Professional Practice Experience 1: Costco SWOT Analysis Report

This report presents a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis of Costco Wholesale Corporation, a major global retailer. The introduction outlines Costco's business model, focusing on its vision of operational efficiency and mission to provide high-quality goods at reasonable prices. The report employs a strategic management and risk management theoretical framework to examine Costco's internal and external environments. The methodological framework details the strategic management process, including environmental scanning, strategy formulation, implementation, and evaluation. The SWOT analysis reveals Costco's strengths, such as its loyal customer base and competitive pricing, and weaknesses, including its dependence on specific markets. Opportunities include product diversification, e-commerce growth, and relationship marketing. Threats include competition from major retailers like Walmart and online retailers like Amazon. The analysis provides recommendations for mitigating threats and capitalizing on opportunities to enhance Costco's market position and strategic planning.

Running head: PROFESSIONAL PRACTICE EXPERIENCE
Professional practice experience
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Introduction:
Costco Wholesale Corporation is the second largest global retailer in the world that
supports international group of warehouse. The uniqueness of the company is that it offers high
quality branded products at reduced cost. It deals with variety of products like groceries, toys,
sporting goods, health and beauty, sporting goods as well as food court. The main vision of the
company is to promote efficiency in operations and reduce price and cost. In parallel with its
vision, the mission statement of the company is to provide superior goods at reasonable price to
all members. High quality and best prices in the market is the main strategy of the company to
attract customers and achieve growth in business. Although Costco Wholesale Corporation is
currently at the top of its business, the main challenge for the company is to maintain the same
pave with other top retail organizations like Walmart and Super Target. Hence, the main purpose
of the report is to conduct SWOT analysis for the company and focus on threats and
opportunities for the business organization. With the use of theoretical framework for analysis,
the report also provides recommendations to eliminate threats and maximize the opportunities for
the company.
Methodological framework:
As the report is focused mainly on considering the risk or threats to business at Costco
Wholesale organization, the SWOT analysis of the company is informed by strategic
management and risk management theory. Strategic management is the comprehensive business
process to set business objectives, analyze competitive business environment and internal
organization of the company and evaluate strategies across the organization. Strategic
management process supports a company to identify current marketing strength of the company

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compared to its competitors and recognize opportunities and threats facing the organization 1.
The strategic management process in an organization can be analyzed by the method in which
the four stage of strategic management process is implemented. This includes:
1. Environmental scanning- It involves the process used to analyze the internal and external
factors affecting the business of an organization.
2. Formulating strategic business strategies- It is the approach taken to take the best course
of action to fulfill business objectives and vision.
3. Implementation of strategies- Strategy implementation involves restructuring
organization’s structure, resource and decision making process to convert business
strategy into action
4. Evaluation of strategies- The final phase is the step to evaluate internal and external
factors that affects business activities and influence the business activities of an
organization2 .
1 Rosemann, Michael, and Jan vom Brocke. "The six core elements of business process
management." Handbook on business process management 1. Springer Berlin Heidelberg, 2015. 105-122.
2 Wheelen, Thomas L., et al. Strategic management and business policy. pearson, 2017.

3PROFESSIONAL PRACTICE EXPERIENCE
Figure 1: Components of strategic management process
From the above explanation, it can be said that theoretical framework for strategic
management is build from three components which includes strategic analysis, strategy
implementation and strategic choice. This theoretical framework has been chosen to analyze
internal and external factors of the organization 3. The three components will help in the analysis
of threats and business at Costco Wholesale Corporation the following ways :
1. Strategic analysis: Strategic analysis will help to identify the strategic position of the
company. Review of internal and external factors can affect business position of an
organization. Different tools can be used for strategic analysis such as SWOT analysis,
Porter’s five forces and PEST analysis. SWOT analysis identifies strength, weakness,
opportunities and threats to identify the strategic position of the company. This is based
on the assumption that good business strategy is one that fits with the external and
internal situations of a company 4. Similarly, PEST framework helps to understand the
drivers of long-term change 5.
2. Strategy implementation- It involves the steps taken to manage the change
3. Strategic choice: It involves the steps taken to identify possible scenarios or alternative to
achieve outcome ).
3 Fleisher, Craig S., and Babette E. Bensoussan. Business and competitive analysis: effective application of new and
classic methods. FT Press, 2015
4 Jarzabkowski, Paula, and Sarah Kaplan. "Strategy tools‐in‐use: A framework for understanding “technologies of
rationality” in practice." Strategic Management Journal 36.4 (2015): 537-558.
5 Ho, Joseph Kim-Keung. "Formulation of a systemic PEST analysis for strategic analysis." European academic
research2.5 (2014): 6478-6492.

4PROFESSIONAL PRACTICE EXPERIENCE
The advantage of taking the strategic analysis framework for SWOT analysis is that it favors
analyzing both internal and external factors of the company and this would help to determine
whether current strategic steps taken by the organization is suitable as per the internal and
external environment or not.
Analytical discussion:
SWOT analysis can be considered as a useful technique to understand the strength and the
weaknesses of an organization and the threats and the opportunities faced by the organization.
The main purpose of SWOT analysis is to understand the strengths and minimize the threats and
make the greatest advantages of the opportunities available to mitigate the risks 6.
Strengths:
One of the strength of Costco is that they possess a loyal customer base. The main
philosophy of the COSTCO whole sale is to provide quality goods to its members but at high
prices. Brand loyalty means that the customer trust the products of the brand. Brand loyalty is
related to customer satisfaction. High cost switching is often related to loyalty. Low price does
not result in brand loyalty and it is the brand loyalty of the customers that enables the companies
to charge higher prices for their products. According to 6 customer loyalty and profit can be
increased by making the customer the first priority, by providing rewards to the customer. In
some cases the loyalty points can be used to enhance the customer loyalty.
6 Hill, Nigel, and Jim Alexander. The handbook of customer satisfaction and loyalty measurement. Routledge, 2017.

5PROFESSIONAL PRACTICE EXPERIENCE
Strength is COSTCO has been improving to provide goods to its customers at
competitive prices. It has focused not to increase the price of the product initially but to maintain
a viewpoint among the members of the pricing authority or providing the goods at competitive
prices to the customers 7.
COSTCO has been considered as one of the largest retailer in the world after Walmart
according to Forbes. COSTCO has in total 749 warehouses worldwide. The high sales volume of
Costco has contributed to its high operating efficiency. In spite of having a low margin of the in
the retailing industry the company has been proved to be profitable to most of the competitors
and is growing rapidly7. The strength of the retail marketing can be increased by proper risk
management and proper strategic management related to higher loyalty, but it is necessary to
manage the cost by compromising the quality of the product. For the retailers customer retention
is more important than customer acquisition. It costs more to acquire a new customer than to re-
engage an existing one. Furthermore, repeated customers are likely to spend more with time and
hence the profit of the company may increase7.
Weaknesses:
7 Hill, Nigel, and Jim Alexander. The handbook of customer satisfaction and loyalty measurement. Routledge, 2017.

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Some of the major weaknesses of Costco are that the company is mainly dependable on
the financial performance of Canada and United Status. This can be mitigated by focusing on the
other departments across other countries.
It order to overcome the threats Costco should accomplish its business model with a
lower cost leader strategy that strives to be the overall low cost provider of the product. The frills
and the costs that were historically associated with the retailers like fancy buildings, the sales
person, billing and account should be curtailed. Costco should position itself in the market place
by thorough product selection 8. The supply chain efficiency of Costco should lie in the cross
dock distribution facility. This can be done by purchasing the product directly from the
manufacturers and then routing it through cross docking facilities that can act as the points of
vendor consolidation points for moving goods in full truck to the stores.
In order to face the competitive market effective strategies can help to face the
competition in the market. These can be done by enhancing the quality of the product and the
customer retention policies. Big companies like Costco cannot compromise with the cost and
hence focus should be given of beating the competition through other means8. The company
should run a tight operation having extremely low overhead that would enable the company to do
savings to the members. In order to win over the competitors it is necessary to achieve superior
customer satisfaction. The business model should be strong enough to generate a fruitful return
over the invested capital.
8 Roberts, Anthony. "Wal-Mart’s Limited Growth in Urban Retail Markets: The Cost of Low Labor Investment."
(2015).

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Strategic sooth saying is extremely important for competing with the market. Continuous
research and development is required to learn what the customers want. It is necessary to go after
a certain types of customers, the small business owners that are status conscious and hence have
the capacity to spend money on the premium items. Hence it is necessary to focus on the small
business owners as they are sometimes the wealthiest section of the society 9. Competitors can be
managed by making most of the profits from the membership fees than the profit margins and the
product sales. One of the strategies for shifting the rules of competition is to lower the prices of
certain key products. It means that the company might sell the products at amazingly low prizes,
which is a key competitive advantage in the discount retail sector. Strategies like customer
friendly return policies can be useful in retaining the customers. Strategies like acceptance of
several payment methods, provision of the gift prizes can increase the customer experience and
satisfaction. A company like Costco should have an aggressive and strong online presence for
ensuring a strong membership renewal rate, which Costco is already having10.
Opportunities:
9 Porter, Michael E., and James E. Heppelmann. "How smart, connected products are transforming competition."
Harvard Business Review 92.11 (2014): 64-88.
10 Mehra, Amit, Subodha Kumar, and Jagmohan S. Raju. "Showrooming’and the competition between store and
online retailers." Available at SSRN 2200420 (2013).

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Costco is a retail organization that has established its name in the retail sector. It has used
quality parameters to offer great price to attract and retain new consumers. Strength for the
company is diverse variety of goods with which the company is dealing now. Such product
diversification gives company the scope to enter large and diverse market and maximize source
of revenue and income. This also give Costco the opportunity to expands it business globally and
open new warehouses even in remote locations. Review of this strategic step taken by Costco is
in relevance with relationship marketing theory. The company took the step to focus on quality
to hold on its customer and build new customers too. Relationship commitment is dependent on
trust, service quality and communication effectiveness 11. The company took the step to interact
with customers by focusing on functional and technical quality. The company can used took
strategic step to evolve its marketing mix and further attract more number of customers by means
of high quality products. Another incredible step that the company can take to enhance its
product quality and versatility includes offering products with multiple usage. It can also take the
help of web technology to attract young and health conscious customers and drive long term
earnings too.
Another opportunity for the company is its strong presence in e-commerce. This
gives the opportunity to grow at much higher rate than before. The advantage of using e-
commerce as a medium is that the company will have no geographical limitations in selling their
11 May, Douglas R., Young K. Chang, and Ruodan Shao. "Does ethical membership matter? Moral identification
and its organizational implications." Journal of Applied Psychology100.3 (2015): 681

9PROFESSIONAL PRACTICE EXPERIENCE
products and it will save their operational cost too. This will expand reach to customers and
ensure 24/7 buying and selling 12.
Threats:
One of the common threats that big companies face are big competitors like Walmart, Kroger
and Target. This has certainly limited the market share of Costco13 .
There are many ware house companies in U. S and Canada that are capable of providing
similar merchandise quality, price and selection. The company also competes worldwide on a
global basis with the international, national and the regional whole sellers including the super
centers and the supermarkets, departmental stores and the online retailers14 . The internet retailer
giants such as the Amazons are real threat to Costco that provides good quality of products with
prices similar as offered by Costco. Costco is also vulnerable to the forex movements of the US
dollar versus the foreign currencies, particularly the Canadian dollar 14.
12 Agarwal, James, and Terry Wu. "Factors influencing growth potential of E‐commerce in emerging economies: An
institution‐based N‐OLI framework and research propositions." Thunderbird International Business Review 57.3
(2015): 197-215.
13 Courtemanche, C., & Carden, A. (2014). Competing with Costco and Sam’s Club: warehouse club entry and
grocery prices. Southern Economic Journal,80(3), 565-585.
14 Shabanova, L. B., et al. "PEST-Analysis and SWOT-Analysis as the most important tools to strengthen the
competitive advantages of commercial enterprises." Mediterranean Journal of Social Sciences 6.3 (2015): 705.

10PROFESSIONAL PRACTICE EXPERIENCE
The threats can be turned in to opportunities my taking up proper administrative and
strategic planning. Competition with the giant companies can be made by cost curtailment
without compromising the quality of the product 15. Customer retention is the best policy for
increasing the profit margin than the other companies. An aggressive online marketing of Costco
can be made and online retailing can be improved. New experimentation has to be made for the
introduction of the new products in the market for that it is required to understand the
requirements of the people . Evaluation of the public requirements can be made from the market
analysis. Another option for turning the threats in to opportunities is the high retention of the
employees. Generous pay and excellent health benefits or health insurance coverage can be
helpful in reducing the staff turnover in Costco.
The company has to research and take big risk for the luxury items although a lot of
money is bounded in the inventory if the item does not sell quickly 16. The buyers have to rely on
the intuition and creativity to buy the items. Other factors that influence the opportunities are the
effective packaging. The packaging should appear appealing to the customer.
Review of the Industry sector
Over the past few years retailing in Australia has experienced a positive growth. Despite
of the weak growth of the market and the increased household debt, the strong housing market,
low interest rates and growth of the household credits, the customers are still encouraged for
15 Kotler, Philip. Framework for marketing management. Pearson Education India, 2015.
16 Porter, Michael E., and James E. Heppelmann. "How smart, connected products are transforming competition."
Harvard Business Review 92.11 (2014): 64-88.

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spending. Although higher costs are often internet retailing in Australia have experienced a
strong development . The increased role of having a retail presence in more than one channels
have encouraged the retailers for investing heavily in the omni-channel offerings, having a
particular focus on the digital presence. The grocery retailers are much stronger than the non
grocery retailers.
The Costco has been the second largest retailer in the Australia leading across more than
one channel. The success of the company is largely driven by the strong performance of all the
channels like the groceries, toys, hardware, sporting goods and the house ware 17. Although
retailing in Australia would see a positive value CAGR as per the fore cast, the overall economy
of Australia us seen to be slowing down. High mortgage stresses and low wage growths will be
affecting the impact of the growth of the customer products and thus the growth of retailing 17.
Conclusion and Recommendation:
It has been identified that the main weaknesses and the threats to Costco are the big
competitors like the Walmart or the online retail stores18. Big competitions can be we won by
shifting the rules of the competition like lower prices in some exclusive products that would
attract a large number of customers17. Customer retentions can be done by reminding the
17 Baud, Céline, and Cédric Durand. "Financialization, globalization and the making of profits by leading retailers."
Socio-Economic Review 10.2 (2012): 241-266.
18 Roberts, Anthony. "Wal-Mart’s Limited Growth in Urban Retail Markets: The Cost of Low Labor Investment."
(2015).

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customers about the introduction of new products which can be done by the help of automated
SMS . The provision of a smart card in shopping, loyalty points above a certain percentage of
purchases19. Furthermore in order to compete with the online giants such as the Amazon, there
should be a strong online marketing. Online retailing would include different payment modes,
cancellation and easy return policies 20. Costco will continue to expand its horizons by reasonable
prices and strong customer loyalty. Although Costco's strengths have outstripped the
weaknesses, proper strategic management can be useful in mitigating the current threats.
19 Lee, Sang M., DonHee Lee, and Chang-Yuil Kang. "The impact of high-performance work systems in the health-
care industry: employee reactions, service quality, customer satisfaction, and customer loyalty." The Service
Industries Journal 32.1 (2012): 17-36.
20 Levy, Michael, Barton A. Weitz, and Dhruv Grewal. Retailing management. Vol. 6. New York:
McGraw-Hill/Irwin, 2012.

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References
Agarwal, James, and Terry Wu. "Factors influencing growth potential of E‐commerce in
emerging economies: An institution‐based N‐OLI framework and research
propositions." Thunderbird International Business Review 57.3 (2015): 197-215.
Baud, Céline, and Cédric Durand. "Financialization, globalization and the making of profits
by leading retailers." Socio-Economic Review 10.2 (2012): 241-266.
Coelho, Pedro S., and Jörg Henseler. "Creating customer loyalty through service
customization." European Journal of Marketing 46.3/4 (2012): 331-356.
Courtemanche, C., & Carden, A. (2014). Competing with Costco and Sam’s Club: warehouse
club entry and grocery prices. Southern Economic Journal,80(3), 565-585.
Courtemanche, Charles, and Art Carden. "Competing with Costco and Sam's Club:
Warehouse club entry and grocery prices." Southern Economic Journal 80.3 (2014): 565-
585.
Fleisher, Craig S., and Babette E. Bensoussan. Business and competitive analysis: effective
application of new and classic methods. FT Press, 2015.
Hill, Nigel, and Jim Alexander. The handbook of customer satisfaction and loyalty
measurement. Routledge, 2017.
Ho, Joseph Kim-Keung. "Formulation of a systemic PEST analysis for strategic
analysis." European academic research2.5 (2014): 6478-6492.

14PROFESSIONAL PRACTICE EXPERIENCE
Jarzabkowski, Paula, and Sarah Kaplan. "Strategy tools‐in‐use: A framework for
understanding “technologies of rationality” in practice." Strategic Management Journal 36.4
(2015): 537-558.
Kotler, Philip. Framework for marketing management. Pearson Education India, 2015.
Lee, Sang M., DonHee Lee, and Chang-Yuil Kang. "The impact of high-performance work
systems in the health-care industry: employee reactions, service quality, customer
satisfaction, and customer loyalty." The Service Industries Journal 32.1 (2012): 17-36.
Levy, Michael, Barton A. Weitz, and Dhruv Grewal. Retailing management. Vol. 6. New
York: McGraw-Hill/Irwin, 2012.
MacKenzie, Ian, Chris Meyer, and Steve Noble. "How retailers can keep up with
consumers." McKinsey & Company (2013).
May, Douglas R., Young K. Chang, and Ruodan Shao. "Does ethical membership matter?
Moral identification and its organizational implications." Journal of Applied
Psychology100.3 (2015): 681
Mehra, Amit, Subodha Kumar, and Jagmohan S. Raju. "Showrooming’and the competition
between store and online retailers." Available at SSRN 2200420 (2013).
Porter, Michael E., and James E. Heppelmann. "How smart, connected products are
transforming competition." Harvard Business Review 92.11 (2014): 64-88.
Roberts, Anthony. "Wal-Mart’s Limited Growth in Urban Retail Markets: The Cost of Low
Labor Investment." (2015).

15PROFESSIONAL PRACTICE EXPERIENCE
Rosemann, Michael, and Jan vom Brocke. "The six core elements of business process
management." Handbook on business process management 1. Springer Berlin Heidelberg,
2015. 105-122.
Shabanova, L. B., et al. "PEST-Analysis and SWOT-Analysis as the most important tools to
strengthen the competitive advantages of commercial enterprises." Mediterranean Journal of
Social Sciences 6.3 (2015): 705.
Shih, Shiau Pei, Szuchiang Yu, and Feng Ju Yen. "How Does Costco Win Customer
Satisfaction: A Case Study of the South of Taiwan." Journal of Economics, Business and
Management 3.3 (2015).
Wheelen, Thomas L., et al. Strategic management and business policy. pearson, 2017.