If you are after a detailed SWOT analysis of Costco’s business that identifies the company’s strengths, weaknesses, opportunities, and threats, you may be unsure where to locate the information.
However, listed below is a thorough analysis of Costco’s SWOT, so if you’d like to learn more, keep reading to see what I discovered!
What is Costco’s SWOT Analysis In 2022?
Costco’s SWOT analysis finds the company’s strengths in maintaining the membership-only business model resulting in customer loyalty. However, the analysis also reveals the company’s weaknesses in offering a limited selection of goods and maintaining a “no-advertisement” policy in2022. Additionally, the SWOT analysis presents opportunities in e-commerce despite threats of competition and damaged brand reputations.
If you’d like more information on Costco’s SWOT analysis, including its strengths, weaknesses, opportunities, and threats, keep reading for more interesting facts!
What are the Strengths of Costco?
Costco’s strength comprises internal factors that help the general growth and success of the company.
Costco’s strengths include the following:
- Low price strategy
- Members-only business model
- Management of operational costs
- Loyal customer base
- Strong supply chain and distribution
- High-quality products
- High wages to employees
1. Low Price Strategy
Costco maintains a cost-leadership strategy to offer customers a variety of products at discounted prices.
The company adopts a strategy in which items are sold in bulk at low-profit margins to maximize customer satisfaction. According to Fortune, Costco’s profit margin is 11%, compared to 35% at Home Depot and 24% at Walmart.
As a result, the firm holds a reputation for high quality at low-priced items sold at wholesale prices.
2. Members-Only Business Model
The membership-only business model by Costco has been one of the company’s significant strengths.
The store requires members to purchase a membership to shop at Costco, an idea that makes most customers feel exceptional when shopping.
Most customers often feel like they’re part of an elite group by being members of Costco due to the exclusivity and private product selection. As a result, Costco works hard to maintain customer loyalty, commitment, and satisfaction.
3. Management of Operational Costs
Costco maintains low operational costs by purchasing products in bulk quantities to transfer the benefits of low prices to the customers.
Ideally, bulk purchasing helps Costco get products at discounted prices and can therefore sell items at competitive prices.
Costco is also known for having no budget for advertising to save money and redirect the profit to internal operations.
In 2013, Costco’s founder regarded advertising to be “evil” due to the high costs and stated how the company relies on alternative branding strategies.
4. Loyal Customer Base
Costco’s membership model has helped the company gain and retains customers who have to renew their membership with Costco.
As such, Costco has managed to build itself a large, devoted, and loyal customer base over the years. In fact, Costco has registered approximately $105.5 million cardholders, a figure that has been increasing annually.
5. Strong Supply Chain and Distribution
Among Costco’s greatest assets is that the company has built itself a supply chain and distribution center.
As one of the major retail chain stores in the world, Costco operates 804 stores spread in the US, Mexico, Canada, the UK, South Korea, Japan, Australia, Taiwan, Iceland, Spain, France, and China.
The strong supply chain and distribution system help the company maintain a global network with smooth business operations.
6. High-Quality Products
In a bid to retain its customers, Costco is always keen on retailing high-quality products and maintaining their prices at competitive prices.
The company ensures that they obtain goods directly from manufacturers to maintain the original quality of the products.
Additionally, Costco is committed to establishing and maintaining a good perception to enhance customer loyalty.
7. High Wages for Employees
Costco has managed to create a happy and motivated task force by offering staff a good wage as well as certain incentives.
Currently, the company sets its minimum wage at $17 per hour, above what most competitors offer their employees.
Furthermore, Costco is known to offer generous perks and benefits to its employees.
These benefits include full health and dental insurance for all employees and paid time off (PTO) for vacation, stock income, and personal income.
As a result, Costco’s turnover rates are extremely low while employee productivity is high.
What are the Weaknesses of Costco?
Costco’s weaknesses reveal internal forces or factors that limit the business’s full potential. The weaknesses imply direct effects on the business strategy, capabilities, developments as well as profit margins.
Below are some of Costco’s weaknesses:
- A limited selection of goods
- Limited global presence
- No advertising
- Reputational effects of recalls
- Restricted target market
- Expenses on transportation
In order to understand how these weaknesses affect Costco as a business, we’ll explore them in more detail below:
1. Limited Selection Of Goods
One of Costco’s major weaknesses is that it provides a limited selection of goods across all categories.
This lack of variation provides fewer options, limiting customers’ preferences, meaning they may decide to shop elsewhere to explore different products and brands.
For instance, Costco stores may have approximately 4,000 different products, while Walmart stores have over 50,000 different products, making Walmart a preferred shopping destination.
2. Limited Global Presence
Costco has a limited global presence, with 80% of the total number of stores located in the US and Canada.
Although the company has ventured into foreign markets, Costco doesn’t have a notable global presence, making it easier for competitors to emerge in unexploited markets.
Efforts to increase the company’s footprints would go a long way toward expanding the company’s market share and profitability.
3. No Advertising
Costco’s policy of no advertising affects the visibility of the company. Since Costco is venturing into foreign markets, having no marketing or advertising strategy in place may affect the company’s profits.
Less advertising leads to less brand awareness, especially in markets outside Canada and the US, making it difficult for the company to penetrate new markets.
4. Reputational Effects of Recalls
Costco’s reputation is greatly affected by product recalls. These recalls jeopardize the company’s reputation and affect sales as well as company profits.
Most customers often raise health concerns over recalls and some may decide to shop at other stores if they feel unsafe with products at Costco.
5. Restricted Target Market
A majority of Costco’s customer base are older customers who live in the suburbs, buy items in bulk, and own vehicles.
As a result, Costco has an aging client base without strategies to appeal to younger consumers, making its customer segment a concern.
The customer segment is mainly attributed to the lack of advertising and the limited e-commerce presence.
Since younger populations may prefer quick shopping at local stores and through e-commerce websites, Costco is unable to attract younger customers.
6. Expenses for Transportation
While Costco may offer customers bulk products at discounted prices, customers may need to pay additional transportation costs for delivery requests.
For this reason, most customers often prefer shopping on platforms like Walmart and Amazon, where they may get free or discounted shipping in addition to fair pricing.
What Opportunities are Available at Costco?
Costco’s opportunities combine both internal and external factors that have been unexploited in the improvements and growth of the business.
As such, indulging in these factors may lead to exponential growth and improvement in the company’s commerce activities.
Below are some of the opportunities available for Costco:
- New ventures into e-commerce
- Enhancing transportation systems
- Targeting customers in different demographics
- Global expansion
- Healthy trends
- Investing in digital marketing
- Adopting flexible purchase options
1. New Ventures Into E-Commerce
Since the recent past has witnessed a sudden surge of online shopping, Costco would significantly benefit by increasing its online footprint.
Costco has the potential to grow bigger in online retailing since the company has already built itself a good reputation among consumers.
While the company has established an online platform, it still needs to increase its online business to boost e-commerce operations, which will attract customers who may be reluctant to shop in-store.
2. Enhancing Transportation Systems
Costco would increase company profits if they ventured into the business of offering additional services for transportation and shipping.
By taking advantage of these methods, more customers would find convenience in shopping for items in bulk.
Furthermore, the company could adopt smart technologies to consolidate shipping operations and further help the company saves more money.
3. Targeting Customers in Different Demographics
Since Costco has an aging customer base, the company profits based on future projects may be a huge risk.
To secure the success of future projects, the company can expand its customer demographics and make room for younger individuals, therefore presenting an opportunity to invest in more strategies that make Costco accessible for all age groups.
4. Global Expansion
Costco could consider entering into newer markets, especially the world’s largest consumer markets such as India, China, and other Asian countries.
Although Costco has set up stores outside the US, there is still great potential in markets internationally.
The global expansion strategies could explore more collaboration and acquisition options to introduce the company to new international markets.
5. Healthy Trends
The awareness spreading for healthy food options presents an excellent opportunity for Costco to deliver more nutritious options for its consumers.
Since a large number of consumers are becoming more health-conscious, Costco can take advantage of the healthy trends by promoting healthy alternatives in its grocery sections and food courts.
6. Investing in Digital Marketing
According to recent research, the populations of individuals using social networking sites keep increasing day after day.
This implies that Costco has the opportunity to increase its brand visibility among the younger population through digital marketing.
Costco can promote its products and services through different social media platforms and create a long-term growth strategy based on products and services that attract more attention.
7. Adopt Flexible Purchase Options
Costco could adopt flexible purchase options used by most competitors to attract more customers.
For instance, Costco’s rivals such as Whole Foods, Kroger, and Sam’s Club have significantly grown their sales by offering curbside pickup options to their customers.
Therefore, with more customers warming up to the curbside offering, analysts believe that Costco has the opportunity to increase its grocery profits by offering a curbside pickup option.
What are Costco’s Threats?
Costco’s threats comprise all factors that may diminish company operations within the retail industry.
Costco’s threats include the following factors:
- Brand reputation
- Controversial Claims
- Aggressive Competition
- Fake products
- Data Security Concerns
1. Brand Reputation
Costco’s brand reputation has been affected due to product recalls. In 2015, the company was affected when its rotisserie chicken salad was recalled from all its stores following an outbreak of E. Coli toxin, which negatively affected 19 people.
As of 2022 the damaging effect on the company’s reputation and the loss of revenue has made it difficult for the company to get back on track.
2. Controversial Claims
Costco faced a lot of controversial claims for placing the Bible under the fiction book racket. The act offended a lot of people, forcing the company to send a public apology via Fox News and consequently reposition the placement of the Bible in its stores.
3. Aggressive Competition
With most retailers using the cost-leadership strategy to attract more customers, Costco faces aggressive competition within the retail industry.
Most of Costco’s competitors, such as Target, Walmart, and other online stores such as Flipkart, Bonobos, and Jet.com have immense growth strategies together with an advantage of technology.
4. Fake Products
Costco was sued after it was discovered to sell fake Tiffany engagement rings. The lawsuit resulted in Costco paying Tiffany & Co $19.4 million in damages over the illegal sale of counterfeit diamond rings.
This case damaged the company’s bad reputation as it was deemed to sell fake products.
5. Data Security Concerns
Since Costco uses a third-party cloud service for safekeeping customers and employee information, there have been concerns over data security.
The third-party cloud service companies may fail to safely keep personal and banking details, creating a huge risk to the company if anything goes wrong.
The ideal situation would be that Costco owns its tech data security system to avoid jeopardizing the company’s credibility.
Costco’s SWOT analysis reveals that the company is one of the largest whole brands in the world. However, issues such as controversies, lower-tech capabilities, and limited international presence pose the company’s main challenges. Thus, Costco can utilize its resources to overcome the challenges and expand its markets.