Costco Case Questions
Competition in the North American wholesale club industry is high, with Costco being its leader at 56% of the market share. Main ways to compete are lower prices, more efficient operations, and reduced labor and overhead costs as well. Some of the clubs do the bare minimum in advertising while others, like BJ’s, spend more money on it (special Christmas radio advertisement and such). Out of the five competitive forces, the strongest is the rivalry between the competitors, because all of the players in this market attempt to offer high-quality products at lower prices. According to Figure 3.3, one of the reasons for rivalry amongst competitors ...view middle of the document...
5). Threat of substitutes is low because the products these wholesale clubs sell are quite similar to each other (maybe except the specialty or designer items at Costco, which is the reason why it’s doing so well: these items are different from the standard offering at other wholesale stores).
There are several similarities between the companies, which are summarized below:
1) Individuals and businesses could purchase membership cards, with various benefits attached to those depending on the amount of shopping each potential member would do at the store
2) It’s a requirement to have membership to shop at the store, and some offer “free days” when customers can shop without a membership card
3) There is a small assortment of products within a range of product names, such as, only two-three kinds of toothpaste in the toothpaste isle compared to 10+ names at a non-discount store.
4) There are private brands and name brands sold. Private brands are sold at cheaper prices.
5) All strive to have lean operations. For example, Costco spends very little on store décor and displays items on pallets, thus reducing the need for extra labor to restock shelves when needed.
These are the differences between companies in the case:
1) Costco spent very little on advertising while BJ’s spent much more
2) Costco spent very little on customer service, while BJ’s made it one of the priorities (express check-out lanes and self-check-out lanes, longer hours when store was open)
3) Costco and Sam’s Club had about 4,000 different items, BJ’s had about 7,000 different items
4) BJ’s had aisle markers, accepted manufacturer’s coupons, accepted all 4 major credit cards and had one-hour photo processing centers and even BJ’s vacations.
5) Costco made it all about offering the best prices to customers and paying the highest wages to its workers
6) Costco’s largest source of net income was membership fees, because the margins on their products were minimal
Costco has a stronger strategy (based on the market share, at least) that is more sustainable. According to Jim Senegal, Costco is a company that “wants to be there 50 years from now”.
BJ’s appears to have a weaker strategy because their operations are not as lean and because they try to appeal to so many segments of the market and at the end of the day lose their focus. BJ’s can not remain a discount store if it continues to spend that much on marketing and social engagement with the public.
BJ’s has shown a steady increase in operating income for the years discussed in the case, Costco has seen some ups and downs and Sam’s Club has been increasing until 2008 and then it began to decrease. In 2010, Costco’s current ratio was 1.11 while BJ’s was 1.16,...