Costco’s Mission, Business Model, Strategy

& SWOT
UPDATED ONUPDATED ON MARCH 25, 2017 BY LAWRENCE
GREGORY

A Costco
Wholesale store in Taiwan. What are Costco’s mission, business model, strategy, and SWOT
(strengths, weaknesses, opportunities, threats)? (Photo: Public Domain)
Costco Wholesale Corporation’s case shows that the business continues to grow and expand.
The company now has operations in overseas locations, such as Taiwan. The firm is among
the biggest retail organizations in the world today. As a retail firm, Costco depends on
consumer purchasing capacities. Consumer perceptions also have a significant impact
because competition is high in the retail market. Competition from firms like Walmart is
especially notable. Costco must maintain competitive advantage to ensure long-term viability.
At present, the ability of this company to continue growing and expanding is based on its
affordable quality goods and services.

Costco Wholesale uses its business model to follow its mission statement. However, the
internal analysis elements (strengths and weaknesses) and external analysis elements
(opportunities and threats) show that Costco’s managers must formulate new strategies for
sustained growth and development of the firm.

Costco’s Mission, Business Model & Strategy

Mission. Costco’s mission is “to continually provide members with quality goods and
services at the lowest possible prices.” This mission statement is directly linked to its
business model and strategy. The firm’s mission emphasizes quality and cost leadership,
which are factors consumers usually look for in the retail market. Thus, the mission statement
guides actions that contribute to Costco’s competitive advantage.
Business model. Costco uses a membership-only warehouse club business model. In this
model, consumers pay a membership fee to access the low-cost products available at Costco
stores. Non-members may accompany members, but only members are allowed to purchase
in these stores. However, non-members can use Costco Cash Cards to shop at the company’s
stores. Competitors Sam’s Club and BJ’s Wholesale Club also use the same business model.

Strategy. Costco’s generic strategy is cost leadership. This strategy entails maintaining the
lowest prices possible. Retail giants like Walmart also use the cost leadership strategy.
Costco’s strategy also combines the membership warehouse club business model to
differentiate it from other retail firms.

The company’s business model is a core factor that enables Costco to follow its mission. In
fact, this business model aligns with the company’s mission. The generic strategy of cost
leadership also agrees with and is needed to sustain Costco’s business model.

SWOT Analysis
Main article: Costco Wholesale SWOT Analysis

Costco’s Strengths (Internal Forces)

The company’s success capitalizes on the main strengths of the business, as follows:

 The company has very attractive low prices on practically every good or service
offered in its stores and on its website.
 Costco has rapid inventory turnover combined with high sales volume, contributing to
higher revenues. The high sales volume ensures high revenues in spite of low selling
prices.
 The high sales volume contributes to high operating efficiency. Higher operating
efficiency is achieved through minimization of variable costs. Variable costs are
lower when volumes are higher.

Costco’s Weaknesses (Internal Forces)

Even though Costco is profitable and one of the largest retailers, the business suffers from the
following weaknesses:

 Costco’s main weakness is the membership-only warehouse club retail business

model. This model encourages customers to buy at Costco stores, but also limits the
total number of customers. Non-member consumers might feel unwelcome at Costco
stores.
 The company has the weakness of the limited array of goods and services. Customers
might go to other retailers like Walmart, which has a wider array of goods and
services.

Opportunities for Costco (External Forces)

To ensure long-term viability, Costco must consider and exploit these opportunities in the
industry:

 The company has the opportunity to enter new markets, such as markets in developing
Asian countries.
 Costco has the opportunity to expand the coverage of its e-commerce websites. The
company currently offers online services to the United States, Canada, United
Kingdom, Australia, Mexico, Taiwan, South Korea, Japan, and Spain.
 The company also has the opportunity to increase the variety of its goods and services
to improve the attractiveness of Costco stores to a more diverse population of
consumers.

Threats to Costco’s Business (External Forces)

Threats in the retail market impose limits and barriers to Costco’s growth and expansion.
These threats are as follows:

 The entry of new membership warehouse club retail companies threatens Costco’s
potential to succeed in overseas markets. In overseas markets, new membership
warehouse clubs are opening.
 The aggressive marketing of other retail firms also threatens Costco.

Final Note
Costco Wholesale Corporation is a highly viable business. The business has the essential
strengths to take advantage of opportunities in the retail industry. The firm’s low prices make
it attractive even during times of economic difficulties. The company has opportunities to
address threats to its long-term viability. The firm could use its website and its network of
suppliers to compete against new membership warehouse club retail companies. Costco is
expected to continue to grow in the years to come. Expansion in overseas markets could also
further boost the company’s success.

References

 Cascio, W. F. (2006). Decency means more than “Always low prices”: A comparison
of Costco to Wal-Mart’s Sam’s Club. The Academy of Management
Perspectives, 20(3), 26-37.
 Costco’s Official Website.
 Costco Wholesale Corporation. The Costco Story.
 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.
 Greenhouse, S. (2005, July 17). How Costco Became the Anti-Wal-Mart. The New
York Times.
 U.S. Bureau of Labor Statistics. Industries at a Glance: Retail Trade.
 U.S. Census Bureau. Guide to Data Sources for Retail Trade from the U.S. Census
Bureau.
 U.S. Department of Commerce. The Retail Services Industry in the United States.
 U.S. Securities and Exchange Commission. Subsidiaries of the company: Costco
Wholesale Corporation subsidiaries.
  USDA Economic Research Service. New Directions in Global Food Markets.

TAGS: BUSINESS MODELS, CASE STUDY & CASE

ANALYSIS, COSTCO WHOLESALE, GLOBAL
ECONOMY, OPERATIONS MANAGEMENT, RETAIL
INDUSTRY, SWOT ANALYSIS
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