Since 1983, Costco Wholesale has risen to the top as the most proficient, efficient, and effective wholesale distributors in the world. By using a strategy based around ultra-low prices, a limited selection of nationally branded private labeled products, a treasure hunt shopping environment and operating with low operating costs, as well as geographic expansion, Costco has been able to distinguish itself from its competitors as the leading wholesale provider in the world. While Costco is the leading wholesale provider in the world, it still has obstacles and barriers to navigate through as it continues to sustain its operations. To summarize some of these challenges and to determine which of the challenges is the strongest and why, the 5 competitive forces model will be used. The 5 competitive forces model holds that competitive pressures on companies within an industry come from 5 different sources. These include: 1. Competition from rival sellers
2. Competition from potential new entrants
3. Competition from producers of substitute products
4. Supplier bargaining power
5. Customer bargaining power
Most often, the strongest of the 5 competitive forces is often the competitive pressures created by the rivalry among competing sellers. This remains true in this case with Costco Wholesale as well. The wholesale segment of retailing in North America as a whole produced over $155 billion in 2011 alone, and it was growing at a rate of 15-20 percent faster than retailing as a whole. The three competitors that dominate the wholesale market are Costco Wholesale, Sam’s Club ( the wholesale division of Walmart), and BJs Wholesale club. As of 2011 there were nearly 1,400 wholesale warehouses across the United States and Canada. Most major metropolitan areas had at least one to choose from. Costco Wholesale had around 57 percent of those warehouse distribution centers, Sam’s Club had around 35 percent and BJs and other small wholesale providers made up the other 8 percent. Judging strictly from the numbers presented, it would appear that Costco, at the time being, holds a firm grasp on the majority of the wholesale market. It holds a solid advantage over Sam’s Club and a significant advantage over BJ’s as the leading warehouse distributor in the United States and Canada. All wholesale providers aim to offer bulk at a lower price. Costco has distinguished itself as the leader of all these by paving the way for wholesale providers. By offering between 3.600 to 4,000 quality brand name items, and by offering a wide range of products of all types, from food to furniture as well as beginning to offer ancillary departments for other needs, Costco has remained ahead of its competitors as the leading wholesale provider.
The second and third strongest competitive force affecting Costco, is the potential that new entrants could break into the business and steal a market share away from wholesale distributors and providers offering substitute products. Wholesale providers like Costco don’t just compete against other wholesale providers; they also compete against retailers and discount operations such as Walmart or a Dollar Tree. With the growth of other online mass retailing operations like Amazon that offer low prices and free shipping on many items with a discount membership, it has grabbed a portion of the market share. However, the competition from other retailers and discounters, the low prices and merchandise selection found at a wholesale provider are still attractive to small business owners, non- profit organizations, restaurants, and those with large families.
Supplier bargaining power is most likely one of the least affective of the competitive forces affecting Costco. However, the suppliers of Costco Wholesale do have some bargaining power, although it may be weak. Supplier bargaining power tends to be weaker when the industry members being supplied have a low cost to switch to an alternative...
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