CostCo Wholesale: Competitive Advantage and Sustainability Analysis

Essay by calacayoUniversity, Master'sA, April 2010

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Competitive Advantage and Sustainability Analysis



Costco Wholesale opened its first store in Seattle, Washington in 1983. Founders Jeff Brotman and Jim Sinegal had a simple yet powerful idea: allow people to save on basic necessities and consumer staples while taking advantage of special offers on high-end luxury items and durable goods. With $71 billion in sales and more than $1 billion in net income for their latest fiscal year, Costco is the leading player in the warehouse club segment of the discount retail industry, the fifth largest retailer in North America and ninth in the world.�

This objective of this paper is to analyze Costco's competitive advantage and business strategy. As part of this analysis, we will compare Costco's business model to its closest publicly traded competitor, BJ's Wholesale, to understand the competitive dynamics of their interactions with customers. Furthermore, we will analyze whether Costco's competitive advantages are sustainable in the long run.

Market Overview and Key Competitors

The discount retail business is highly competitive. The warehouse club segment features three players with combined sales of $128 billion. Costco and Sam's Club (a subsidiary of Wal-Mart) account for 55% and 37% of sales respectively, and BJ's Wholesale comprises 8%.� In addition to warehouse clubs, Costco competes with national and regional retailers such as supermarkets, supercenters and general merchandise retail competitors like Target, Kohl's and Wal-Mart. To a lesser extent, Costco also competes with single category competitors such as Lowe's, Home Depot, Trader Joe's and Whole Foods.� However, Sam's Club and BJ's are the primary competitors in the segment, with Sam's Club representing its most significant threat due to its parent company's greater financial resources, supplier pricing power and market penetration. Given this context as well as competitive pressures, Costco has managed to retain its leading position because...