Warehouse Clubs Case

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1.The leading warehouse clubs in North America competes through prices and operating costs. These companies cut their operating costs to shoulder the low prices they are offering to the buyers. They also offer broad merchandise selection which attracts small-business owners, organizations and individuals.

The three dominating companies were Costco, Sam’s and BJ’s which have 56, 36 and 8 percentages of shares in the market respectively. According to the figures given in the case, a five-forces analysis of the industry would be:

Buyer Bargaining Power:
-Buyers can easily switch brands.
-Buyers have a strong leverage.
Substitute Products:
-Substitute products are abundant.
-Substitute products would create a price ceiling.
Supplier Bargaining Power:
-There are many suppliers of the products.
-The products are easy to substitute
-Input materials are not in scarce.
Threat of New Entry:
-Economies of scale
-Pricing trend
Competitive Rivalry:
-There are many wholesale sellers in the market
-There is low switching cost
-Trend in price reduction by competitors

Among these factors, competitive rivalry, supplier and buyer’s bargaining powers must be the most significant. Buyers are always looking for better prices within the industry, thus, wholesale clubs are forced to lower their prices to attract customers. Suppliers also play an important role in maintaining these low prices. Competition is a big factor because the competitors are similarly capable of countering each other.

2.The three warehouse club rivals did not employ similar strategies. Costco used low-cost strategy which they were able to provide customers low-priced items with good quality. Sam’s, on the other hand, purchased merchandise from low-cost labor countries in order to reduce their product costs. For BJ’s strategy, unlike with the other two, they offered smaller packaged goods for retail customers and it was the only major warehouse club that...
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