The Costco wholesale corporation is a firm company. Over the past five years, the company’s share price has enlarged, $1.60 dividend (1% yield) is offered to Costco’s investors, but there is more to account. By having a unique business model, the company believes it will impact its long-term outlook. Costco’s business model is to have the prices remain as low as possible that they are hardly above price and the lost potential revenue is made up by selling memberships.
Costco’s revenues are fairly stable, members paid about $2.5 billion in membership fees, which is about 17% of Costco’s $15.13 gross profit of the year before, and over half of the earnings before interest, taxes, depreciation and amortization (EBITDA) of $4.78 billion (Renee Butler). But risks can come with using this business model.
Costco has been operating more than 760 membership warehouse stores, it generates most of its sales in the US and it is the nations biggest wholesale club operator. It serves almost 85 million cardholders in about 45 US states, Washington, DC, and Puerto Rico, and some other countries.
In less than six years, Costco was able to become the first company ever to grow from zero to $3 billion sales. In 1993, Costco and Price Club merged and operated under the name of PriceCostco, they had 206 locations and $16 billion generated in annual sales. Costco’s net income has also had a steady growth and for the fiscal year 2018 it reported to have earnings of $3.134 billion (USD) with an annual revenue of $141,576 billion (USD), an increase of 9.7% over the previous fiscal cycle. Costco wholesale focuses much more on employees than other Fortune 500 companies. It does so by offering fair wages and top-notch benefits, it has created a positive environment in the workplace with high-energy, and talented employees.
SWOT Analysis for Costco Wholesale:
Strengths: Costco Wholesale Corporation is the second biggest retailer in the world after Walmart. This company is unique in the sense that it is a very profitable company and its net profit increases year after year. Costco makes sure to keep operational expenses as low as possible, this is achieved by reducing all unnecessary expenses such as sales associates, store property, shipment costs, budgeting, and store costs. Another strategy Costco uses to save is by not giving out extra bags, limiting customers from coming to the store and having bags already provided to them. They either carry their own bags, use a shopping cart, or empty merchandise shipping boxes. Costco Wholesale is a very profitable company, it has proven that from being the most profitable in 2018 and the net profit increasing year after year.
Weaknesses: The downside of Costco is its limited product volume; comparing other large retail stores in the US and Costco, the Costco warehouse stocks a much smaller number of products. Per example, Walmart stocks about 50000 products while Costco stocks only 4000. This weakness acts as a competitive disadvantage for the company. Costco manages to fall short in the area of geographic dependence, seeing as 80% of the companies net revenue stems from Canada and America it can be extremely threatening if a successful company emerges in those districts resulting in a possible economic slowdown.
Opportunities: E-commerce are commercial transactions made electronically on the internet, the E-commerce industry grows at higher rates and it has been a strong growth all over the world. Costco is one of the company’s to have a strong presence in E-commerce. By increasing the global household income levels, the company’s overall revenue can increase and this can help the company. Demand increases exponentially in consumer electronics, clothing industry, and food and beverages.
Threats: The company operates in the presence of intense competition such as Walmart, and Target etc. This can minimize Costco’s total amount of sales and growth as well. Internet retailers can also be a threat to the company, Amazon is an example of an internet retailer, it is the worlds largest online retailer and a well-known cloud services provider. Therefore, it is a huge danger to the company in the present and the future.
Costco Wholesale is always focused on expanding, it has opened over more than 100 new wholesale clubs in the last five years and 25 new locations are being planned for in 2019, one of the store locations is in China. However, like any other company it has weaknesses. But many opportunities for growth as well, especially since the average household income has been increasing fairly. Costco has been on the rise and will keep on growing and great things can be expected from the company.
A decision from you by June 30th, 2019 would enable this smart long-term investment project to remain on schedule, which is assured to rise overtime based off previous market trends.
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