MGT 365 week 5 Discussion - post and response
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MGT365responses1.docxMGT 365 responses
Jeffrey Mandeville
Costco's international store contribute to about 23% of the companies total revenue. Though investors were worried that Costco's expansion into the international market would not be successful. Their membership overseas are typically 10 times greater then that of a store opening in the United States. They are receiving high profits in the United States, meaning that in the international section can focus on long term strategies rather than trying to up sales for the whole company.
Costco focuses on making products less expensive, but they make revenue by customers paying more overall. The average Costco customer comes in with a large list to buy because they believe they are saving more purchases in bulk. Truthfully, the customer is saving more but they are also spending more than they would at say Walmart or Target. A strength is that the Costco brand is already becoming a popular place to shop for consumers. They can get a large amount of food and other items in large amount which would allow them to not shop every week but instead every few weeks. A lot of people dislike food shopping every week. Giving them a place to get everything they need at a lower price in bulk with build loyalty for people to keep coming back to shop at Costco. One weakness could be they types of customers they get. They are typically high middle class people who can afford to spend a large amount on groceries at one time. If the economy takes a hit and people form the middle class have less income then they will shop less at Costco and at other groceries stores where they can purchase less food for less money.
Costco is doing extremely well in the international sector. Their large shopping warehouses provide almost every need a household needs. By focusing on providing products at a reasonable price and usually on sale this will keep customers coming back in the future. Costco's international stores compound annual growth rate has grown 7% over the last 5 years. As they increase the amount of stores all over the world, we can only expect to see their growth rate rise even higher in the next 5 years.
Benjamin Feldpausch
Costco’s Global Strategy
According to the Costco’s Retail Innovation Craze article, Costco Wholesale Corporation has been very aggressive infiltrating the global markets with retail innovation practices. They have more than 200 international warehouse locations operating in 8 different countries outside the United States. They are planning to continue expanding globally as well. They are doing so by having a limited number of products in their stores, limiting their selection sizes, having minimal in-storage signage, luxury items in its discount merchandise mix, etc. Costco is managing their merchandise in categories that reach multiple markets. Food is their major driver. Reaching different countries and economies helps Costco to continue expanding and reaching new markets, which, in turn, improves their profits. According to the Market Realist article, the company’s international sales have grown at a CAGR of 7% over the past five years. The growth of the company is continuing and creating more productivity and profitability.
Strengths and Weaknesses of the Strategy
There are many factors that come into play with Costco’s strategy. Some impacts of their strategy can be towards the different economies they are reaching. Since some countries and economies are not as wealthy or successful as the United States, it can be difficult to continue to generate profits. Along with this, it can decrease the value of some currencies used across the world. According to the Market Realist article, Costco’s international strategy is increasing the products and channels they are using as well. It is helping them to increase business numbers throughout the world. This strategy can be quite risky as well, however. If a country does not have a stable economy or regulations, Costco could lose an entire sector of business that they do. Costco does offer some selective stocking and selling of their products as well, to help to reach more markets and customers. Their growth strategy can provide many new opportunities for business, along with some new membership options and profitability worldwide.
Recommendations
My recommendation to Costco would be to continue tailoring their products, services, and other factors towards the different countries and economic markets they are seeking. With such an aggressive strategy, it is crucial for Costco to find the most effective and efficient ways to target different markets worldwide. With all the expansions they are undergoing, I would also recommend finding ways to cut back on some expenses, since it will in the long run help increase profits to heights they may have not seen before. This can be done in multiple ways, whether it is supplier prices, distribution prices, etc. Lastly, Costco needs to be careful. With today’s world there can be a lot of uncertainty. If Costco continues to expand and grow aggressively, they could run into some economic or currency issues that could greatly affect their business not only in the short-term, but also in the long run. Getting ahead of competitors has many positives, but Costco should be wary of the situation the world is in today.
Citations
· https://www.thebalancesmb.com/costco-international-expansion-and-retail-innovation-2891768
· https://marketrealist.com/2019/12/analyzing-costcos-inventory-supply-chain-management-strategies/
Blake Anderson
Based on the websites provided, Costco's global strategy include many things. One of the biggest things Costco focuses on, is utilizing their international warehouses. In turn, this provides them with much more international revenues. Another huge part of their business in not only locating globally, but also focusing heavily on their Canadian market. Canada has the second most Costco stores globally behind the US, and contributes to over 10 million Costco members which in turn provide them with tons of extra money from membership fees. Another one of the massive parts of Costco's global strategy is not only their expansion in China, but they now plan to put warehouses in China, which will only further their international growth. One of the final, and possibly most important part of Costco's global strategy that their competitors fail to achieve, is their extremely high membership retention rate. In Canadian stores, the membership retention rate is 90%, globally, Costco has a much higher retention rate than any other store that tries to expand globally, and even higher than their own retention rate in the US.
Obvious strengths for Costco's global strategy, is that right now it's working. When you're able to expand globally and create long lasting customers, you're bound to succeed. In Costco's case, they already have these increased number in memberships, and can continue to do what they're doing and continue to get members. One of the biggest challenges they may begin to have however, is that since they are a membership grocery store, some of the big stores such as Target and Walmart may be able to expand into these markets and take customers from Costco. Another challenge they may face is, especially in the next five years is the potential updates in the market that they need to continue to be aware about.
Based on the analysis on Costco, while they are one of the best in the market at globalization, one thing I may recommend for further down the line when entering a new area of the world, is to give its customers a free month membership of some kind so new customers can still go and see how they like it, and potentially get even more memberships. Another recommendation I would have is that not only should they expand their store locations, but also continue to expand on warehouses. They do plan to add one in China, but they have had stores there for 3 years, and until now have not expanded warehouses there.
Maria Delucas
Costco Wholesale is a well-known store in the United States. Costco pronounced their Globalization Strategy in 2013 and ended up opening 200 international Costco Warehouse locations in eight countries (B. Farfan, 2019). Opportunities were clear when bigger retailers were starting to expand to different countries. It was a big risk since big retailers such as Target and Walmart failed while expanding in Canada and Brazil (B. Farfan, 2019). The risk paid off since it was a successful expansion due to Costco having memberships signups 10 times greater than Costco stores openings in the United States (B. Farfan, 2019). Costco has been able to maintain 80% annual memberships (B. Farfan, 2019). In December 2019, Costco had expanded to more than 700 warehouses worldwide, included Canada, Mexico, the United Kingdom, Japan, Taiwan, Australia, and many more. (B. Farfan, 2019). Many countries reacted with enthusiasms since it was a new store coming from the United States with variety. Costco offers members array of products from meat, produce, apparel, electronics, garden, hardlines, and larger appliances and many more (P. Soni 2016, A. Singh 2019). When Costco opened its first location in China the store was closed “early due to traffic jams caused by crowds of shoppers and three-hour wait to park” (B. Farfan, 2019).
Costco global strategy has strengths and weakness. The first advantage they have is their strategies are to make products that are less expensive for customers rather than to imply high margins to produce revenue (B. Farfan, 2019). The company has limited number of products compared to competitors who have 10xs more and they also have limited size selections (B. Farfan, 2019). Costco offers luxury items with discount merchandise mix appealing more to customers (B. Farfan, 2019). Costco strategies by making customers feel like they are saving money by spending more money on bigger size products (B. Farfan, 2019). A disadvantage of only have limited number of products is customers want variety by being limited it can turn customers away to their competitors. Costco hours are shorter than other retailers (A. Singh, 2020). During COVID most people want more flexible hours due to avoid big crowd traffic. While Costco operates on high-volume sales model the margins are low which can flash back (A. Singh, 2020). I recommend for Costco to extending open hours during this pandemic it can bring more customers in. Costco should try to move to online services since competitors are now delivery groceries to customers in their parking lots or delivering straight home. It will be a new market, but it will be an innovation due to the circumstances. Costco should also increase the variety in their products to attract a more diverse population of consumers.
Citations:
Farfan, B. (2019, December 12). Discover Costco’s Secret to Conquering the Retail Sector. The Balance Small Business. https://www.thebalancesmb.com/costco-international-expansion-and-retail-innovation-2891768
Singh, A. (2020). How Costco Manages Its Inventory and Supply Chain. How Costco Manages Its Inventory and Supply Chain. https://marketrealist.com/2019/12/analyzing-costcos-inventory-supply-chain-management-strategies/
Trefis Team. (2018, January 2). How Will Costco’s International Business Perform Going Forward? How Will Costco’s International Business Perform Going Forward? https://www.nasdaq.com/articles/how-will-costcos-international-business-perform-going-forward-2018-01-02
