Competition Among the North American Warehouse Clubs: Costco Wholesale Versus Sam's Club Versus Bj's Wholesale

MBA 5900

Case4:

Competition among the North American Warehouse Clubs: Costco Wholesale versus Sam's Club versus BJ's wholesale

1. What is competition like in the North American wholesale club industry? Which of the five competitive forces is strongest and why? Use the information in Figures 3.4, 3.5, 3.6, 3.7, and 3.8 (and the related chapter discussions on pp. 57-70) to do complete five-forces analysis of competition in the North American wholesale club industry.

Competition is extremely high in the North American wholesale club industry. Every wholesale club wants to sell top-quality merchandise at prices consistently below others in order to draw more customers. And they all want to display low prices on pallets or inexpensive shelving, therefore, they have very low costs for store decor and fixtures, have comparatively low labor costs, and spent minimally on advertising and customer service.

The strongest force the North American wholesale club industry facing is rivalry among competing seller. The rival firms, such as Costco, Sam's Club and BJ, are all competing for equivalent customers in the market. Costco and Sam's Club have many stores in US and around the world. Although BJ is mainly focus on the eastern seaboard market, it still has some competition from the other two. Costco has high competition with Sam's Club, but Costco has a more considerable market share than BJ.

The second is buyers. The wholesale market was a buyer's market. Customers always look for better prices and demand in the industry is very high.

The third is supplier. The ability to provide better prices depends on the company's relation with suppliers. Wholesale clubs purchase bulk products to sell at competitive or lower prices to consumers. With the direct factory to store supply chain this decreases costs that can be provided to consumers.

The forth is substitutes. Consumers are also able to purchase equivalent products in Wal-Mart, which provide competition to wholesale stores. Although wholesale clubs buy in bulk in order to provide customers with low prices, Wal-Mart, K-mart and Target brand stores also compete in providing name brands at competitive prices

The fifth is the threat of new entrants. The size of the wholesale club, ranging from 77,000 to 100,000 square feet, is very difficult for any new start-up company. And the price needs lower than regular store.

2. Do all three warehouse club rivals--Costco, Sam's, and BJ's Wholesale--have highly similar strategies? What differences in their strategies are apparent? Does one rival have a better strategy than the others? Does one rival have a somewhat weaker strategy than the other two?

These three rivals strategies are all aimed at the benefit their buyers by low prices. Bur their business strategies still have some differences with each other.

Costco was aimed at selling top-quality merchandise at prices consistently below others. The key elements of Costco's strategy were ultra-low prices, a "treasure hunt" shopping environment, a limited selection of nationally branded and private-label products, keeping operating costs to a bare minimum, and a three-pronged growth initiative to boost sales and profits.

Sam's club decrease product costs by buying from low cost labor countries like China and Mexico. Some of the items they tried to price lower than Costco, expecting to make profit on sales volume, but this strategy doesn't work too well.

BJ's Strategy is focused on differentiation. BJ's is focusing on retail shoppers offering more grocery items and smaller quantities of packaged goods. It focused on its Inner Circle member through merchandising strategies that emphasized a customer-friendly shopping experience in several respects.

In my opinion, Costco has the best strategy. Because Costco has the cross dock distribution, cross docking allows the club has the ability to minimize inventory, improve product quality and increase responsiveness to any changes in the market conditions. BJ has a weaker strategy. They're not very popular, and they just concentrated on the Eastern United States. BJ's also not benefit from the economies of scales, because the margins are very thin. Making low costs and high volumes are essential to profitability.

3. Which of the three warehouse club rivals has been the strongest financial performer in recent years? Support your answer with calculations based on the data in case Exhibits 2, 6, and 7. Use the financial ratios presented in Table 4.1 of Chapter 4 to help you with the needed number crunching

The strongest warehouse club rival has been Costco. Costco has a great strategy of trying to sell everything cheaper than the competitors and maintaining their customer.

Net Sales in 2009, Costco is $69,889 million, Sam's is $46,889 million, and BJ is $ 9,802 million.

Operation profit margin in 2009, Costco is 2.48%, Sam's