Competition Amoung the North Avericam Warehouse Clubs

Case 4: Competition among the North American Warehouse Clubs: Costco Wholesale vs. Sam's Clubs vs. BJ's Wholesale

1. Competition in the North American wholesale club industry is mildly intense. The players in the wholesale club industry try to achieve lower prices by reducing throughout the store by using pallets or inexpensive shelving to display items. They also incur very low costs for store decoration and light fixtures and a relatively low labor cost because of the use of fewer works and employees to operate the facility. The importance of the five competitive forces among the industry is high. Consequently, rivalry among competing sellers, buyers, and suppliers are the most important. The case discusses major wholesale clubs, so new entrants do not pose a large enough threat to affect these major clubs. Industries offering substitute products are not a significantly important factor because they do not offer the large quantities this case is discussing. Supermarkets offer the same products but the target market is completely different. These wholesale industries reach out to small businesses, large businesses, large families, caterers, small restaurants, churches, and bargain hunters. However, the pressure of buys is very vital. Customers, especially in this economy, always hunt for cheaper prices, and the demand in the industry is relatively high. Rivalry among competing wholesalers plays a major role. The capability to provide lower prices depends on the company's relationship with the suppliers.

2. All three warehouse club rivals (Costco, Sam's, BJ's Wholesale) do have highly similar strategies, in that which they achieve lower prices for a bundle of goods. However, BJ's is the only one who has not introduced itself internationally. Costco has managed to rise above the other competitors slightly, and has acquired a better market share. They have established a relationship with their suppliers, in order to provide better prices to the customers. Their low-cost strategy has been sufficient among the years. Furthermore, they are superior in reaching out to future customers and suppliers. They attend fairs and events in the hopes of getting customers to enroll in their membership, with coupons and other activities. Costco focuses on increasing their membership base and providing well-executed merchandizing techniques to gain customer loyalty, so they will shop more often. BJ's might be considered the weakest competitor to some, but one advantage they do retain is they are the only major warehouse that accepts manufacturer's coupons, which provides value for the members.

3. Out of the three warehouse club rivals, Costco has been the strongest financially. Costco's strategy of selling products cheaper than the competitors and maintaining their loyal member base has helped them significantly. By comparing the net sales for 2009, it is clear that Costco is ahead of its competitors, Sam's Club and BJ's. Costco's net sales for 2009 equal $69,889,000 while Sam's club comes out to $46,889,000 and BJ's equal $9,802,000 in net sales. Costco maintains 413 stores in the U.S. and 566 worldwide, while Sam's Club preserves 596 in the U.S. and 729 worldwide and BJ's with 187 stores. Even though Sam's Club has more stores in the U.S. than the other two competitors, Costco still retains more memberships. In 2009, Costco had 58.8 million, while Sam's Club had 47 million and BJ's had only 9.4 million.

4. The data in exhibit 5 does indicate that Costco's expansion outside North America (the U.S. and Canada) is financially successful. They have been expanding here and there, little by little, and increasing their revenues yearly. Since 2005, Costco has opened fourteen new international stores and increased their total revenue by two million in four years. The international clubs are slowly expanding and becoming more and more popular. Even though the international stores are than ten percent of Costco's operating cost, the international market is expanding. For example, the Costco in Taiwan has tripled their sales in just four years.

5. Five years from now, Costco's standing as the industry's leader is likely to be stronger. Because of their functioning strategy and the management's understand of the company's overall vision will be vital in Costco's success. Costco's most important clients are not their shareholders, but their members and customers. Even in the midst of the shareholders opinions and the Wall Street criticisms, Costco stays true to the commitment to their members. Costco's strategy of offering the lowest possible prices to not only small businesses and such, but to individual households, will help them excel in this industry. Sam's Club is the rival that is gaining strength, but still has not met the standards of Costco. The issue with Sam's Club is they operate much like the supercenter, Wal-Mart, which owns Sam's Club. Their operation cost is high, as compared to Costco. Costco only keeps in stock a certain amount of items and constantly change their items to keep customers coming back time after time to gain the best possible bargain.

6. The recommendations I would make to Jim Sinegal regarding the actions that Costco management needs to take to sustain the company's growth and improve its financial performance would be to focus more on advertisement and marketing. Marketing and advertising through media instead of depending on word of mouth, could result in a dramatic increase in sales and knowledge of this wholesale club. Because of the low cost of running a wholesale club, advertising is not included in the budget. But, if they could cut cost in a different area to allow some advertising capital, sales and revenues should increase greatly because of the ads and recognition the people will encounter, and will want to include their selves in this membership.

7. The actions I think management at Sam's Club should take to boost revenue growth and overall financial performance would be to study Costco's strategy and find a way to do it better. They need sell their products at the lowest possible price and make good relationships with suppliers to just that. They need to increase membership loyalty by giving more variety at a lowest price possible for name brand and non name brand items. Cutting overhead cost is also a key because having too many of the item in the overhead is not guaranteed to be sold at the expected price. Having too much of one item is dangerous for the company's profits. Sam's Club can also try to advertise a little to gain more members, and increase revenues.

8. The actions I think management at BJ's Wholesale should take to boost revenue growth and overall financial performance