Costco has a limited eCommerce presence this means they are unable to attract younger customers. Busy urban/city population and the millennials prefer quick shopping through local stores or eCommerce sites and the goods delivered to their doorsteps. It is mostly attributed to its lack of digital advertising and limited eCommerce. The majority of its customer base lives in the suburbs, owns vehicles, and buys in bulk. It means the organization lacks a global presence.Īging customer base: Costco has an aging problem. Out of the 782 Costco warehouses around the world, 543 and 100 are located in the US and Canada, respectively. They also account for 80% of its revenue. Lack of Global Presence and high dependence on selected markets: Although Costco has a large number of warehouses around the world, the US and Canada account for the majority of its warehouses.
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You would spend additional cost in transportation with Costco as compared to other online retail giants like Amazon and Walmart’s (e-commerce) subsidiary Jet.com that offers free / discounted shipping.
In an average Costco store, you would find about 3700 product SKUs compared to 150,000 product SKUs at Walmart and 80, 000 product SKUs in a Target store.Ĭost of Transportation: When you buy items in bulk, transportation can become very difficult, especially for people living in urban areas or cities. But your choice for individual products is limited in relation to other retail giants. Limited Product Selection: When you shop at Costco, you have a wide variety of products ranging from clothing, furniture, jewelry, toys, TVs, and lots more. The strategy has influenced other retail giants like Walmart and Target to raise their employee salary. The retail giant currently pays a minimum wage of $15 per hour, which has enabled them to hire a highly-skilled workforce. High Paying Retail Jobs: Costco has built a happy workforce and a loyal employee base by paying the highest salary and benefit amongst its competitors. Costco’s strategy is to maintain a good perception of its products and services, which has ensured brand loyalty. Quality is achieved through direct bargain and purchase from manufacturers. High-Quality Products: One of Costco’s philosophy is to provide its members with the highest quality products at the most competitive prices. It enables the organization to be less reliant on making huge profit margins in sales, thereby allowing its customers to have better savings on purchase. Pass savings to customers: Costco maintains a competitive edge by keeping the operational cost as low as possible. In an interview, Jim Sinegal, Cofounder, and former CEO, says that “ Advertising is Evil because it cost huge sums of money, which would lead to higher prices of the merchandise and that’s bad for the company and our customers.” In comparison, Walmart spent $2.9 Billion, and Target spent $1.4 Billion on advertisement in 2018.
Doesn’t waste money on advertising: Costco has no budget for advertising.In 2019, member renewal rate was 91% (US) and 88% (Canada). Costco has 5 million cardholders (2019) around the world, and their cardholder’s membership has been growing year over year. Loyal Customer Base: Costco has been able to build a large, devoted, and loyal customer base. And only the paid members can shop at Costco. Membership Business Model: Costco’s business model is different than most other retailers they charge an annual membership fee of $60 from its members. The organization wants to be known for a high-quality, low-priced For example, according to fortune, an average markup at Costco is 11%, vs. Costco adopts a strategy of stocking high-quality items, which are sold in bulk-size at low-profit margins in warehouses style stores. Low Prices: Costco’s low price strategy is a major strength of the retail giant.
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