Costco Analysis

1. What is competition like in the North American wholesale club industry? Which of the five competitive forces is the strongest and why? Competition in the North American wholesale club industry is pretty high. Sam’s Club and BJ’s are Costco’s main competitors and they are all trying to achieve lower prices by cutting corners where they can. Walking into a wholesale store, the customer will not see any extravagant displays, they will see what could be mistaken for a warehouse full of inexpensive shelving and very little store décor. Another way that these types of stores keep their prices low is by reducing their labor costs. There are very few employees on the floor and these types of wholesale facilities are very much self-serve. Porter’s five competitive forces within the industry are very important to recognize; however, rivalry amongst existing competitors appears to be the strongest force in this instance. Industries offering substitute products does not really come into play here because wholesale stores generally deal with larger quantities of their products. Bargaining power of suppliers is also an important factor in a sense that in order to keep their prices low, the company must develop a good relationship with their suppliers. The threat of new entrants is relatively low, but the bargaining power of buyers is an important factor to take into consideration. Customers are always looking for lower prices and the demand is pretty high.
2. How well is Costco performing from a financial perspective? Visit www.costco.com to see results after 2011 and what are the latest financial results for Costco? From a financial perspective, Costco is performing very well. According to Exhibit 1, their net sales rose $10,793,000,000 from 2010 to 2011. The acid test of 0.47 should be better to ensure that Costco would be able to pay their current liabilities, which totaled $12,050,000,000. Since the acid test ratio is much lower than the working capital ratio of