SWOT Analysis of Costco – 2023
Before start of the SWOT Analysis of Costco lets get a brief intro of the company. Costco is a big company in the United States that runs special stores where you need a membership to shop. They sell a lot of different things, like meat, chicken, healthy food, and wine. In 2022, they were the 5th biggest store in the world. They also made a lot of money and were 11th on a list of big companies in the United States. Costco’s main office is in Issaquah, Washington, near Seattle. But their own brand, called Kirkland Signature, still reminds people of their old place in Kirkland.
Company Name: Costco
Founders: James Sinegal, Jeffery H. Brotman
Founded: 15th September 1983
Headquarters: Issaquah, Washington, United States
President: Ron Vachris
CEO: W. Craig Jelinek (Jan 01, 2012-)
Type: Discount stores
Sector: Lifestyle and retail
Tagline: “Do the right thing”
Unique Selling Proposition (USP): Costco is a cheap store with lots of different things to buy.
Customers: Customers who want to buy everyday items they use.
Target Consumers: Families and individuals
Revenue: $226.954 billion USD (2022)
Net Income: 5.844 billion USD (2022)
Now, you know every important thing about the company. Let’s start its SWOT analysis of Costco.
Strengths of Costco | SWOT Analysis of Costco
Cost-effective
Costco is really good at offering low prices because they sell good stuff in big quantities at small profits. They want people to think of them as a place with great quality and cheap prices. For example, they don’t make as much extra money on their products as Home Depot or Walmart do.
Membership-based Model
Costco does things a bit differently than most stores. They ask customers to pay $60 each year to become a member. Only people who have paid this fee can shop at their stores.
Loyal Consumers
Costco has a lot of customers who really like and stick with them. In 2019, they had 5 million cardholders worldwide, and more and more people are becoming members each year. In the same year, almost everyone who had a membership renewed it, with a 91% renewal rate in the US and 88% in Canada.
Intelligent Spending on Marketing
Costco doesn’t set aside money for advertising. When you compare it to Walmart, which spent $2.9 billion, and Target, which spent $1.4 billion on ads in 2018, you see a big difference. In an interview, Jim Sinegal, one of the founders and former CEO of Costco, said that advertising is a bad thing because it costs a lot of money, and that would make things more expensive for both the brand and its users.
Give Customers Lower Prices
Costco stays ahead of the competition by keeping its costs down. This means they don’t have to make a lot of money from each sale, which helps customers save money when they shop there.
Top-Notch Products
Costco believes in giving its members really good stuff at the best prices. They get this quality by making deals and buying directly from the makers. Costco’s plan is to make sure people see their products and services as top-notch, which keeps customers coming back for more.
Well-Paying Jobs in Stores
Costco has made its workers happy and loyal by giving them the best pay and benefits compared to other companies. They pay a minimum of $15 per hour, which helps them hire really skilled employees. This strategy has also made big stores like Target and Walmart increase their employees’ pay.
Giving Employees Extra Perks and Benefits
Costco gives its employees really good benefits. This includes dental and health insurance for workers. They also have a special savings plan called a 401(K). Costco workers also get to do more important things at their jobs, which makes them really motivated and content.
Low Turnover Rate
When the employees are happy and don’t leave their jobs often, it makes customers happier too. At Costco, not many employees quit, which is really good because it’s much lower than the usual rate in retail stores.
Best Employer in America
According to Forbes, Costco has been among the top 5 best companies for many years in a row. In 2017, it was ranked as the best; in 2019, it’s in the 4th spot.
Robust Distribution System
Costco has expanded its stores all over the world and in the United States because it has a really good way of getting products to its stores. In 2019, Costco had 782 warehouses in countries like the United States, Iceland, Taiwan, Spain, South Korea, Mexico, France, China, and Japan.
Biggest Pizza Chain
Costco is a pretty big pizza place in the United States. They have more than 700 places where you can eat, and they’re superior to California Pizza Kitchen.
Weaknesses of Costco | SWOT Analysis of Costco
Limited Products
When shopping at Costco, you can find many different things like jewelry, TVs, toys, furniture, and clothes. But they don’t have as many different types of each thing compared to other big stores. On average, a Costco store has about 3,700 different types of products, while Walmart has 150,000, and Target has 80,000.
Transportation Expenses
When you buy a lot of things at once, it can be hard to get them home, especially if you live in a city. With Costco, you might have to pay more for transportation compared to online stores like Amazon and Walmart’s Jet.com, which sometimes offer free or cheaper shipping. This is something Costco isn’t very good at.
Serve A Smaller Group of Customers
Because Costco doesn’t have as many different products, it can’t bring in as many customers who want a lot of choices in smaller amounts.
Limited Global Presence and Reliance on Particular Markets
Even though Costco has many stores worldwide, most of them are in the US and Canada. These two countries also make up 80% of Costco’s money. Of all the 782 Costco stores, 543 are in the US and 100 are in Canada. This shows that Costco isn’t really everywhere in the world.
Aging Consumer Base
Costco is facing a problem with its customer base. Most people who shop there live in the suburbs, have cars, and like to buy many things at once. This is because Costco doesn’t do much advertising online and doesn’t sell a lot of stuff on the internet. In busy cities, younger people prefer to shop quickly at local stores or online and have their items delivered to them.
Costco doesn’t have a big online store, so they can’t attract many younger customers. According to some numbers from Evercore ISI, the average age of a Costco customer is about 50, while other companies think it’s between 40 and 45. This is a problem because there are not as many older customers as there are younger ones. Costco has been trying to get more young people to shop there by selling organic and eco-friendly products.
R&D
Costco invests money in research, but it’s not as much as the big companies in the retail industry. Because of this, some of Costco’s competitors have been able to come up with new and better products and make their customers happier.
Late Adoption of Ecommerce
Costco has been taking its time to get into online shopping, and it’s slower than the retail industry. In the second quarter of 2020, more than 20% of retail sales came from online shopping, which is nearly three times higher than Costco’s 7% online sales. In today’s digital world, this slow move into online shopping makes it hard for Costco to get younger customers who like to shop quickly online.
Not Doing A Good Job with Curbside Pickup
In 2020, a survey found that 25.5 million families used a service where they could order grocery items online and collect them at the store without going inside. This was a big trend in 2020, and it helped stores like Walmart make a lot more money. But Costco didn’t do this, and it’s a problem because people now like to order online and get their groceries without going into the store, and Costco is missing out on this.
Opportunities for Costco | SWOT Analysis of Costco
Online Presence
More and more people are using the internet to shop online, and Costco can take advantage of this opportunity by improving its online shopping. In 2019, only 4% of Costco’s money came from online sales. But in the third and fourth quarters of 2020, Costco worked on improving its online store because more people were shopping online. During these times, Costco’s online sales went up a lot.
During the year ending in August 2020, their online sales grew by 49.5%, which is a big improvement compared to just 7.9% growth in 2019 and 9.7% in 2018. Costco still has a chance to improve its online store and attract more customers who don’t want to shop in physical stores because of health issues.
Digital Marketing
Many people use social media, like Facebook and Twitter, daily. For example, Facebook has 63 billion users, and Twitter has 126 million users who use it every day. This is a good chance for Costco to tell more people about their membership using digital social media ads. Right now, Costco doesn’t use Twitter at all, but they have 2.15 million likes on Facebook. Costco can use social media to show off their products and services to more people. They’ve already opened one store in Shanghai and plan to open another in 2020. This is a big opportunity for them to grow in China because a lot of people there need things like food and other important stuff.
International Reach
Costco can start selling in new places, like China, and keep building more of its big stores. This is a big chance for the company to gain international exposure.
Health-Conscious Consumers
More and more people in the USA and around the world are thinking about being healthy. This means that Costco can offer and talk about healthy food options in its grocery area and food courts.
Tax Policy
The US government lowering taxes is good for Costco because they have to pay less in taxes, and they can use the money they save to grow and expand.
Transport Sector
Transportation companies are using smarter ways to move things by combining shipments. This makes it cheaper to move stuff, and it can help Costco save more money on its operations.
Uncertainties in Supply Network
While the health emergency is a problem for many businesses, those that sell essential things are in a good position to help people and make more money. Because people were worried about not having enough of these important things, they shopped a lot at Costco, and this helped Costco make more money. In the second quarter of 2020, Costco’s total revenue went up by more than 10% to $39.07 billion, and its profit also increased by 6.25% to $816 million. Costco can keep taking advantage of this situation to make more money in the short term.
Acquisitions
Costco can grow by getting into other businesses like delivery services. They can do this by buying small or medium companies that are already doing this. In 2020, Costco bought an Innovel Solutions company for $1 billion. Innovel has already working with Costco since 2015, and now that Costco owns it, they can make more money by delivering things for stores like Sears and other companies.
Change Purchase Options
Other stores like Whole Foods, Kroger, and Sam’s Club have made more money by letting customers pick up their groceries without getting out of the car. Experts think this is going to be popular for a long time. Costco can also make more money from groceries if they start doing this because it’s what people want and it’s convenient.
Covid-19’s Impact
While the virus is causing problems for many businesses because it’s making it hard to get products, it’s actually helping Costco right now. People are buying many more things like cleaning, food, toilet paper, water, and medicine because they’re worried there won’t be enough. According to Forbes, at the end of February, Costco’s sales increased by about 20%.
Threats to Costco | SWOT Analysis of Costco
Brand Image
Having to take back a product can be really scary because it doesn’t just cost money, it can also hurt how people think about the company. When a company’s reputation is damaged, it’s hard to fix. In the retail business, what people think about the brand is super important for how well it does over a long time. In 2015, Costco had a problem: they had to remove all the rotisserie chicken salad from their stores because some people got sick from E. Coli. This made a lot of people think differently about Costco, and it hurt their reputation a lot.
Controversies
Costco made a mistake when they put the Bible in the section for fiction books. A lot of people got upset about it because they didn’t think the Bible was fiction, and this became a big story on the internet. Costco said sorry and sent an email to Fox News. They also moved the Bible out of the fiction section.
Security
Costco collects and gives its customers’ and employees’ information, like their bank information for cashless payments, to another company that stores it safely in the cloud. But if this information goes into the wrong hands, it might cause a lot of trouble.
Political Issues
Costco has stores in different countries worldwide, which means they can face political issues in those countries.
Adoption of New Technologies
The world is changing, and most people like to shop using their smartphones now. Other companies are using new technology to sell things, and this is a big problem for Costco. People want to buy online and need things delivered to their desired places or homes, but Costco hasn’t been doing a good job with online shopping. This could be a big problem for them in the future.
Pricing War
Making things doesn’t cost as much as it used to, and big stores are finding ways to spend less money on running their businesses. This has made them compete a lot on prices, which is a problem for Costco.
Lower Sales
When the economy is not doing well, it can hurt all businesses, including Costco. When the economy is not good, it can mean that stores like Costco sell less.
Fluctuating Exchange Rates
When the value of money from different countries goes up and down, it can really impact stores that do business in different countries.
Stiff Competition
Amazon and Walmart are fierce competitors who keep trying to do better. Walmart is the biggest retail company globally, making a lot of money every year. They’ve been buying online shopping websites like Flipkart, Shoes.com, ModCloth, Bonobos, Moosejaw, and Jet.com. Amazon is the biggest online store.
Counterfeit Products
Costco got into trouble because they were selling a ring that looked exactly like Tiffany’s famous engagement ring. The court decided that Costco had to pay Tiffany & Co. almost $20 million. This might make some people not trust Costco when it comes to buying expensive jewelry and famous brands, thinking they might be selling fake stuff.
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