Running head: MODULE 3: SWOT ANALYSIS 1

Module 3: SWOT Analysis

The Collaborators

OGL355: Leading Organizational Innovation and Change

Dr. B

Tuesday, September 10, 2019

Arizona State University

Module 3: SWOT Analysis

In order for Costco to determine what they do well and what assets they do not

have, an internal and external analysis was performed. This helped in determining what is

good and what is lacking in this company. During this analysis we looked at four areas:

strengths, weaknesses, opportunities, and threats. Costco's strengths are their competitive

weapon, they are a well-known and liked company, they provide low prices for their

customers, and therefore have a huge customer base. With every strength comes a

weakness; and no company is without. In today's business world, there are many threats

that can hinder a company's performance. The biggest weakness for Costco is customer

demographics. Costco faces lifestyle changes by their customers, competing with online

retailers along with other brick and mortar stores. Product expansion, company growth,

and marketing are great opportunities to help improve Costco's performance. Although

the ever changing trends can be difficult to keep up with, it is important for companies to

look at their strengths, weaknesses, opportunities and threats to keep ahead of the game.

Costco has many strengths, given it is a solid billion dollar company with billions

of members. However, there is always room for improvement and growth within a

company and a SWOT analysis is a powerful tool to use for this. Our team did a SWOT

analysis for Costco and helped discover opportunities they may have, as well as,

weaknesses they can handle and eliminate so they are not caught off guard. By looking at

their competitors using the SWOT framework, they can develop a strategy that helps

them distinguish themselves from other companies.

SWOT Analysis
MODULE 3 3

Strengths Weaknesses
● Well-known ● Targets an older generation
● Well-liked ● Geographic dependence
● Lower prices
● Large customer base

Opportunities Threats
● Product expansion ● Existing competition with retail
● Company growth stores
● Marketing ● Competition with online retailers
● Lifestyle changes by customers

Costco’s internal strengths focus on the company being well-known and liked,

charging lower prices, and having a large customer base. Costco, the warehouse shopping

club, continued to grow in 2018 with 762 locations worldwide at the year’s end. The U.S.

is still home to most of the American retailer’s warehouses (Conway, 2019). One can say

that Costco has many strengths, but it is commonly known for its private product

selection, its exclusive membership, in addition to the positive and warm environment

experienced by their employees and customers. Their signature brand, Kirkland

Signature, is also something most customers know and enjoy. As Costco states,

“Kirkland Signature means quality and value” (“Costco Wholesale UK”), which provides

customers with an assurance of a high-quality product.

The consistent low prices is also a great strength that Costco guarantees their

customers. They strive for excellence by focusing on what is best for their members by

charging them the lowest prices available. This is what differentiates them from other

well-known crowded markets. Costco will offer bulk products at low prices and allow its
MODULE 3 4

members to enjoy their shopping experience without hurting their wallet. In many

locations Costco also offers its members low-cost gas for their automobile.

Costco’s high-quality products and consistent low prices promotes a large

customer base around the world. As of October 01, 2018 Costco, had 94.3 million

members, globally (Smith, 2019.). Costco offers its customers an array of membership

options that will suit their needs. For instance, their Gold Star membership costs $60 per

year and their annual renewal rate is at 88% (Smith, 2019).

Costco’s weaknesses include geographic dependence and having an older

customer base. Eighty-seven percent (87%) of Costco’s total sales are generated in North

America leaving Costco vulnerable (Kissinger, 2017). If there is a decrease in North

American sales for any reason, Costco can potentially have a serious issue with their

bottom profit line (Kissinger, 2017).

Costco has members of all ages, but it is geared more towards an older generation

(Kissinger, 2017). The primary issue of targeting an older generation is that as those

customers age, they spend less. In order to progress in future years, Costco must expand

their marketing and target younger generations. This will be challenging because e-

commerce has become widely popular among younger generations and membership

programs are becoming widely available from competitors. Costco must be innovative

and gravitate towards generations X and Y in the near future (Kissinger, 2017).

External opportunities that can contribute to Costco’s continued success include:

product expansion, company growth and marketing. Costco has an opportunity to

increase its current selection of products and brands that can be sold to reach a more
MODULE 3 5

diverse group of people. Currently, Costco sells a wide variety of products but is limited

on the selection of those products. For example, you can buy trash bags at Costco;

however, the brand, style and size are limited. By expanding their current selection of

products, Costco could potentially reach consumers that are looking for a greater variety

of goods and could capture consumers from Sam’s Club and Walmart, Costco’s main

competitors (Maverick, 2019).

Costco currently has more than 700 locations worldwide. This includes over 200

locations outside of the United States in countries such as Mexico, the United Kingdom,

Japan, and Canada (Farfan, 2019). Costco’s brand is known worldwide. With this type of

brand power, there is an opportunity for Costco to open more locations outside of the

United States. Highly populated countries such as Japan and China are good growth

opportunities for Costco.

Costco traditionally has not invested many resources into marketing. Their

marketing approach has been predominantly word of mouth (Lutz, 2014). Many

opportunities are present to expand their current marketing campaign. They could

increase their market share by highlighting many of their unique products. Their

marketing campaign should also focus on many of the benefits they offer such as, a

hassle-free return policy, online shopping and store pick up, delivery service and 2%

annual cash back membership.

Although Costco is a solid company, they are still faced with many external

threats. There is increasing competition with current retail stores, online retailers, and the

changing lifestyles of consumers. Not only is the discount warehouse industry highly

competitive, such as BJ’s Wholesale Club and Sam’s Club, but there is also stiff
MODULE 3 6

competition with other retailers like Walmart and Target. “Pressure from these companies

will likely prevent Costco from raising prices too much, for fear of losing business”

(Dalavagas, 2015). Including Costco’s competition with retail brick and mortar stores,

online retailers, such as Amazon, will be a continual threat to their overall profit.

Similar to Costco, Amazon offers a wide range of high-quality low cost products

with shipping options that are hard to beat (Dalavagas, 2015). In addition to the

challenges of the extremely competitive retail industry, Costco also has to be aware of

and address the lifestyle changes of their customers. Although all generations shop at

Costco, it tends to focus more towards older generations. Statistics indicate that

Americans now spend more at restaurants than grocery stores and the number of

homeowners have dropped. “Costco business model was built on the assumption that

people will own and use a car, make most of their food purchases at a grocery store, and

require home-maintenance supplies” (Daniel, 2017). For Costco to remain competitive

in the future, these changes to the American way of life will need to be addressed.

Conclusion

During the internal analysis, our team looked at Costco’s strengths and

weaknesses. Costco has many strengths including its large customer base of 94.3 million

members globally, having 762 locations worldwide, being well-known and liked, offering

low prices, and providing its highly- quality signature Kirkland brand. Although Costco

has many members, their primary customer base is the older generation. This creates a

weakness for Costco because as people age they are more likely to spend less money on

groceries and household items. Also a potentially serious issue could occur if a decrease

in sales took place in North America where 87% of their total sales are generated.
MODULE 3 7

After the internal analysis was completed, our team did an external analysis which

focused on the opportunities and threats for Costco. Increasing the variety of selections

offered and expanding its products that are available for purchase are significant growth

opportunities that Costco could use to retain their existing members and capture new

consumers from their competitors.

Costco currently has 200 warehouses located outside of the United States. With

the increasing popularity of their brand, global expansion would be beneficial. Their

word of mouth marketing approach would benefit from increasing their marketing focus

by highlighting their hassle free return policy, store pick up, delivery service and 2% cash

back membership. To be successful every company must constantly look at their threats,

and Costco is no different. Currently Costco competes with other brick and mortar

retailers, the increasing number of online retailers like Amazon, and the ever changing

lifestyles of their customers. For Costco to remain on top of their industry, they will need

to understand their strengths and how they benefit from them, monitor their weakness,

and make adjustments to the ever changing needs of their customers.

References

Conway, J. (2019, August 9). Number of Costco warehouses worldwide 2018. Retrieved

from https://www.statista.com/statistics/284431/number-of-costco-warehouses-

2013-by-country/
MODULE 3 8

Costco Wholesale UK. (n.d.). Retrieved from

https://www.facebook.com/CostcoUK/photos/a.681661168580753/17996200834

51517/?type=1&theater

Dalavagas, I. (2015, February 9). Value Line - The Most Trusted Name in Investment

Research. Retrieved from

http://www.valueline.com/Stocks/Highlights/SWOT_Analysis__Costco_Wholesa

le_Corporation.aspx#.XXph2fZFzIV

Daniel. (2017, July 12). Seven Threats to Costco. Retrieved from

https://marketmadhouse.com/seven-threats-costco/

Farfan, B. (2019, May 30). Discover Costco's Secret to Conquering the Retail Sector.

Retrieved from https://www.thebalancesmb.com/costco-international-expansion-

and-retail-innovation-2891768

Kissinger, D. (2017, February 6). Costco Wholesale SWOT Analysis. Retrieved from

http://panmore.com/costco-wholesale-swot-analysis

Lutz, A. (2014, September 30). Costco's Simple Strategy For Outperforming Wal-Mart

And Target. Retrieved from https://www.businessinsider.com/costcos-simple-

strategy-2014-9

Maverick, J. B. (2019, March 12). Who Are Costco's Main Competitors? Retrieved from

https://www.investopedia.com/articles/markets/102715/who-are-costcos-main-

competitors.asp

Smith, C. (2019, September 7). 30 Interesting Costco Statistics. Retrieved from

https://expandedramblings.com/index.php/costco-statistics/
MODULE 3 9