Written By:

Shark Consultants

COSTCO & THE WHOLESALE CLUB INDUSTRY

5/7/2012 Analysis & Recommendations

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Table of Contents Executive Summary ........................................................................................................................ 2

Recommendations ........................................................................................................................... 4

International Expansion .............................................................................................................. 4

Self-Checkouts / Mobile Application ......................................................................................... 4

Overall Position .............................................................................................................................. 5

Opportunities............................................................................................................................... 5

Threats......................................................................................................................................... 5

Competitive Pressures Created by the Rivalry among Competing Sellers ................................. 6

Competitor Pressures Associated with the Threat of New Entrants ........................................... 7

Competitive Pressures from the Sellers of Substitute Offerings ................................................ 8

Competitive Pressures Stemming from Buyer Bargaining Power .............................................. 9

Competitive Pressures Stemming from Supplier Bargaining Power .......................................... 9

Driving Forces in the Macro-environment ................................................................................... 10

Improvements in Technology ................................................................................................... 10

Recession of 2008 ..................................................................................................................... 11

Key Success Factors ..................................................................................................................... 11

Low Operating Costs .................................................................................................................... 12

Merchandise Quality & Selection ............................................................................................. 12

Location .................................................................................................................................... 13

Member Services ...................................................................................................................... 14

Costco Analysis ............................................................................................................................ 14

Is the strategy working? ............................................................................................................ 14

Costco Strengths ....................................................................................................................... 15

Costco Weaknesses ................................................................................................................... 16

Works Cited Page ......................................................................................................................... 17

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Executive Summary The warehouse and wholesale industry is attractive at this time, even though the industry faces

some threats from rivals and substitute products there are many opportunities for expansion into

international markets. There is a high degree of competitive pressures created by the rivalry

among wholesale clubs, mainly because there are only three major competitors competing for

market share. The cost-based strategy employed by these clubs has resulted in low profit margins

and an intense battle for market share.

Wholesale clubs face a weak threat from new entrants because of the high barriers to entry

including economies of scale. Current wholesalers employ a membership strategy, with annual

fees that allows them to price their products just above cost, resulting in high member

satisfaction, and member retention.

Wholesale clubs face moderate pressure from discount supermarkets and other big box retailers,

such as electronic, department stores and online retailers which can provide alternative sources

of bulk bargains or low prices. Customers may choose not to shop at wholesale clubs because

other alternatives can offer a relatively low cost experience with a larger variety. Warehouse

clubs are forced to comply with the demands of their price sensitive members regarding lower

prices because of the fees they pay for membership.

Since the companies in this industry are very similar, consumers have the ability to command

low prices because they are able switch to another rival after their membership expires at a low

cost, without losing any major services that are offered. Wholesale clubs face moderate pressure

from suppliers even though they are able to utilize economies of scale.

The creation of the mobile internet on smartphones has made it easier for consumers to make

purchase during the economic recession. Self-checkouts enable businesses to reduce customer

checkout waiting times and payroll costs. Many retail businesses, such as Costco, have taken

advantage of the popularity of smart phones by creating applications for them that allow users to

make purchases or obtain information about the company.

Costco currently averages more than 100,000 members per store, which is more than 60% more

than Sam’s Club, which is its closest competitor. Within the wholesale club industry, there is an

importance placed upon low operating costs, the merchandise selection and quality, location, and

the amount of differentiated services offered. Low operating costs are crucial to success in the

wholesale club industry because it helps keep prices low, which are important to success because

consumers that shop at wholesale clubs tend to be price sensitive.

These warehouse clubs offer a narrower selection of merchandise by selling fewer brands and

mostly only larger sizes but still at a high quality which is important to these clubs success

because it gives their customers value. One way these companies offer extreme value is through

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a program called treasure hunt merchandising, which creates anticipation among their members

and brings them into the store more frequently.

An effective store placement strategy is important to success because it can reduce costs, and

increase revenues. Industry participants each offer a differentiated selection of services that

separates them in an industry where companies are very similar. Costco’s value based strategy

with a broad differentiation has helped them become the most profitable company among their

competitors.

Costco has attained a market leadership position, and are continuing to grow faster than both

Sam’s Club and BJs. Costco competes with its rivals using comparable profit margins at 1.55

percent to attract more customers by providing value to their purchases. The company has almost

20 percent more members than its competitors and yet they are operating 22 percent less stores

than their closest rival.

Costco’s strong brand recognition and wide geographic coverage has helped them attract

customers and drives sales. As of March 2010 Costco Wholesale ranked third largest retailer in

the United States and the eighth largest in the world. Implementing cross-docking depots,

maximizing freight volume, and eliminating multi step merchandise handling, enabled them to

sell inventory at very low prices.

CEO, Jim Sinegal who had a unique talent for discount retailing and a long career of field

experience was one of the company’s strongest competitive strengths. Finally the company’s

large market share and wide geographic coverage put them in a position of industry advantage.

Costco maintains a high percentage of current liabilities which is because they have an efficient

supply chain that gets the merchandise on their showroom floors in less than 24 hours.

Referencing the concept of continuous improvement one might consider Costco’s pricing and

profitable recession period to be shortcomings in a business.

The current recession has led to changes in buyer preferences, with unemployment above 9%,

consumers who had previously been spending carelessly have been very cautious. As the

economy slowly turns around from the 2008 recession, there is an underlying possibility that

Costco shoppers will move away from warehouse clubs because they are more confident in the

economy which leads them to be willing to spend more money or become less price sensitive.

Sam’s has an advantage in the industry because it is owned by Wal-Mart, and gives them more

buyer power and more efficient distribution systems.

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Recommendations

International Expansion

Costco should open operations in China and Brazil because over the past ten plus years these

countries have seen strong growth rates and have been heavily industrializing and incomes have been on

the rise and there are very high population densities in the major metropolitan areas. In 2010 the

company’s most profitable store was in Korea and its second most profitable store was in Taiwan. Both of

these countries have high population densities which is a huge factor for Costco’s success there because it

helps the supply chain of the region run more efficiently and provide a large pool of potential customers

to become members. The cities Costco should first open stores in these countries are Beijing, Shanghai,

Hong Kong Sao Paulo, Rio Di Janeiro because of their high population densities.

Costco should slowly move into Brazil and China by first opening a couple of test stores to make

sure they will be successful there. There are some political concerns around these two countries but they

are large global players in the economy and it should still be profitable for Costco to expand to Brazil and

China. Another advantage for Costco to expand into these countries is that Costco already has the

distribution centers somewhat close to each of those countries. Korea and Taiwan where Costco already

distributes is very close to China and Mexico and Puerto Rico is at least in the same region as Brazil.

Self-Checkouts / Mobile Application

Costco should invest money in self-checkout register as way to reduce costs while improving

customer service through reduced wait times. Investing in this technology would require a large initial

investment, but it would reduce the amount of employees needed. Warehouse stores rank the lowest of all

big box retailers in terms of customer service; the most common complaint is long checkout lines. This

would reduce that because you can have many of these registers, without any additional manpower except

for someone to monitor them. Implementing this strategy would be most effective if the changeover is

done gradually. This would also allow customers unfamiliar with the technology to learn them. They

should keep mostly traditional registers, especially at first, to give consumers the option. Some

consumers, especially the elderly are unwilling to use this technology, so this option would benefit them.

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Costco should do implement this on a store-by-store basis in order to see if their operating efficiency has

improved, and to get feedback from customers.

Costco should implement a smartphone application strategy that would serve as a mobile

checkout register while shopping within the store and it would allow them access to shop at the website,

away from the store. This is a less expensive way to implement the self-checkout register idea because

there is minimal investment in hardware. It would take advantage of a technology that consumers are

already comfortable with. To implement this, they would need to contact the appropriate people to create

the application, and they would need to invest in wireless technology for their stores as well as training

for their employees.

Overall Position Opportunities

The greatest opportunity for these companies is through expansion into international markets.

Although both Costco and Sam’s Club have an international presence, there are many markets they can

capitalize on. The company who implements this type of expansion strategy could find it easier to gain a

firm grip on market share through brand loyalty.

Recent advances in technology have created an opportunity for this industry. One such

advancement is the creation of self-checkout registers. These registers benefit the company by reducing

payroll costs, and benefit the customer by decreasing their wait time at checkout. An additional

advancement in technology is the creation of smartphones application systems, which allow companies to

create applications that enable the consumer to obtain company information, as well as making purchases.

This added convenience for the consumer should result in increased revenues.

Threats

There are numerous threats that have the potential to compromise the future revenues of the companies

within this industry. These threats include an intense rivalry among the three main competitors that share

almost complete market share, a moderate chance that consumers will choose a substitute product over

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the ones sold in clubs, and a high amount of buyer power which puts these clubs at a disadvantage. Along

with this, these companies must currently compete for market share during an economic recession. The

current recession has made consumers more cautious when it comes to their spending habits, making

them less likely to spend on non-essential items.

The Five Competitive Forces that Shape Strategy The warehouse and wholesale industry is attractive at this time, even though the industry faces

some threats from rivals and substitute products there are many opportunities for expansion into

international markets. The lack of presence in the majority of countries outside North America is a great

opportunity, in which the first to act could acquire brand loyalty and economies of scale in other markets

before competitors. There are however many threats to the firms in this industry, which make it

unattractive. These threats include an intense rivalry among the three main companies, a moderate chance

of consumer choosing firms offering substitute products over the ones sold in these clubs, and the high

amount of bargaining power puts these firms at a disadvantage.

Competitive Pressures Created by the Rivalry among Competing Sellers

There is a high degree of competitive pressures created by the rivalry among wholesale clubs,

mainly because there are only three major competitors competing for market share. The limited number

of firms competing has created an intense battle for customer business. Intensifying the rivalry between

Costco, Sam’s Club, and BJ’s is the cost-based strategy implemented by all three. Each company attempts

to attract customers by differentiating themselves from their competitors through the creation of private

label brands to increase the demand to shop at their stores, which has sparked a battle for location

supremacy.

The cost-based strategy employed by these clubs has resulted in low profit margins and an intense

battle for market share. With this strategy, these companies provide their customers with products of

equal quality to that of supermarkets and large box retailers, but at steep discounts. As part of this strategy

these companies have a minimal advertising budget. Some of the advertising they do includes newsletters

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to members, but in the case of BJ’s they put some money into radio and television. They also use

charitable donations in order to both advertise, and get a more socially responsible image Wholesale

clubs have agreements with manufacturers in place for the creation of their own private label brands,

which has led to increased differentiation but with mixed results. These brands are used to attract

members away from their competitors by offering a high quality product at an even better value when

compared to brand names. Member’s Mark of Sam’s Club, or Kirkland Signature brand of Costco are

some examples. Costco refuses to sell private label products at their stores unless they can sell them at a

deep discount from the brand name products that they sell. Their Kirkland Signature line has done very

well in the past and over the past four years they have expanded their product offerings from 400 to 600

products. On the contrary, BJ’s has reduced their private label offerings from 13% of their food and

general merchandise sales in 2007 to 10% in 2009. They kept only products with the highest margins or

biggest sales volumes.

Competitor Pressures Associated with the Threat of New Entrants

Wholesale clubs face a weak threat from new entrants because of the high barriers to entry

including economies of scale. New entrants would find themselves at a size disadvantage, and unable to

achieve economies of scale which would force them to charge higher prices to cover their costs. This

makes it very difficult for new companies to compete because low prices are important to success in this

industry. Economies of scale in this industry are somewhat unique because in a typical industry, the

largest company enjoys the largest cost advantages. Sam’s Club, which is the second largest company,

enjoys the largest cost advantage because they are backed by the purchasing power of their parent

company, Wal-Mart.

Current wholesalers employ a membership strategy, with annual fees that allows them to price

their products just above cost, resulting in high member satisfaction, and member retention. The low

profit margins create a strong barrier to entry because anyone that is trying to come into the market will

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not be able to undercut their prices and still operate at a profit. Companies intentionally have these

incredibly low profit margins because it makes it almost impossible for new companies to enter the

market. Costco offers memberships to individuals as well as businesses, for a reasonable price, and

because of this combined with low prices, makes customers feel as if they are getting an insider’s deal.

Costco members are highly satisfied and renew their memberships 87% of the time. This makes it

difficult for new entrants because most of the consumers will only have a membership at one of the

retailers because it costs them money to become a member and they mainly become members to enjoy all

of the money saving benefits. Potential new entrants would need to pry these members away from their

potential competitors which could be expensive and time consuming.

Competitive Pressures from the Sellers of Substitute Offerings

Wholesale clubs face moderate pressure from discount supermarkets and other big box retailers,

such as electronic, department stores and online retailers which can provide alternative sources of bulk

bargains or low prices. It must be considered that consumers aren’t looking to purchase in large quantities

all of the time, which increases the chance of losing business. This is especially true when it comes to

perishable grocery items, where people might prefer to go to a supermarket. If a customer wants to

purchase bread at BJ’s, they might have to purchase more bread then they can use before it expires and

becomes stale. Customers in this case are more willing to purchase a loaf or two at larger per unit cost,

because it ends up costing less because they will not be paying for more than they end up using. Even if

an item will never expire a customer might not choose to purchase the item in bulk even though the unit

cost is lower because they do not feel like they use it enough or they don’t want it to take up too much

room in their cabinets. A good example of this would be aspirin.

Customers may choose not to shop at wholesale clubs because other alternatives can offer a

relatively low cost experience with a larger variety. Although the size of wholesale clubs is much larger

than other retailers they carry much less product. Big box retailers typically carry between 125,000-

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150,000 products while Sam’s Club or Costco carry a mere 4,000. These supercenters have the same

product offerings, but many items are available with a much larger selection. Televisions for examples are

sold by both types of stores, but consumers may prefer to go to a store such as best buy where the quality,

selection, options, and staff expertise is better suited to fit their needs. If consumers need help with a large

purchase, they may go to a store where they can get specialized help because Costco has a limited number

of employees on the sales floor.

Competitive Pressures Stemming from Buyer Bargaining Power

Warehouse clubs are forced to comply with the demands of their price sensitive members

regarding lower prices because of the fees they pay for membership. Since prices and success in the

industry are directly related, companies operate at low profit margins which become attractive to

members in the form of low prices. Both Costco and BJs had a profit margin of less than 1.8% in each of

the past two years. Prices are so low the majority of the profit they make is from membership fees.

Since the companies in this industry are very similar, consumers have the ability to command low

prices because they are able switch to another rival after their membership expires at a low cost, without

losing any major services that are offered. Each club offers very similar selection of products and services

including food, clothing, electronics, and gas stations. Most have a vision center, fast food options, and

cell phone providers located inside the store. One service however that could be important especially to

the elderly is BJs lack of a pharmacy. The three major companies have many locations in the same areas

which include large metropolitan areas, suburbs, and high traffic routes.

Competitive Pressures Stemming from Supplier Bargaining Power

Wholesale clubs face moderate pressure from suppliers even though they are able to utilize

economies of scale. The level of economies of scale these companies have is restricted by the supplier’s

limited reliance on them because of the massive amount of retailers they sell to. The strategy used by

wholesalers gives them an advantage which reduces the power of manufacturers. Since these companies

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are not looking to carry every brand or every product and want to sell at low prices, they are not under

pressure to pay too high of a price in order to get all the contracts.

Trends in the Macro-environment

The creation of the mobile internet on smartphones has made it easier for consumers to make

purchase during the economic recession. With advancements in technology companies can save on

employee payroll by adding self-checkout registers. These also benefit the customers by decreasing their

waiting time in line. Companies are also creating apps for their consumer’s smartphones and tablets to

make it more convenient for them to shop and obtain information about their company. The results

companies are hoping for with these conveniences are threatened by the current economic recession. In

the current recession, consumers are becoming less likely to spend on non-necessities, which are the

majority of the items sold online and through these applications. Wholesale clubs are fortunate enough to

sell a lot of necessities as well, which has allowed them to perform better than most during these times

than many other industries.

Improvements in Technology

Self-checkouts enable businesses to reduce customer checkout waiting times and payroll costs.

Shoppers are most commonly dissatisfied from the amount of time spent in checkout lines, while payroll

costs are a concern for most companies. Self-checkout registers solve both of these issues because

companies can reduce wait times by placing more registers in store while decreasing payroll costs since

fewer cashiers will be needed. The ease and efficiency that comes with these registers should result in

more customers, which in turn will make the companies that choose to implement them, more profitable.

Companies are sure to invest in this technology to not only improve their customer’s experience but also

to remain competitive and gain market share.

Many retail businesses, such as Costco, have taken advantage of the popularity of smart phones

by creating applications for them that allow users to make purchases or obtain information about the

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company. These applications are a convenient alternative for busy consumers, such as small business

owners who are always on the go, to make purchases. This is a great competitive move for companies

looking to increase their online sales. Since convenience is important for success in retail, companies that

invest in this technology should have an advantage over their competitors.

Recession of 2008

The current recession has led to changes in buyer preferences, with unemployment above 9%,

consumers who had previously been spending carelessly have been very cautious. This change also

affected the underemployed and people with full time jobs because the unemployment rate kept rising and

there were widespread fears of future layoffs. Discount retailers saw an increase in business during this

time, including the wholesale industry. Companies such as Costco were able to see a slight increase in

sales due to their value or cost-based strategy. Sales were still affected however, because revenue from

non-essential products such as electronics saw a decrease.

Rivalry Analysis

Market Position of Rivals

Costco currently averages more than 100,000 members per store, which is more than 60% more

than Sam’s Club, which is its closest competitor. In 2010 they had the largest international presence with

153 stores. There 2 most profitable stores were in the Taiwanese and Korean markets. With the largest

market share of over 50%, and strong financials and growth prospects, Costco is planning further

expansion into the Taiwanese market which includes a new distribution center that will make it easier to

expand further in the future.

Sam’s Club has the most stores with about 730 but averages less customers per store compared to

Costco. They also have a large international presence with more than 133 stores. Sam’s club enjoys the

most bargaining power out of the three companies, along with very efficient distribution channels. Since

they are owned by Wal-Mart and have access to their distribution centers, they are backed by Wal-Mart’s

purchasing power. Since Wal-Mart Supercenters carry many of the same items that wholesale clubs carry,

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they purchase through the same suppliers. This puts pressure on suppliers to give discounts to Sam’s

Club, because otherwise they would risk losing Wal-Mart as a customer which could be devastating to

their operations.

BJ’s which the latest major competitor to join the industry has a much smaller member base and

market presence. The lack an international presence and are located almost exclusively on the east coast

of the United States. There are current plans to open more stores in the existing market but no plans to

expand into new markets.

Key Success Factors

Within the wholesale club industry, there is an importance placed upon low operating costs, the

merchandise selection and quality, location, and the amount of differentiated services offered. These four

factors have a significant contribution to the success of these firms because they all play a role in

attracting customers from their competitors, and because they are catering to a price sensitive, bargain

hunting member base.

Low Operating Costs

Low operating costs are crucial to success in the wholesale club industry because it helps keep

prices low, which are important to success because consumers that shop at wholesale clubs tend to be

price sensitive. The majority of the members that belong to these clubs are on a budget, so they tend to be

bargain hunters. Examples of members include small business owners, churches, and large families.

Unlike traditional big box retailers, wholesale clubs are set up to look like warehouses. When the

company buys inventory it is shipped to the warehouse floor within 24 hours. This helps keep their costs

low because they are able to keep extra inventory on hand instead of in separate warehouses, and thus

reduces overhead. It also reduces shipping costs because the product is already in their possession.

Merchandise Quality & Selection

These warehouse clubs offer a narrower selection of merchandise by selling fewer brands and

mostly only larger sizes but still at a high quality which is important to these clubs success because it

gives their customers value. The quality and selection of the merchandise that is offered is what makes the

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low prices attractive. This is due to the majority of the products sold are offer in bulk. The narrow

selection consists of stocking fewer items and sizes in order to save costs in purchasing, shipping, and in-

store handling of merchandise. Since the vast majority of products sold by each company are practically

identical, the creation of private label brands is important to success. A quality, private label product at

low cost gives consumers a reason to prefer shopping at one club over another.

One way these companies offer extreme value is through a program called treasure hunt

merchandising, which creates anticipation among their members and brings them into the store more

frequently. The program entails selling high end products at large discounts to ensure a quick turnover.

This not only creates more value for the member but also increases revenues because when members

come to look at the treasure hunt merchandise they are more apt to purchase other products.

Location

An effective store placement strategy is important to success because it can reduce costs, and

increase revenues. Wholesale clubs are typically placed in upscale suburban areas along high traffic areas.

This allows clubs to take advantage of affordable startup costs by staying away from the prime real estate

options of large metropolis areas. It also allows clubs to reach consumers in an area where the median

income levels are high.

An effective store placement strategy on a broader level allows companies to capture market

share away from competitors. Companies in this industry typically “attack” their rivals by placing stores

nearby their stores. A good example of this is Costco’s placement of a lot of their clubs within 10 miles of

BJ’s clubs in order to attract their member base. Companies are also capturing market share by expansion

into new markets, especially international. Like other industries, being the first to expand in a new market

encourages success because it allows you to acquire brand loyalty before competitors arrive. Increasing

the number of stores also helps to advertise the company because of the number of people that live in the

area or that drives by the store fronts.

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Member Services

Industry participants each offer a differentiated selection of services that separates them in an

industry where companies are very similar. These services have a substantial impact on a firm’s success

because they bring in more members, and thus more revenues. It is in line with the value based strategy

these companies provide because the more quality services members receive they feel they are getting

more for the money they spend on membership fees. Companies offer different types of memberships

catered to their members needs whether it be for a business or household. In addition to this, they offer

many services such as insurance, loans, and travel programs. These companies each offer unique services,

which will attract customers away from their competitors who do not offer these services.

Costco Analysis

Is the strategy working?

Costco’s value based strategy with a broad differentiation has helped them become the most

profitable company among their competitors. They have attained a market leadership position, and are

continuing to grow faster than both Sam’s Club and BJs.

Costco competes with its rivals using comparable profit margins at 1.55 percent to attract more

customers by providing value to their purchases. Their competitively low profit margin also reduces the

threat of new entrants allowing them to focus more on separating themselves from existing competition.

The company has almost 20 percent more members than its competitors and yet they are

operating 22 percent less stores than their closest rival. With membership renewal rate at an attractive 87

percent, Costco is able to hold on to current customers while increasing new memberships faster than

Sam’s Club and BJs.

Their strong brand recognition and wide geographic coverage has helped them attract customers

and drives sales. The company operates 567 warehouses, which span throughout the United States and

reach internationally. They also bring in the highest total revenues at $71,422 million. If Costco’s market

growth continues at its current rate they will potentially build a gap between their rivals.

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Costco Strengths

As of March 2010 Costco Wholesale ranked third largest retailer in the United States and the

eighth largest in the world. The company’s great success has flourished because of numerous competitive

strengths: specialized skills, valuable assets, and their dominating market presence.

Implementing cross-docking depots, maximizing freight volume, and eliminating multi step

merchandise handling, enabled them to sell inventory at very low prices. In return they attracted large

quantities of customers, purchasing in bulk, producing high income and quick turnover. This strategic

skill of minimizing operating expenses played out as one of the main factors for their attractive

profitability.

CEO, Jim Sinegal who had a unique talent for discount retailing and a long career of field

experience was one of the company’s strongest competitive strengths. His superb business intelligence

has created advantages between Costco and competitors, such as giant pricing gaps. Working towards a

long-term vision of continued growth Sinegal made sure all store were operating under the same direction

and the most up to date information.

Finally the company’s large market share and wide geographic coverage put them in a position of

industry advantage. The company operated 527 warehouses at the end of 2010 and competed with rivals

such as BJs, by establishing themselves within a mile of almost all BJs locations. Placing a Costco in

forty of the fifty states and having above average international operations allowed them to dominate the

market.

Costco maintains a high percentage of current liabilities which is because they have an efficient

supply chain that gets the merchandise on their showroom floors in less than 24 hours. The supply chain

coupled with their low price strategy creates a high inventory turnover. These are the main reasons that

the current liabilities are low. This helps Costco to borrow less money because they have the revolving

door of debt from these suppliers because they are selling the goods faster than they have to pay the

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manufacturers back for the merchandise. Costco has a low profit margin that has been going down since

2000. Costco ROA has also been gradually going down since the year 2000. Both of these provide

evidence that Costco is sticking to its best value strategy that has been effective.

Costco Weaknesses

Referencing the concept of continuous improvement one might consider Costco’s pricing and

profitable recession period to be shortcomings in a business. Markups and prices were so minimal in

regards to covering expenses that shareholder profits were lowered as an outcome. If it were not for

membership fees Costco’s profits would be unstable due to its strategy of capping the margins on goods

at 14.5 percent. Costco’s prices were not as elastic as they might think and their shareholders might

benefit from a slight increase in their pricing.

As the economy slowly turns around from the 2008 recession, there is an underlying possibility

that Costco shoppers will move away from warehouse clubs because they are more confident in the

economy which leads them to be willing to spend more money or become less price sensitive. The

company was able to survive the recession because of its affordable prices, but with higher income comes

a higher standard of living. So if society does turn away from wholesale then Costco’s 70 percent of

operating profits dependent on memberships will be a dramatic problem.

Sam’s has an advantage in the industry because it is owned by Wal-Mart, and gives them more

buyer power and more efficient distribution systems. Gives them more brand recognition because Wal-

Mart is the largest company in the world, helps them enter new markets because there is a good chance

that Wal-Mart is already there.

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Works Cited Page

"Costco.com." Costco.com. Costco Wholesale Corporation, 1998. Web. 04 May 2012.

<http://www.costco.com/>.

"US Inflation Calculator." Current Inflation Rates. COINNEWS MEDIA GROUP LLC, 2008. Web. 04

May 2012. <http://www.usinflationcalculator.com/inflation/current-inflation-rates/>.