.S. – San Diego
10. U.S. – Texas
11. Eastern Canada
12. Western Canada
13. United Kingdom
14. Korea
15. Mexico
16. Taiwan
17. Japan
18. Australia

The functional characteristic of Costco Wholesale Corporation’s organizational structure

applies to all the geographic divisions. For example, the Finance group affects all the
geographic divisions of Costco worldwide. Also, there are more geographic divisions in
the U.S. than in other markets because the company derives most of its revenues from
the American market.

Costco Wholesale’s Organizational Structure:

Advantages & Disadvantages
The main advantage of Costco Wholesale Corporation’s organizational structure is that
the functional grouping characteristic supports organization-wide control. The
company can easily implement new policies and strategies to take effect in all
geographic divisions. Also, the geographic divisions are a characteristic of Costco’s
organizational structure that presents the advantage of flexibility to adjust to regional
market conditions. However, a disadvantage of this organizational structure is that it
offers limited flexibility, considering the corporate and organization-wide effects of the
functional groups headed at Costco’s headquarters.

Costco Wholesale’s Generic and Intensive

Growth Strategies
UPDATED ONUPDATED ON FEBRUARY 6, 2017 BY JUSTIN YOUNG

A Costco at
Markham, Ontario, Canada. Costco Wholesale Corporation’s generic strategy and
intensive growth strategies are combined to ensure the company’s competitive
advantage despite tough competition. (Photo: Public Domain)
Costco Wholesale Corporation’s generic strategy (based on Porter’s model) dictates the
company’s approach to maintaining its competitive advantage. As the second biggest
retailer in the world, Costco follows its generic competitive strategy to directly compete
against other giants, especially Walmart. On the other hand, Costco’s intensive growth
strategies determine the actions suited to grow the business. The company uses its
intensive growth strategies to continue expanding worldwide. In spite of the tough
competition with Walmart and local players, Costco remains strong and competitive,
thereby showing the effective implementation of its generic competitive strategy and
intensive growth strategies.

Costco Wholesale Corporation’s combination of its generic competitive strategy and

intensive growth strategies enables the business to grow despite competition with firms
like Walmart.

Costco Wholesale’s Generic Strategy (Porter’s Model)

Costco Wholesale Corporation’s main generic strategy for competitive advantage is cost
leadership. This generic strategy entails low costs reflected through low prices.
Customers expect significant savings when they buy from Costco. However, Walmart
also uses a cost leadership generic competitive strategy. To set itself apart from the
competition, Costco also partly employs broad differentiation as its secondary generic
strategy. This second generic strategy makes the business stand out based on certain
characteristics. For example, Costco differentiates based on value or quality through
Kirkland Signature, which is the company’s house brand. Thus, the broad differentiation
generic strategy leads to competitive advantage and allows Costco to compete based
on quality, on top of low prices based on the cost leadership generic strategy.

One of Costco Wholesale’s financial strategic objectives is cost minimization through

economies of scale, which relates with the cost leadership generic strategy for
competitive advantage. In addition, the strategic objective of keeping superior quality
applies to Costco’s broad differentiation generic strategy, especially the Kirkland
Signature brand.

Costco Wholesale’s Intensive Strategies (Intensive

Growth Strategies)
Market Penetration. Costco Wholesale Corporation’s main intensive growth strategy is
market penetration. This intensive strategy supports growth though more sales to
markets where the firm already operates. For example, Costco uses aggressive
marketing campaigns to attract more consumers to its warehouses/stores. A strategic
objective for this intensive growth strategy is to increase customer retention, such as
through Costco’s discounts based on membership. Costco Wholesale’s generic
competitive strategy of cost leadership supports this intensive growth strategy by
attracting customers based on low prices.
Market Development. Costco Wholesale’s secondary intensive growth strategy is
market development. This intensive strategy enables the company to grow through
sales to entirely new markets or market segments. For example, Costco opens new
warehouses/stores in new locations, such as overseas markets, to gain new customers.
A strategic objective for this intensive growth strategy is to expand the supply chain to
support new warehouse/store locations. Costco’s generic competitive strategies of cost
leadership and broad differentiation help attract new customers to newly opened
locations.

Product Development. Costco Wholesale’s tertiary intensive growth strategy is product

development. This intensive strategy supports the firm’s growth through the introduction
of new products. For example, Costco adds time-limited or seasonal products, as well
as new products under the Kirkland Signature brand. A strategic objective for this
intensive growth strategy is to establish alliances with manufacturers for co-branding of
their products with Costco’s Kirkland Signature brand. This intensive growth strategy
supports Costco’s generic competitive strategy of cost differentiation through the high
quality associated with Kirkland Signature.

BUSINESS, MANAGEMENT

Costco Wholesale’s Vision Statement &

Mission Statement
UPDATED ONUPDATED ON FEBRUARY 5, 2017 BY JESSICA LOMBARDO

A Costco
warehouse/store in Neihu, Taiwan. Costco Wholesale Corporation’s mission statement
is aligned to the business, but the company needs to release an official vision
statement. (Photo: Public Domain)
Costco Wholesale Corporation is the second largest retailer in the world. This position
indicates Costco’s effectiveness in following its mission statement and vision statement
through appropriate strategic objectives. A firm’s vision statement guides the overall
 direction of organizational development. In Costco Wholesale’s case, the corporate
vision statement emphasizes customer experience and satisfaction. On the other hand,
a firm’s mission statement determines the strategies and tactics needed to achieve the
vision. Costco Wholesale’s corporate mission statement highlights the importance of
creating value for customers, especially through pricing.

Costco Wholesale Corporation follows its mission statement through strategic objectives
that emphasize consumer savings and satisfaction. Costco’s vision statement also
points to savings as value for its customers.

Costco Wholesale Corporation’s Vision Statement

Costco Wholesale has not released an official vision statement. However, the
company’s history implies that its original vision statement is to be “a place where
efficient buying and operating practices give members access to unmatched
savings.” This implied vision statement has the following main points about Costco:

1. Efficient operations
2. Unmatched savings
3. Access through membership

This vision statement shows Costco’s need to ensure efficiency in its operations. Such
efficiency minimizes costs and prices. Cost minimization leads to the next point of the
vision statement: unmatched savings. Costco’s customers can expect such savings
through discounts based on membership status or by using Costco Cash Cards. Access
through membership is the component of the vision statement that indicates Costco
Wholesale’s membership-only warehouse club model. Based on this vision statement, a
strategic financial objective is to minimize costs so that the company could continue to
offer the discounts that attract customers to its warehouses/stores.

Costco Wholesale’s Mission Statement

Costco Wholesale Corporation’s mission statement is similar to the identified vision
statement above. The mission statement says that Costco aims “to continually
provide our members with quality goods and services at the lowest possible
prices.” This mission statement has the following main points:

1. Quality goods and services

2. Lowest possible prices
3. Continual offers

Costco’s mission statement shows that the business uses quality as a selling point. This
factor is important because there are many other firms that compete against Costco on
the basis of low prices. The company’s mission statement also indicates low prices as a
major selling point. Customers are drawn to the discounts and low prices available at
Costco. Moreover, the mission statement shows that these offers are always available
at Costco warehouses/stores to members. A strategic objective linked to this mission
statement is to develop a supply chain that supports cost minimization and high quality.

Costco Wholesale’s Vision & Mission Statements –

Recommendation
Costco Wholesale Corporation’s mission statement is specific and aligned to the nature
of the company’s business. It also agrees well with the implied vision statement of the
firm. However, Costco must release an official vision statement to guide employees and
investors in their decisions about the business.

Costco’s Mission, Business Model, Strategy

& SWOT
UPDATED ONUPDATED ON MARCH 25, 2017 BY LAWRENCE GREGORY

A Costco Wholesale
store in Taiwan. What are Costco’s mission, business model, strategy, and SWOT
(strengths, weaknesses, opportunities, threats)? (Photo: Public Domain)
Costco Wholesale Corporation’s case shows that the business continues to grow and
expand. The company now has operations in overseas locations, such as Taiwan. The
firm is among the biggest retail organizations in the world today. As a retail firm, Costco
depends on consumer purchasing capacities. Consumer perceptions also have a
significant impact because competition is high in the retail market. Competition from
firms like Walmart is especially notable. Costco must maintain competitive advantage to
ensure long-term viability. At present, the ability of this company to continue growing
and expanding is based on its affordable quality goods and services.

Costco Wholesale uses its business model to follow its mission statement. However, the
internal analysis elements (strengths and weaknesses) and external analysis elements
(opportunities and threats) show that Costco’s managers must formulate new strategies
for sustained growth and development of the firm.

Costco’s Mission, Business Model & Strategy

Mission. Costco’s mission is “to continually provide members with quality goods
and services at the lowest possible prices.” This mission statement is directly linked
to its business model and strategy. The firm’s mission emphasizes quality and cost
leadership, which are factors consumers usually look for in the retail market. Thus, the
mission statement guides actions that contribute to Costco’s competitive advantage.

Business model. Costco uses a membership-only warehouse club business model. In

this model, consumers pay a membership fee to access the low-cost products available
at Costco stores. Non-members may accompany members, but only members are
allowed to purchase in these stores. However, non-members can use Costco Cash
Cards to shop at the company’s stores. Competitors Sam’s Club and BJ’s Wholesale
Club also use the same business model.

Strategy. Costco’s generic strategy is cost leadership. This strategy entails maintaining
the lowest prices possible. Retail giants like Walmart also use the cost leadership
strategy. Costco’s strategy also combines the membership warehouse club business
model to differentiate it from other retail firms.

The company’s business model is a core factor that enables Costco to follow its
mission. In fact, this business model aligns with the company’s mission. The generic
strategy of cost leadership also agrees with and is needed to sustain Costco’s business
model.

SWOT Analysis
Main article: Costco Wholesale SWOT Analysis

Costco’s Strengths (Internal Forces)

The company’s success capitalizes on the main strengths of the business, as follows:
 The company has very attractive low prices on practically every good or service offered
in its stores and on its website.
 Costco has rapid inventory turnover combined with high sales volume, contributing to
higher revenues. The high sales volume ensures high revenues in spite of low selling
prices.
 The high sales volume contributes to high operating efficiency. Higher operating
efficiency is achieved through minimization of variable costs. Variable costs are lower
when volumes are higher.

Costco’s Weaknesses (Internal Forces)

Even though Costco is profitable and one of the largest retailers, the business suffers
from the following weaknesses:

 Costco’s main weakness is the membership-only warehouse club retail business model.
This model encourages customers to buy at Costco stores, but also limits the total
number of customers. Non-member consumers might feel unwelcome at Costco stores.
 The company has the weakness of the limited array of goods and services. Customers
might go to other retailers like Walmart, which has a wider array of goods and services.

Opportunities for Costco (External Forces)

To ensure long-term viability, Costco must consider and exploit these opportunities in
the industry:

 The company has the opportunity to enter new markets, such as markets in developing
Asian countries.
 Costco has the opportunity to expand the coverage of its e-commerce websites. The
company currently offers online services to the United States, Canada, United Kingdom,
Australia, Mexico, Taiwan, South Korea, Japan, and Spain.
 The company also has the opportunity to increase the variety of its goods and services
to improve the attractiveness of Costco stores to a more diverse population of
consumers.

Threats to Costco’s Business (External Forces)

Threats in the retail market impose limits and barriers to Costco’s growth and
expansion. These threats are as follows:

 The entry of new membership warehouse club retail companies threatens Costco’s
potential to succeed in overseas markets. In overseas markets, new membership
warehouse clubs are opening.
 The aggressive marketing of other retail firms also threatens Costco.
Final Note
Costco Wholesale Corporation is a highly viable business. The business has the
essential strengths to take advantage of opportunities in the retail industry. The firm’s
low prices make it attractive even during times of economic difficulties. The company
has opportunities to address threats to its long-term viability. The firm could use its
website and its network of suppliers to compete against new membership warehouse
club retail companies. Costco is expected to continue to grow in the years to come.
Expansion in overseas markets could also further boost the company’s success.