Competition Among the North American Warehouse Clubs

1. What is competition like in the North American wholesale club industry? Which of the five competitive forces is strongest and why?

The nearly 125 billion dollars discount warehouse and wholesale club segment of the North American wholesale club industry consisted of three major competitors: Costco Wholesale, Sam's Club, and BJ's Wholesale Club. There are competing in both domestic and overseas market.

5 Forces Analysis of competition in the North American wholesale club industry

1) Threat of New Entrants: weak

Entry barriers are high because of high economies of scale, significant experience-based cost advantages, other cost advantages held by industry members (e.g., access to inputs, favorable location), brand loyalty (which comes from membership and other services), strong network effects and high capital requirements.

2) Threat of Substitute Products or Services: moderate

Warehouse clubs draw customers away from other traditional wholesale and retail outlets such as supermarkets, mass merchandisers, department stores, drugstores, office supply stores, consumer electronics stores, and automotive stores chiefly, but it is difficult for those substitute sellers to match the low prices of a wholesale club.

3) Bargaining Power of Suppliers: weak

The item being supplied is a commodity that is readily available from many suppliers at the going market price, industry members' switching costs to alternative suppliers are not high, and the wholesale clubs are even providing private-label products.

4) Bargaining Power of Buyers: moderate

Buyer's costs of switching to competing products are moderate in that wholesale clubs have memberships (renewal rates are especially high in case of Costco) and provide services such as merchant credit card processing, small-business loans, auto and home insurance, long-distance telephone service, real estate and mortgage services and so on. Buyers are very price-sensitive. However, buyers are small and numerous relative to sellers.

5) Rivalry among Existing Competitors: strong

Buyer demand is not growing fast, buyer costs to switch brands are moderate, the products of industry members are commodities and weakly differentiated (meaning price competition), and competitors are roughly equal size and competitive strength.

2. Do all three warehouse club rivals 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?