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Copy of Case: Competition among the North American Warehouse Clubs: Costco Wholesale versus Sam’s Club versus BJ’s Wholesale
Transcript of Copy of Case: Competition among the North American Warehouse Clubs: Costco Wholesale versus Sam’s Club versus BJ’s Wholesale
Tyler Rodrigue Case: Competition among the North American Warehouse Clubs:
Costco Wholesale versus Sam’s Club versus BJ’s Wholesale What actions do you think management at Sam’s Club should take to boost revenue growth and overall financial performance? What is competition like in the North American wholesale club industry? (cc) image by anemoneprojectors on Flickr Do all three warehouse club rivals have highly similar strategies?
What differences in their strategies are apparent?
Is one company's strategy better than the others?
Does the data in case Exhibit 5 indicate that Costco’s expansion outside North America (the U.S. and Canada) is financially successful? Why or why not?
Five years from now...
- is Costco’s standing as the industry leader likely to be stronger or weaker?
- are the other two rivals likely to gain or lose ground on Costco? What recommendations would you make to Jim Sinegal regarding the actions that Costco management needs to take to sustain the company’s growth and improve its financial performance? What actions do you think management at BJ’s Wholesale should take to boost revenue growth and overall financial performance? Which of the five competitive forces is strongest and why? Which of the three warehouse club rivals has been the strongest financial performer in recent years? Low Cost Leadership:
a. Pricing- Costco’s mission is “To continually provide our members with quality goods and services at the lowest possible price.” Their strategy is to sell top-quality merchandise at prices that are below what other wholesalers or retailers charge.
b. Product Quality and Selection- Most of the merchandise sold at Costco are private label items, which allows them to sell items at a significantly lower price compared to brand name items. Branded items are kept limited in order to keep prices low. Low Cost Leadership:
a. Like Costco, Sam’s Club sells high-quality brand-name merchandise at prices that are significantly lower than other stores and retailers.
b. Like Costco, Sam’s Club goes by cross-docking distribution techniques (where incoming shipments are transferred to outgoing trailers immediately headed toward their designated locations.
c. They pride themsleves on having the lowest membership cost of all 3 Wholesalers. Low Cost Leadership:
a. Like Costco and Sam’s Club, BJ’s sells high-quality brand-name merchandise at prices that are significantly lower than other stores and retailers. However, their strategy is more cutomer-service based.
For Example: They have express checkout lanes and isle markers. BJ’s Wholesale has been able to differentiate themselves from the competition by placing more of an emphasis on a quality customer experience.
a. Have about 7,000 items, compared to about 4,000 items for the others.
b. Have aisle markers, express checkout lanes, and self-checkout lanes.
c. Hours of operation are longer than the two rivals.
d. Offer some smaller packaged items, instead of just items sold in bulk.
e. Customers are given three price categories to choose from: good, deluxe, and luxury.
f. Was the only warehouse that accepted manufacturers’ coupons.
g. Offered specialty services at their warehouse such as: BJ’s Vacations, Verizon Wireless Centers, a car rental service, and installation of home security systems.
h. Website for BJ’s allows for customers to buy products that aren’t available in the actual warehouse.
i. Club locations were clustered in order to help make a name for themselves.
BJ’s Wholesale had developed a strategy that separates them from the others. These specific strategies are focused on the Inner Circle (based on a customer friendly shopping experience):
COSTCO - highest sales figures from 2006 to 2009 when compared to industry competitors.
- maintained a profit margin of 12% from 2006-2008 and 13% in 2009.
- fairly low debt-to-asset ratio. (Never higher than .56 during the period of interest) With few external forces impacting the wholesaler industry, it can be assumed that there will be no major changes in the next five years. Costco has established itself in the industry by providing value with higher quality goods at extremely competitive prices.
Sam’s Club and B.J.’s will continue to grow and expand but they currently do not pose a threat to overtaking Costco as the number wholesaler. With a diverse inventory including food, clothing, electronics and even some premium goods like jewelry, Costco has a broad customer market that will remain strong. Given Costco’s current model, there is no foreseeable changes in the industry. In order to sustain positive gowth:
- Costco must continuously reevaluate the market place and industry.
- Costco should consider further expansion of warehouse locations through Asia.
- Costco must continue to position themselves as the lowest-cost provider for high quality products. Financial Improvement:
- Costco has a competitive positioning that cultivates productivity and opportunities for growth.
- Costco has undergone an additional, benificial promotion by indroducing "Executive Status" memberships to loyal customers. Recommendations to Costco... Way to increase revenue stream:
- trimming down on the amount of renovation being done to unsuccessful stores
- focus on strategically locating demographics where their stores would thrive if they choose to expand.
- up the quality of their products and limit the amount of private brand options available.
- increase the cost of their membership annually, allowing for a larger cash flow each year.
Way to increase revenue stream:
- It is essential that BJ’s start to differentiate themselves as a player in the warehouse industry by skimming down the food selection to a smaller scale which would allow for greater competition among smaller grocers or supermarkets.
- venture pass the Eastern United States in order to build a better brand image across the United States.
- could lower the product assortment they carry and advertising/promotion costs they pay allowing them to focus on offering up value to customers with high quality products and lower prices. Rivalry among competitors is high with the main driver being low prices. With such large economies of scale and the lack of a distributor, warehouse clubs are able to offer direct discounts on items. With low prices being the driving force of the industry, each warehouse club must differentiate itself in some way to create an advantage over its competitors.
- Costco sells premium goods at a very low cost, usually only leading to a very small profit margin, yet they have made this a very successful strategy.
- B.J.’s has established and maintained the second industry leading position and is the only warehouse operator to accept manufacturers’ coupons. B.J.’s also places more emphasis on customer service such as express checkout lanes and video based sales aids.
- Sam’s Club has a plethora of stores across the United States and focuses on generating a superior shopping experience and great value Costco’s global expansion has been successful and they should continue to develop their international operations. Not only is international expansion beneficial for revenue growth, but they must expand globally to remain competitive with rivals like Sam’s Club. Costco Wholesale Club Sam's Club BJ's Wholesale Club BJ's Wholesale Club
2010 2009 2008 2007 2006
Sales $ 9,954 $ 9,802 $ 8,792 $ 8,280 $ 7,725
Operating Income $ 224 $ 221 $ 195 $ 144 $ 214
Net Income $ 132 $ 135 $ 123 $ 72 $ 129
Costco Wholesale Corporation
2009 2008 2007 2006
Sales $ 71,422 $ 72,483 $ 64,400 $ 60,151
Operating Income $ 1,777 $ 1,969 $ 1,609 $ 1,626
Net Income $ 1,086 $ 1,283 $ 1,083 $ 1,103
2010 2009 2008 2007 2006
Sales $ 46,710 $ 46,899 $ 44,336 $ 41,582 $ 39,798
Operating Income $ 1,512 $ 1,646 $ 1,648 $ 1,480 $ 1,407
Net Income Unavailable
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