Costco External Industry Analysis

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Introduction

Costco has grown from a single location in Seattle, Washington and is now the largest membership based retailer and currently the 6th largest overall retailer in the United States. In 2011, Costco saw a 10% increase in sales and in 2012, Costco is planning on opening 14 new store locations, three of which will be outside of the US. Costco is no longer a small local retailer but now an international company with different threats and opportunities. As the company continues to grow, it is important for Costco to understand the external threats and opportunities that will impact the company in either a positive or negative way. In order understand these forces a SLEPT analysis is used to analyze the social, legal, economical, political and technological impacts on Costco.

SLEPT Analysis
Social
Recently, manufactures have been under attack for exploiting overseas workers for cheap labor. Companies like Apple and Victoria’s Secret are recent examples of companies that have been criticized for the companies labor activities. According to a story by the New York Times, “Employees work excessive overtime, in some cases seven days a week, and live in crowded dorms. Some say they stand so long that their legs swell until they can hardly walk (par. 8).” Many of the workers are children forced to work in these conditions. In the same article by the New York Times, a former Apple executive said: “most people would still be really disturbed if they saw where their iPhone comes from (par. 26).” As stories like these start to come to light, Costco could begin to face pushback from consumers of these products, many of which Costco sells. Costco can see this as an opportunity to push manufacturers to implement changes in the manufacturing process. Costco may also be threatened because, if manufacturers are forced to change the manufacturing process, it will result in higher prices and sales will plummet. Also consumers may choose not to purchase these products.

Legal
The huge health care reform bill is beginning to impact businesses. According to Jose Pagliery of CNN Money (2012), “some are already holding back on spending, afraid of costs that will come with covering employees. Others are marching on with plans to grow, eager to apply for tax credits that passed with the law in 2010 (Par. 3)”. Although the impact has not negatively effected hiring because consumer demand is high, Jose (2012) says that businesses “acknowledge fears of the most sweeping portions of the Patient Protection and Affordable Care Act, which go into effect in 2014. That year, all small firms with more than 50 full-time employees will have to provide coverage or face expensive fines (Par. 4)”. Costco needs to know and understand how these new healthcare laws will affect the company, as well as many of its smaller suppliers who will be much more impacted by the new laws.

Economic
Promising numbers in January for major retailers have been released and show an impressive 4.2% increase in sales over January 2011. This news more than doubles the expected increase of 2%. The increase is a welcome sign and shows that the consumers are beginning to spend more. Costco was third among major retailers with a 10.8% increase in sales. Among all major retailers, 59% showed an increase in sales. Increased sales are positive news for Costco; not only because of the large increase in sales for Costco, but that there is an overall improvement in the economy. As consumers are beginning to spend, Costco can be more confident in its expansion.

Political
A huge threat that faces Americans in the near future is the rising energy costs, especially rising oil costs. Recently, oil has reached over $105 per barrel as Iran's Oil Minister Rostam Qassemi had warned “that Tehran could cut off oil exports to "hostile" European nations (Par. 7).” According to Caroline Bain of the Economist Intelligence Unit, “The price rise is more a reflection of concerns about...
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