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COSTCO - Case Study

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by

Lance Watson

on 10 February 2014

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Transcript of COSTCO - Case Study

COSTCO - Case Study
How to increase profitability while improve their competitive strength?
SWOT Analysis
Alternatives
1) Expand Kirkland Brand

2) Expand Market Share

3) Buy-out BJ'S Wholesale
Expand Kirkland Brand
Score: 112/150
Keep 4000 product line
Expand Market Share
109/150
Promote to new customers
Open in new locations
Buyout BJ'S Wholesale
103/150
Re-Brand new markets
Close down stores in direct location
Transfer memberships
Recommendation
Expand the Kirkland Brand into more of Costco's product line.

Justification
:
Kirkland products have a larger profit margin
Have more control over manufacturers
More alternatives for vertical integration
Low risk investment

Current
: 15%
Recommend
: 25%
Price Strategy Values
Quality of Goods (8)
Quality of Services (7)
Lowest Price (10)
Growth Strategy Values
New Warehouses (6)
Increase Memberships (7)
Merchandise Techniques (9)
Addition Consideration
Risk Factor (3)
Implementation
Timeline: 3 years
Phase 1: Pilot Introduction
Phase 2: Balance
Phase 3: Complete
Phase 1:
Pilot Introduction
Duration: One year
Increase Kirkland Product line from 15% (600 products) of total merchandise to 20% (800 products) of total merchandise
Expansion is made through co-branding
Make merchandise transition in 50% of Costco warehouses
246 locations in North America
38 locations in Mexico, United Kingdom, Japan, Korea, Taiwan
Issue shares to expand Kirkland line
Phase 2:
Balance
Duration: One year
Increase Kirkland product line from 20% (800 products) of total merchandise to 25% (1000 products) of total merchandise
Switch product line of phase 1 from co-branding to independent production.
Remain in the same 284 locations as phase 1
Phase 3:
Completion
Duration: One year
Implement Kirkland Line Expansion in remaining 284 warehouses
Switch product line of phase 2 from co-branding to independent production.
Conclusion
Problem: Raise core profitability while expanding

Profitability:
Increase profit margins
Gain manufacturing control

Expansion:
25%/75% split
Vertical Integration

Strengths
Most wholesale locations
Treasure Hunt experience
Corporate Clients
Memberships & low theft
Efficient Inventory system
Kirkland Brand
High employee retention
Weaknesses
Low profit margins
Located outside main districts
Low new customer promotions
Limited Credit Card acceptance
Limited product supply
Opportunity's
Expand store locations
Increase new memberships
Increase shopper frequency
Expand Kirkland line
Buyout BJ'S Wholesale
Threats
Highly competitive
Low confidence consumers
Convenient alternatives
Minimal switching costs
PORTERS
5 FORCES
Bargaining
Power of
Suppliers
- low/mild -
Threat of
Substitute
Products
- mild -
Bargaining
Power of
Customers
- weak -
Threat of
New
Entrants
- weak -
Competitive
Rivalry
within the
Industry
- cutthroat -

Tyson Chow
Austin Desharnais
Allison Marsh
Lance Watson

Pro's
Larger profit margins
More centralized products
Room for vertical expansion
Kirkland brand recognition
Con's
Associated costs
Reduction in quantity of brand names
Pro's
Increased profits
Increased memberships
New markets
Increased Costco brand recognition
Con's
Higher advertising budget
Research (new target markets)
Political issues with new location expansion.
Pro's
Instant new markets
Reduced competition
Land and equipment already in existance
Minimal orphaned customers
Con's
Very large inital cost
Merchandising teqniques don't match
Re-training Staff
Inventory disposal
Full transcript