SWOT Analysis of Costco 2021


NameCostco Wholesale Corporation (COST)
Industry Wholesale Retailing 
Founded1983
HeadquartersIssaquah, Washington, USA. 
CEOW. Craig Jelink
Revenues$178.6 Billion (2021)
Profit $ 5.01 billion (2021)
Competitors Walmart, Target, Amazon, BJ’s Wholesale Club, Home Depot, The Kroger Co. 


Company Overview

Costco Wholesale Corp. is one of the leading warehouse clubs headquartered in the Issaquah region of Washington state in the USA. Costco also has its operations in Canada, Australia, UK, Japan, South Korea, Taiwan, and Mexico. The company engages in a wholesale retailing industry, offering products ranging from groceries to home electronics, clothes, etc. With its business model of membership warehouses, the company has managed to sell items in bulk at sustainably discounted rates to its members, who are liable to annual subscription fees. The low-cost leadership model has made Costco rank at 10th position among the global top regarded companies in 2019 (Murphy, 2019). Let’s now go over the SWOT Analysis.


Costco Strengths 2021:

  • Warehouse Club Model.

    Costco has introduced a unique business model that is different from its competitors, whereby the customer has to be a member or own a Costco membership card to buy from them. This way, the company charges its customers an annual membership subscription of $60 (Costco Wholesale, 2021). As of the current year, according to industry reports, Costco only has Walmart as competition in the context of the warehouse club business model, with a stable market share of 22.5% (Daly, 2021). 
  • Low-Cost Leadership Model.

    Costco applies the low-price strategy, which has helped the company strengthen its position as a retail giant in the industry. The company focuses on stocking high-quality products and selling them in bulk at low prices. For example, the company has not changed the price of its beef hot dog and a 590 ml drink deal for $1.5 in 34 years (Pomranz, 2020). As per inflation, economists say that the price should be $3.65 today. However, Costco has not budged. The company also earns the least average mark-up of 11% compared to its competitors Walmart who earns 24%, and Home Depot, 35% (Gabler, 2016)

  • Retaining Loyal Customers.

    Based on Costco’s pricing strategy and business model of membership, the company is able to retain its customers and build a loyal customer base. In 2020 this customer base constituted 105 million cardholders, as shown in the figure below (Statista, 2021a). 
  • Higher Profits through Less Advertising.

    Costco is known for allotting no budgets to advertising. Compared to Walmart’s and Target’s advertising budget in billion, this shows that the company saves billions and redirects its profit into internal operations (Taylor, 2019). In an interview in 2013, the founder of Costco explained how advertising is evil, and they instead rely on other branding strategies (Byrnes, 2013). The company has been consistent ever since. 

  • Ideal Employers are leading to Low Turnover Rate.

    Since the company does not spend on its advertising, it leverages the profits to pay high wages to its employees. Keeping a happy workforce strengthens the company’s customer service position. High wage coupled with other perks that Costco provides to its employees, such as paid time off for vacation and 401(K) stock options, makes the company the 4th best Employer in America and 13th best in Canada (Forbes, 2021). 

Costco Weaknesses 2021:

  • Next to No Advertising.

    Since Costco is now operating among other countries, having no advertising or marketing strategy in place might harm company profits. Less advertising will lead to a lack of brand awareness in regions besides the USA and Canada, making it difficult for Costco to have a high customer base globally. 

  • Limited Global Presence.

    As per the previous point, Costco’s revenue and profits rely on USA and Canadian markets, i.e., 80%. Out of the 782 warehouses in the world, the brand has more than half of them located in America and Canada alone (Statista, 2021b). This makes the company dependent on only two regions, whereas others have a restricted presence. 

  • Transport Cost on Customers.

    Since Costco only enables bulk purchasing, it often involves the hassle of transportation, especially for customers coming from urban areas or cities. Hence to tackle such problems, companies like Amazon or other e-commerce platforms provide free delivery services, outnumbering the benefits Costco gives to its cardholders. 

  • Restricted Target Market in Terms of Age.

    Costco has targeted chiefly people living in suburbs who prefer to buy groceries in bulk (Kunst, 2019). Therefore, the store’s e-commerce platform is not commonly used and has limited facilities among its members as older people are still new to this type of shopping. Whereas, majority of the younger population prefers online shopping and groceries to be delivered at home.  Hence Costco’s ageing customer base might make the company outdated among other age groups (Nijjar, 2016). 

Costco Opportunities 2021:

  • Target Different Customer Demographics.

    The fact that Costco has an ageing customer base concerns future projects of the company’s profit. Consequently, there is room to cater to younger adults via facilitating e-commerce shopping.This way, the company has numerous opportunities to invest more in its online platform and make it accessible for all age groups (Wang and Xu, 2017). 

  • Digital Marketing.

    Given the consumer behaviour during the Covid-19 pandemic, social media presence has increased. Small scale or multinationals are all present on either Instagram, Facebook, Twitter, or YouTube (Zoe, 2020). This gives Costco a chance to market its services cost-efficiently and attract customers in regions where the operations are less popular, such as the UK, Australia, Japan, etc. Further marketing through digital platforms will also help Costco reach a new target market for the younger aged population. 

Costco Threats 2021:

  • Aggressive Competition.

    Costco has aggressive competition from global giants of wholesale and retailing such as Amazon and Walmart. The online growth of these platforms is a point of concern for Costco, considering the company is still in its infancy when it comes to e-commerce. Reports show that Walmart has a market share of 68.1%, whereas Costco only covers 22.5% of the US market (Daly, 2021). 
  • Decrease in Per Capita Disposable Income of Customers.

    Aside from competition coming from online and other retailers, Costco’s revenue might also be impacted by a reduction in disposable income. By the end of 2021, disposable incomes are expected to decrease, making consumers spend less per trip to warehouse clubs and supercentres (Daly, 2021). 

  • Data Security Issues.

    The company has hired third-party cloud computing services to maintain and protect its customer data. This makes customer data and personal bank details vulnerable to attacks and privacy breaches (Upguard, 2021). Given that the company’s revenue generates from members-only customers, any data loss of customer identity might cost Costco a fortune in terms of profitability and reputation. 

Costco SWOT Analysis Conclusion 2021:

Drawing on the SWOT analysis, it should be noticed that Costco Wholesale Corporation has been a major player for a very long time now. With its unique business model, the company has been able to stand out. However, given the internal weaknesses of not catering to the younger population and limited budget allotted for advertising can hinder the growth and revenue of the company. Further aggressive competition coming from online and brick-and-mortar wholesale giants like Walmart and Amazon can further increase problems for Costco if the management does not respond to the changing consumer behavior quickly. 



References:

  1. Byrnes, B. (2013). An Interview with Jim Sinegal, Co-Founder of Costco. The Motley Fool. 
  2. Costco Wholesale. (2021). What is the difference between each type of membership? Costco Wholesale. 
  3. Daly, J. (2021). Warehouse Clubs & Supercentres in the US. IBIS World. 
  4. Forbes. (2021). Costco Wholesale Corporation. Forbes. 
  5. Gabler, N. (2016). Inside Costco: The Magic in the Warehouse. Fortune. 
  6. Kunst, A. (2019). People who Shopped at Costco in the United States in 2018, by Age. Statista. 
  7. Murphy, A. (2019). The World’s Best Regarded Companies. Forbes. 
  8. Nijjar, P. (2016). The Future of Costco Depends on these 3 Factors. The Motley Fool. 
  9. Pomranz, M. (2020). Why Is Costco’s Hot Dog Combo Still So Cheap? A Death Threat. Food & Wine. 
  10. Statista. (2021). Costco: Memberships Worldwide 2014-2020. Statista Research Department. 
  11. Statista. (2021b). Costco: Number of Warehouses 2020, by country. Statista. 
  12. Taylor, K. (2019). Costco has a brilliant strategy that allows it to get great press, save money and pay workers $15 per hour. Business Insider. 
  13. UpGuard. (2021). Costco Wholesale. Up Guard.   
  14. Wang, R and Xu, E. (2017). Costco: Breaking Down the Bulk. IVEY Business Review.
  15. Zoe. (2020). How COVID-19 has Changed the Digital Marketing and Advertising Landscape. Innovation Visual. 

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