Term Paper on "Strategic Issue Facing Costco"

Term Paper 4 pages (1160 words) Sources: 4

[EXCERPT] . . . .

PEST Analysis of Costco

Although Walmart continues to dominate the warehouse club sector, Costco is fast becoming a major player as well. In fact, Costco has expanded its operations into a growing number of other countries in recent years and current signs indicate the company is well situated to continue this growth in the future. Nevertheless, Costco is confronted with some significant challenges as it applies its business model to other cultures where consumer tastes vary widely and legal requirements differ. In this environment, identifying potential threats as well as opportunities for growth for Costco represents a timely and valuable enterprise. To this end, this paper reviews the relevant literature to provide an overview of Costco and the sector in which it competes, an analysis of political/legal, economic, social and technological issues facing the company today, followed by an analysis of the strategic alternatives that are available to Costco to grow its market share. A summary of the research, important findings and their implications for Costco are provided in the conclusion.

Review and Analysis

Background and Company Overview

According to Costco Wholesale Corporation's (hereinafter alternatively "Costco" or "the company") latest quarterly report (November 2011), the company operates a chain of membership warehouses that feature bargain prices. The company keeps its prices low by restricting its selection to a limited number of nationally branded and select private-label products, but they offer a wide range of merchandise categories in what it describes as its "no-frills, self-service facilities" (Form 10-Q, 2011, p. 4). According to analysts at Zacks Investment Research, "Costco continues to be a dominant retail wholesaler based on the breadth and quality of merchandise it offers. The company's strategy to sell products at heavily-discounted prices has helped it to remain on a positive growth track amid the beleaguered economic conditions, as cash-strapped customers continue to see it as a viable option for low-cost necessities" (Costco exits 2012 with strength, 2012, para. 3). This strategy has clearly paid off, and at the end of 2011, the company operated almost 600 warehouse facilities as set forth in Table 1 and illustrated graphically in Figure 1 below.

Table 1

Breakdown of Costco Worldwide Membership Warehouse Facilities

Country

No. Of Membership Warehouses

United States

Canada

82**

Mexico

32

United Kingdom

22

Japan

9

Taiwan

8

South Korea

7

Australia

3

*Forty states and Puerto Rico

**Nine Canadian provinces

Source: Form 10-Q (2011, November 20)

Figure 1. Breakdown of Costco Worldwide Membership Warehouse Facilities

Source: Based on tabular data in Form 10-Q (2011, November 20)

As can be clearly discerned from Table 1 and Figure 1 above, the company's operations are primarily in North American, but it has a substantial presence in Mexico and, increasingly, Asia as well. These far-flung operations mean that the company is faced with some profound political and legal factors in its operations, and these issues are discussed further below.

Political/Legal

Political. Many of the countries, especially the U.S., have been adversely affected by the lingering effects of the global economic downturn, and in some cases, these countries have adopted pro-business policies including tax incentives and credit initiatives that are especially advantageous for Costco at present (Starr, 2008). Nevertheless, the company also competes in political volatile regions of the world and the potential for shifts in political ideologies are always a possibility (Form 10-Q, 2011).

Legal. In reality, the company is faced with a bewildering array of legal issues ranging from its human resource practices, to its accounting methods as… READ MORE

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