Costco Wholesale Club Strategic Plan

The retail industry is an extremely competitive environment that poses many challenges for Costco Wholesale Corporation and its competitors. Since many of the stores offer the same products, it may sometimes be very hard for customers to differentiate between retail stores. Even though the economy is recovering from a recession, the retail business is still a mature industry and is improving very steadily.

Costco and its competitors are affected by the same political, economic, social, and technological factors, such as taxes, presidential elections, SEC regulations, the economic state of the country, exchange rates, various social characteristics, such as customer age, income and family size, and the growth of e-commerce. All of these external factors have a great influence on how Costco conducts their operations.

Costco is a premier leader in the retail industry thanks to their strategic pricing strategy, low cost operating system, and financial stability. Costco is still vulnerable to numerous threats, such as competition, exchange rates fluctuations, increasing labor and healthcare costs, and high exposure to low growth markets. If Costco is to maintain the market share in the retail industry, they should consider the options of offering more customer service in their warehouses, increase online retail sales, and acquire other retail stores for expansion and growth. Finally, if Costco wants to become more competitive and profitable over time, management should implement the recommendation of lowering membership costs and expanding their operations.

Firm Profile
Costco Wholesale Corporation is based in Issaquah, Washington and is one of the leading forces in the General Merchandise Stores/Retail Industry. Costco operates an international chain of 600 warehouses where only their membership holders have the privilege to shop. Costco offers high-quality, brand name merchandise at substantially lower prices than other retail locations across the globe. Their warehouses were originally designed to help small to medium-sized business reduce costs in purchasing for resale and for daily business use, but has turned into a primary location to help all individuals with their personal needs.

Costco Wholesale Corporation offers one of the largest varieties of products that can be found in one location. Their products range from groceries, electronics, automotive supplies, jewelry, sporting goods, household appliances, and office equipment. What distinguishes Costco from other retailers is that they only allow members to shop at any of their locations. There are three different membership levels: Business, Gold Star (individual), and Executive membership. Each specific level entitles customers to various privileges.

The mission of Costco Wholesale Corporation is “To continually provide our members with quality goods and services and the lowest possible prices.” Costco is able to fulfill its mission by their strategic pricing strategies, while offering products in bulk that saves their customers money. There is no vision statement for Costco; however, through abiding by their mission, Costco hopes to remain a leader in the competitive retail industry and become more profitable in the near future.

External Analysis
According to Mergentonline.com, Costco Wholesale Corporation is ranked the second largest retail store in the world, with five-hundred ninety-eight stores worldwide and annual revenues close to $89 billion dollars. Since about two-thirds of the United States gross domestic product comes from retail stores, many consumers are reliant on the products of retail stores for their everyday needs. In order to have a competitive advantage over other retail stores, Costco needs to differentiate themselves in terms of products and price. When determining what products to sell and at what price, many external factors affect Costco’s strategic plan to distinguish themselves from their competition.

From a political standpoint, one of the biggest external factors affecting corporations in the retail industry is taxes. The United States corporate federal income tax rate is one of the highest in the world, in which companies have to pay 35% in taxes on income over $18,333,333. (Greenstein, Rogoff, Olsen, & Co., LLP, CPA’s) Firms in this industry would like to see corporate taxation decrease so that the company is able to have a higher net income. It is uncertain if the corporate tax rate will increase or decrease; however, presidential candidate Mitt Romney says that he is planning on offering a corporate tax cut to encourage businesses to increase operations in the United States than overseas. The nation will just have to wait and see if this becomes reality. A higher net income could potentially mean more earnings per share and more dividends distributed to shareholders. Not only are retail companies affected by taxes in the United States, they are also affected by export and import taxes on goods produced and sold throughout the world.

Costco owns a number of subsidiary companies, such as Price Enterprises, Inc. and Shinsegae Department Store Co, which is located in Korea and subject to foreign taxation rates. Costco, as well as its retail competitors, would like to see a decrease in foreign taxation rates so that they’re able to generate a higher net income from their foreign subsidiaries. Another political factor that affects retailers is presidential elections. Costco needs to pay special attention at which candidate’s ideals and values interlink with those of Costco. Costco would lobby for the candidate that would help their business the most, whether it is tax breaks, credits, deregulation of business, etc.

In the 2008 presidential election, Costco CEO James Sinegal supported Barack Obama with campaign contributions, which seemed a surprise since most Fortune 500 companies support republican candidates (retailindustry.about.com). SEC regulations are a final political factor. Costco is a publicly traded company; hence, is subject to stricter rules and regulations set up by the Sarbanes-Oxley Act of 2002. Stricter rules and regulations mean more time and costs needed to abide by this rule, which are cumbersome to all firms and ultimately lowers profit.

Since the housing market crash that started in December of 2007, more people are now returning to shop at retail stores, which is improving the retail sector’s recovery. (Farfan) In a distressed economy, consumers are more cautious about how they spend their money, which is expected to continue due to underemployment and high unemployment rates. Firms in this industry need to continue to offer their member customers a broad selection of a variety of products at a low cost. This will attract more customers as well as maintain customer loyalty. Even though the economy is recovering, gas prices are rising. This could have a negative consequence for Costco since it operates gas stations at numerous stores throughout the country. Some customers may be reluctant to purchase gas because they simply do not want to drive that much anymore or find cheaper rates somewhere else.

In addition, the more money that customers spend on gas at Costco’s the less they are likely to spend on other store products. Exchange rates is Another economic factor that has an effect on Costco . Since Costco has some foreign subsidiaries, exchange rates are going to affect Costco’s profit in a positive or negative way when it comes time to put together their financial statements. Costco has to translate their subsidiaries’ foreign currency into dollars and exchange rates tend to fluctuate, which can have an adverse or inverse effect on profit. A final economic factor is interest and inflation rates. These two rates have a negative effect on the industry because if these rates were to increase Costco would have to increase the prices of their products.

In addition to economic factors, social factors impact the industry. Costco, as well as its competitors need to pay attention to four main characteristics of their customers: Age, customer family size, income levels, and buying habits. Retailers need to know the age range of their customers in order to determine what kinds of products to offer, since customer age range varies significantly in retail stores. This will allow Costco and other retailers to make a decision about how much inventory should be ordered for their stores. The products need to be marketed effectively across all age’s in order to appeal to their target audience. Knowing the family size of retail customers allows retailers to position a price strategy for their products. Retailers know that customers with larger families are more prone to seek cost-effective products to save money, while smaller households would be more likely to purchase higher-priced products. One of the main factors that influence the retail business is consumer income. Income levels are usually affected by economic conditions and typically the more income a consumer has the more likely they are to spend.

According to U.S. Commerce Secretary Gary Locke, consumer spending rose 0.5 percent this past year. (www.ehow.com) The amount of consumer income affects all retailers’ ability to stay competitive with each other. Lastly, consumer buying habits can be very dysfunctional for retailers. Sometimes consumers will like a certain products, then when a new one comes along the old product will get disbanded. It is vital for success that retailers maintain the most trendy, sensibly priced products for purchase. The main technological change in this industry is the continued growth of online shopping, as well as internet advertising. Internet shopping has become the retail industry’s most popular trend and it seems that internet shopping will only increase over time (merchantoline.com). Costco maintains a competitive edge over other retail stores who do not offer online shopping and it allows them to bring in more revenue. Online shopping has completely revolutionized the way that retailers do business.

Even though the economy is recovering from a recession, the retail business is still a mature industry and is improving very steadily. The retail industry accounts for the second largest consumer sector in the United States, in terms of number of establishments and employees. (merchantonline.com) According to the United States Department of Commerce, sales increased in the first quarter of 2011 opposed to 2010, which is supposed to generate $4.2 trillion annually in the United States alone.(merchantonline.com) As a way to attract more business and compete with one another, retailers are now beginning to offer more discounts and incentives in their stores. The retail industry can only do better as long as the economy is improving, which can increase optimism in the industry. Improved retail conditions means improved financial results. Investors are investing more in the retail industry and merger and acquisition activity increased throughout 2011. The retail industry still maintains their status as the number one distribution channel in the United States and the emergence of the popularity of online shopping will only allow retailers to better serve the increasing needs of their consumers.

The retail industry is a highly competitive market with numerous companies vying for consumer’s business by offering a variety of finished products. Costco has many competitors, but no other competitor offers a bigger threat than Wal-Mart Stores, Inc. Wal-Mart leads all retail stores in terms of revenue with $ 421,849,000,000 annually (merchantonline.com), which beats Costco by $332,934,000,000. Other major competitors of Costco in terms of revenue are Target, Sears, Dollar General, Dollar Tree, and eBay. Since online shopping has become more popular, Costco needs to be aware of internet companies such as Amazon.com and eBay getting more of a market share in the retail industry. In addition, Costco needs to be aware of other non-store retailers as emerging entrants in the retail industry, such as infomercials, direct response television advertising, in-home demonstrations, vending machines, e-commerce, and multi-level marketing (Farfan). As for a new store retailers emerging, Costco does not need to worry because this is a very hard barrier to access and it would hard for another store retailer to differentiate themselves in terms of price and products from the other retail stores.

Not only are rivalry between competitors and the emergent of new entrants forces that shape Costco’s strategic plan, but Costco also has to worry about substitutes. A substitute for a retail store would be a grocery stores, individual gas stations, clothing stores, jewelry stores, and electronic stores. All these stores offer many of the same products that Costco offers and at a similar price. Costco has a competitive advantage over many of these other stores because their products can usually all be bought at Costco; however, Costco needs to be aware of what these stores are doing as to what products they offer and at what price in order to maintain a competitive advantage.

In general, Costco has a supreme advantage in the retail industry compared to its numerous competitors. In 2011, Costco was ranked the 3rd largest retailer in the United States and 8th largest in the world. Costco is also listed as 25th on the Fortune 500. (costco.com) The retail industry is thriving due to the economy recovering and the future looks very promising. Costco has an advantage for a higher profit potential in upcoming years as long as they can provide their consumers the best deals that people can find.

Internal Analysis
Costco Wholesale Corporation operates 598 warehouses worldwide in one of the most highly competitive markets of any industry. In order to maintain their success in the retail industry, Costco needs to abide by their mission statement, in which the company plans to continually provide their members with quality goods and services at the lowest possible prices. (Costco.com) Costco can uphold this promise to their consumers by keeping their members pleased, upholding employee morale, continuing to have positive relationships with suppliers, and following laws and regulations. Costco has much strength as a leader in the retail industry and is presented with many opportunities for growth and further development; however, there are some weaknesses the Costco could improve upon and the company is exposed to threats that could jeopardize Costco’s future success in the retail industry.

Costco has many strong attributes that make the company one of the premier leaders in the retail industry. One of Costco’s strength’s is the company’s product and service selection. Costco offers many national brand products, as well products under its private label Kirkland. (Datamonitor, 2008) Costco’s products range from groceries, electronics, appliances, hardware, etc. In addition to products, Costco offers a wide range of services which include offering various types of insurance, real estate and mortgage services, small-business loans, etc. A variety of products and services available in one place makes it very convenient for consumers to shop at one place to coverage all of their essential needs and purchase luxury items. Costco’s availability of products and service all in one place helps the company serve a very large and differentiated consumer base, which promotes higher degrees of customer satisfaction and reduces business risk.

Another notable strength of Costco is their strategic price positioning strategy, which has led to increased customer loyalty. Costco maintains a competitive advantage over other retail stores by offering a substantially low markup of 11% of their merchandise. (Datamonitor, 2011) Because of their low markup, Costco has been able to increase membership renewals of their consumers. According to the 2011 Annual Report, Costco increased their total cardholder population by 6,000,000 members from 2010 bringing about a total of 64,000,000 cardholders at their fiscal year end. Although members pay annual fees to shop at Costco, executive member cardholders, who have the highest annual fee, status is increasing due to Costco’s 2% rewards program. This rewards program offers customers an additional 2% discount on qualified purchases that can be redeemed at Costco warehouses. (Datamonitor, 2011) Costco’s ability to maintain a loyal consumer base will enable the company to contend with other retail companies in this highly competitive market.

A third strength of Costco is their low cost operating philosophy, which has resulted in reduced financing costs for the company. Costco has low inventory costs as a result of an increase in their inventory turnover ratio. Costco’s inventory turnover ratio is currently at 12.67 days, which is up by .36 days from the previous year. (financials.morningstar.com) This is primarily an outcome of Costco’s low pricing strategy, which offers a narrow selection of private and national brands, and encouraging consumers to buy in bulk, all of which has led to an increase in sales volume for the company.

According to Costco’s 2011 Annual Report, net sales increased by 5.1% from 2010. Costco has been able to have a very sophisticated supply chain network from its sales volume and quick inventory turnover, thereby allowing the company to finance their inventory through payment plans with suppliers rather than having to use some of their working capital. Costco is able to transfer their merchandise shipments from its distribution center to the numerous warehouses across the country and overseas around a twenty-four hour time period, which capitalizes on freight volume and reducing receiving and storage costs. When the products arrive at the warehouses, Costco is able to reduce labor for handling and stocking the products by operating a self-service facility, where products are displayed to pallets in large quantities and stored on racks.

A final strength of Costco is increasing their revenue and assets consistently and improving upon their debt position. Net Sales have increased steadily since 2009. From 2009 to 2010, net sales increased by $6.37 billion and by $10.8 billion from 2010 to 2011. (Costco Wholesale Annual Report) This has also caused net income to increase as well, which is currently at $1.46 billion at the end of the 2011 fiscal year. All of Costco’s current assets and property and equipment increased in value for 2010, where total assets increased by $2.9 billion. Costco has seen a decrease in their long-term debt position, which decreased by $888 million from 2010. This decrease has improved the company’s debt to equity ratio and interest coverage ratio. Costco’s improved credit worthiness and revenue and asset position enable Costco to be in position for more expansion projects.

Even though Costco Wholesale Corporation has much strength, there are some weaknesses within the company that need to be discussed. The first weakness within the company is their focus of operations within the California market. Costco has 429 warehouses in the United States and 119 of those warehouses are in California. Washington, where the corporation is headquartered, is the closest runner-up with only 29 stores in the entire state. Costco does not even have any locations in Arkansas, Louisiana, Mississippi, Maine, Wyoming, West Virginia, North Dakota, or South Dakota. There are many macro-economic factors that could potentially hurt business for Costco in California, such as increasing state unemployment levels, increasing food, gas, and energy prices, and the declining housing market. California is also susceptible to many natural disasters, such as earthquakes and forest fires. Costco also faces the risk of an increasing number of wholesale clubs emerging in the California retail market. All of these economic, environmental, and industry hazards could affect Costco’s overall performance since California is the company’s primary source of revenue.

Another weakness of Costco is their lack of presence in Europe other than the United Kingdom. Costco currently operates 22 warehouses throughout England, Scotland, and Wales. There are no other locations throughout Europe. It would seem beneficial for Costco to consider expanding into the European continent considering their economic state. Many countries within the European Union are struggling economically and since Costco offers products and services at considerably low prices compared to other retailers, more people could consider shopping at Costco for their essential needs.

A weakness that stands out for Costco is that they only allow club members to shop at their warehouses. Many people might not want to shop at Costco solely because they are required to pay an annual membership fee. By only allowing club members to shop at their locations, Costco is missing out on a vast amount of revenue of people wanting to shop there, but cannot. Sales could be higher than what they are now if Costco would want to consider changing their policy. More sales could lead to more expansion and a greater market share.

Costco has a history of product recalls and litigation proceedings that would damage the company’s image. For instance, in December of 2007 a supplier of Burritos said that their product contained undeclared casein, a milk protein that could lead to serious allergic reactions. (Datamonitor) Also, in 2008, Costco had to recall bottles of Samuel Adams beer because of chances of the bottles containing glass. In the past, Costco was involved in a number of class action lawsuits, which accused the company of failing to compensate properly for overtime work, not providing meal or rest breaks, and unfair promotion opportunities for female managers. A negative public image by the media could damage the company’s reputation.

A final weakness of Costco is that the company’s inability to market well. Costco does not have a lot of resources in their marketing department and usually is only involved in direct marketing for promoting select merchandise. (Datamonitor) This can hurt Costco because if they are not getting the right amount of promotion it could hurt them by not being able to attract more members, which could put a burden on their goal of increasing revenue consistently.

Some opportunities that Costco is presented with are strong growth and expansion expectations in their Asian market, a growing demand for private label products, and more opportunities for online retailing. (These topics will be cover in the Options section.) Costco is also presented with numerous threats, such as their competition, exchange rates fluctuations, increasing labor and healthcare costs, and high exposure to low growth markets.

Costco stacks up very well compared to their competition with increasing revenue growth, expansion opportunities, and with their online retail sector. Costco is a very large company with a lot of financial strength and is performing quite well, financially, in one of the most competitive industries in the world. Costco seems to have a very good strategic plan with the way they conduct their business and it shows that their methods are working. Obviously, there are some things that they would like to improve upon, but Costco is presented with many opportunities that could turn them into an even larger company and a bigger threat to their competition.

Financial Analysis
For the financial analysis, I compared Costco to Target, which is one of its nearest competitors. 45 pointsMorningstar.com was used to calculate this data| Focal Firm Costco| | Closest CompetitorTarget| | 2011| 2010| 2009| | 2011| 2010| 2009|

Current Ratio (#)| 1.14| 1.16| 1.11| | 1.71| 1.63| 1.66| Debt/Equity Ratio (%)| 1.23| 1.20| 1.19| | 1.82| 1.90| 2.22| Gross Profit Margin (%)| 12.6%| 12.8%| 12.7%| | 30.9%| 30.3%| 32%| Net Profit Margin (%)| 1.64%| 1.67%| 1.52%| | 4.33%| 3.81%| 3.41%| Activity Ratio (Your choice) Inventory Turnover| 12.67| 12.31| 11.94| | 6.31| 6.57| 1.55| Revenue Growth (%)| 14.07%| 9.13%| -1.46%| | 3.11%| .63%| 2.50%| S,G&A/Revenue(%)| 9.82%| 10.09%| 10.21%| | 19.99%| 20.01%| 22.42%|

Based on the financial ratios that are calculated above, Target is more liquid, leveraged, and profitable because they have a higher current ratio compared to Costco, a higher debt/equity ratio than Costco, and a higher gross margin and net profit percentage than Costco. Costco has better revenue growth over the three years. They took a minor hit in 2009 due to the recession, but increased their revenue dramatically in 2010 and increased it more in 2011. Target has positive growth in all three years; however, their revenue growth fell in 2010 and did not even increase as much revenue as Costco. Costco has better control of their S,G&A over the three years. Costco’s is lower than Target’s and they’re able to steadily decrease their S,G&A% of revenue over the course of three years. Target has a better leverage trend over the three years than Costco. Target is slightly highly leveraged then Costco; however, Target is decreasing their Debt/Equity ratio steadily over the three year period, while Costco’s Debt/Ratio increases over the three year period.

Determining whether Costco or Target is financially “healthier” than the other in the three-year period presents some difficulty because both firms are in very stable conditions and are performing in different areas better than the other. Both companies have been around in the retail industry for many years and are making great strides in becoming leaders in their highly competitive market. Not to say that one is better than the other, but if I had to pick one over the other in terms of being financially “healthier” I would have to go with Target.

When assessing liquidity ratios, Target wins because they have a higher current ratio than Costco in every year over the three-year period. This means that Target has the ability to pay off short-term debts more quickly than Costco. There is more cash, cash equivalents, and account receivables on-hand than current liabilities, which is a result of both companies having a positive number for all three years for both companies. Both companies are performing well in terms of being able to pay off short-term debts since all their numbers are greater than one, but Target has the edge because their current ratio is a lot higher than Costco’s.

Even though Target has a higher Debt/Equity ratio over the three year period, as a company, they are making great strides in significantly decreasing their amount of leverage. On the other hand, Costco’s Debt/Equity ratio is a lot lower than Target’s, but their Debt/Equity ratio is increasing every year. I also think that Target’s higher leverage is not necessarily such a bad thing. As shown by their profitability ratios, Target is performing financially well and having debt could be a sign of future growth because the company will need money is order to expand into more markets, open new stores, buy new assets, hire more employees, advertise more, etc. If Target is able to use their debt effectively, having more debt at the moment will benefit them more in the long-run then Costco. Also, by decreasing their Debt/Equity ratio, Target is lowering the amount of interest that needs to be paid to creditors for the borrowing of funds. Costco would actually be increasing their interest expense because their debt is increasing.

From a profitability standpoint, Target has almost an 18% higher Gross Profit Margin percentage than Costco in all three years. Both firms’ Gross Profit Margin remains fairly stable around the same percentage over the three year period, but it is an enormous advantage for Target to make about 30% markup on selling their products alone. Not only is Target’s Gross Profit Margin percentage higher, but their net profit margin percentage is almost 3% higher in each year over the three year period than Costco. This after-tax income allows Target to have the potential to pay a lot more dividends to their Stockholders than Costco, which enables Target to achieve a primary goal of any company, which will increase the wealth of their shareholders. A higher net income gives Target an advantage over Costco to pay out more dividends.

Costco does have an advantage over Target in terms of having a higher Inventory Turnover ratio each year, dramatically increasing their revenue, especially in 2010 and 2011, and having a lower S,G&A/Revenue percentage. However, that’s not to say that Target’s numbers are bad. Costco is better at turning over their inventory throughout every year, where the increases can be seen in the increases in revenue growth throughout the three year period. Costco being able to sell more inventories will only increase sales. Target’s inventory turnover ratio is consistent. They were able to have a 5% increase in 2010 and remained around the same in 2011 and can always improve upon this number.

Like their inventory turnover ratio, Target’s revenue growth percentage is consistent. It’s positive in every year over the three year period, but doesn’t have the big jumps that Costco did in 2010 and 2011. It’s good to notice that Target’s revenue growth wasn’t that affected in 2009 by the recession that hurt many companies in the retail industry. I think that consistency is better in this category and gives Target an advantage in the long-run because it would really be hard for Costco to have dramatic revenue growth increases in years to come, but it gives Costco the edge in the present.

While looking at each companies S,G&A/Revenue percentage, both companies are making the right improvements in this category for the ratio decreases consistently each year. Costco wins this category because their S,G&A/Revenue percentage is a lot lower than Target’s. Target is doing well in the fact that it’s decreasing each year, but their S,G&A/Revenue percentage is only higher because they have a lot more profitability than Costco, which means that they’re selling more products as a whole. If there are more products to sell then there has to be more administrative expenses to operate their business.

In conclusion, both companies are indeed financially “healthy,” but Target wins in comparing the two companies. As a whole, I thought that Target had more consistency in some categories and just plain better numbers in other categories. It’ll definitely be interesting how their 2012 numbers compare to the trends their having at the current moment. Options

When assessing the external factors that affect the retail industry, Costco’s strengths, weaknesses, opportunities, and threats, and Costco’s financial situation, there are three main options that the firm has the capability to implement moving forward. The options are offering more customer service in their warehouses, increase online retail sales, and acquire other retail stores for expansion and growth. All of these options are relevant to the issues facing the retail industry and will enable Costco to have a greater competitive advantage over other retail stores.

The first option that Costco has moving forward is to offer more customer service to their customers shopping in the warehouses. Costco displays numerous products in bulk and on pallets in their warehouses and this could serve as an inconvenience to some of their customers, especially to older customers who might have trouble getting to or lifting the products. To avoid these kinds of discrepancies and provide the maximum amount of customer service to their customers, Costco should increase the amount of personnel that they have on their warehouse floors. Customer service will not only be available at the front desk of the store, but it will now be available throughout the warehouse, which will provide customers with the greatest amount of assistance and will lead to better customer satisfaction and strengthen customer loyalty. Costco does have the right skill set to implement this plan because their employees are well qualified and trained to assist customer’s needs. They could hire more personnel in their stores to make this a full or part-time job for some employees and it could be implemented in their stores rather quickly, so time would not be a factor in this option.

The second option that Costco has is to increase the online retail sales. Online-retailing is becoming the industry’s most popular trend. According to Forrester Research, e-commerce sales in the U.S. will keep growing at a 10 percent compound annual growth rate through 2014. It forecasts online retail sales in the U.S. will be nearly $250 billion, up from $155 billion in 2009. Last year, online retail sales were up 11 percent, compared to 2.5 percent for all retail sales. (techcrunch.com) On the company website, Costco has done a very good job so far at directing customers how to shop online, which makes shopping at Costco very convenient and less time consuming. However, in order to become a more effective leader in online retailing, Costco has to take a variety of measures, mainly advertising techniques, to increase their market share on the e-commerce market.

This could be done by making some changes to their website. Costco could reposition their opt-in offer to boost their opt-ins and build a bigger list of loyal subscribers. This is possible by gathering customers’ e-mail addresses and building an e-mail list, which allows Costco to regularly keep in touch with subscribers, build relationships of trust and loyalty, and sell them products or services. (www.entrepreneur.com) Costco could also add impact to their promotions with hover ads and feature different benefits with their headlines. They need to instill a sense of urgency in their website and convince readers they need to buy now, they need remove any references to “buying” from the top fold, and boost their product’s desirability by adding images. All of these changes that could be made to the website will enhance Costco’s credibility with online retailing and increase their market share of e-commerce sales. These changes could be made in a timely order to their website and Costco has enough money to cover these implementation costs.

Costco’s third option moving forward is to acquire other retail stores that will lead to the company’s expansion and growth. Costco currently does not have any stores in Arkansas, Louisiana, Mississippi, Maine, Wyoming, West Virginia, North Dakota, or South Dakota. 148 of their 429 locations are in either California or Washington. Also, Costco does not have any sort of European presence besides 22 in the United Kingdom. Costco could have the option of expanding to the regions in the United States where they do not have any warehouses and expand into Europe by acquiring other retail chains or building new warehouses. This will ultimately allow Costco to expand in other markets and grow more profitable as a company. Costco is financially stable to take on this project because of their consistency of increasing their revenues and assets and their current debt position. Costco will have to take on a lot of debt or issue some more stock to fund for this project, but the debt and equity they acquire will pay off because of the opportunities that wait. Costco does have the skill set for this project, but time will be the only issue since it takes a long time to plan and build a project of this magnitude. Recommendations

The two recommendations that management for Costco Wholesale Corporation should adopt are to lower membership costs and expand their operations in United States and internationally by either acquiring stores from other retail chains or building new warehouses. If management were to choose to implement one or both of these recommendations, Costco will become more competitive and profitable over time. These recommendations would not be easy to implement and would take some time, but it will bring new opportunities for one the retail industry’s leaders.

For the first recommendation, if Costco were to decrease the amount it costs to become a club member there would be an increase number of individuals who would want to become a club member at Costco. Having to pay an annual fee just to shop at a store may seem to a drawback to some people. Since Costco is a wholesale corporation, only club members are allowed to shop at the store. There are three levels of membership: Business, Gold Star (individual), and Executive membership, which has either a $55 or $110 fee.(costco.com) Each membership level entitles each customer to the low cost of Costco’s products, with many options to buy products in bulk that saves more money. Even though Costco makes around $1.8 billion annually from card membership fees, that number will increase if Costco were to decrease the prices of the membership fees by a small amount because more people would be attracted to a lower price. Costco would be able to become more profitable over time with implementing this recommendation because if more people are to become members because of the decrease in membership price then revenue will ultimately increase.

For the second recommendation, if Costco were to expand in the regions of the United States, Europe, and Asia where they do not have a presence they will be able to increase their market share, which will lead to them having a greater competitive advantage for other retailers and it will allow for greater profitability. Costco can expand in these areas by either acquiring other retail stores, such as BJ’s, Aldi, etc. or by building new warehouses. Expanding into the states of Arkansas, Louisiana, Mississippi, Maine, Wyoming, West Virginia, North Dakota, and South Dakota, as well as other areas of the country besides the west coast give Costco are larger market share in the United States. Expanding in other areas of Europe outside the United Kingdom will give them a larger European market share, as well as more brand recognition. Lastly, Costco has an emerging Asian market in the many of the countries of Southeast Asia. Costco needs to expand into the up-and-coming economies of China and India, as well as emerge as a primary retailer in Japan. All of these expansions would lead to an increase Asian market share. With the implementation of these two recommendations, Costco will see increased results of competitiveness and profitability.

Works Cited

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