Compared to its rivals in the membership warehouse market such as Wal-Mart and Amazon, Costco has found it difficult to sustain its long-term sustainability and growth. The concerns on the strategic expansion and growth of Costco in the market give its rival an opportunity to dominant the market share (Jones, 2017). However, the management of Costco can consider three alternative solutions to improve its sustainability and growth potential including developing an online market to enhance competition with Amazon and Wal-Mart, intensive negotiation with suppliers to improve the profit level of the company, and increasing the amount of products offered by 100% to grow sales and become competitive in the market.
The doubling of the products offered could help Costco to grow sales and improve its growth potential. Over the years, Costco has been marking profits from membership fees rather than the sale revenues. Increasing the amounts of products offered will grow the sales and profit level and thus, overcoming concerns on the sustainability of the company. The inability of Costco to make profits from its sales raises question over the growth potential of the company. The management of Costco should consider the doubling of its product offerings to increase the potential of the company making more sales and profits.
It is also recommendable for Costco to hold negotiations with their suppliers to reduce the products to promote their profit margin potentials. When the suppliers agrees to reducing the costs of their products, Costco can reduce the prices for their products and potentially make more sales and report higher profit margins. In 2013, Costco reported net sales of $102,870 million. In 2016, the net sales increased to $126,172 million (Annual Report, 2017). For five years, the growth in the net sales was small. The strategic approach to negotiate with the suppliers would potentially help in growing the net sales by around 10% in the next one year.
In terms of expanding on the online market, Costco will be able to grow its sales from the internet sales. The online market for retailers has grown significantly and thus, Costco should use the opportunity to establish an online presence to grow their overall revenues. Online presence will provide a clear growth and strategic opportunity for Costco. Having the physical stores places the company at a disadvantage as more customers are preferring online stores due to convenience and perceived reliability. However, the management of Costco should design effective and reliable online market platforms to help them in compete well with its close rivals. The three strategic alternatives should be reviewed to determine which one fits well in promoting the growth and sustainability of Costco.
Optimal Solution & Evaluation
Based on the potential strategies identified, the optimal solution to sustain the sustainability and growth of Costco is to develop an online market to compete with the established online retailers including Wal-Mart and Amazon. The creation of the online market will give Costco additional platforms and production capacity to compete with its rivals in the membership warehouse market.
Investing in e-commerce will help Costco to benefit from the advanced technologies and innovations in the market today. Potential entrants in the membership warehouse market create stiff competition for Costco Company. New firms are entering into the market through creating online presence to market their products. Costco should remain consistent and competitive in their online platforms through offering innovative online offers and better pricing for their internet offers (Digital Commerce 360, 2018). Unlike Costco, Amazon has been able to grow their online product offerings, which are attractive to most customers in the market. During 2017, the company reported a positive 4% increase in the sales because of the increased shopping frequency from online customers (Annual Report, 2017). Based on the current market trends, Costco will be able to remain sustain and grow their market share through increasing the online sales through developing their online market presence. The growth of consistent online sales will have a positive impact on the financial performance of the company in the long-term.
Annual Report (2017). Costco Wholesale Corp New 10-K Annual Report Wed Oct 18 2017 :: Last10K.com. Retrieved from https://www.last10k.com/sec-filings/cost/0000909832-17-000014.htm#fullReport
Digital Commerce 360. (2018, 16). U.S. e-commerce sales grow 16.0% in 2017. Retrieved from https://www.digitalcommerce360.com/article/us-ecommerce-sales/
Jones, C. (2017, December 14). Costco holds its own against Amazon as online sales soar. Retrieved from https://www.usatoday.com/story/money/2017/12/14/costco-holds-its-own-against-amazon-online-sales-soar/951659001/