Costco SWOT analysis

Costco Wholesale Corporation
Costco Wholesale Corporation – Financial and Strategic Analysis Review Publication Date: 27-Mar-2013

Reference Code: GDRT28577FSA
Company Snapshot
Company Overview
Key Information
Costco Wholesale Corporation (Costco) is membership warehouses chain operator. The company’s product portfolio includes sundries, hardlines, food, softlines, fresh food and ancillary. It offers two types of memberships, namely, business and gold star to its customers. Costco operates gasoline stations in the US and Canada. Costco offers its products online through websites including in the US and in Canada. The company carries out the manufacture of products through Costco Wholesale Industries and operates about 608 warehouses. Geographically, the company operates in various countries including Taiwan, Korea, Mexico, Australia, the UK, Canada and Japan.
Costco Wholesale Corporation, Key Information
Web Address
Financial year-end
Number of Employees
Source : GlobalData
Key Ratios
Costco Wholesale Corporation, Key Ratios
Return on Equity (%)
Operating profit margin (%)
Dividend Yield
Note: Above ratios are based on share price as of 25-Mar-2013
SWOT Analysis
Costco Wholesale Corporation, SWOT Analysis
Strong Financial Performance Decline in Liquidity
Value-Added Services
Diverse Product Mix
Source : GlobalData
Share Data
Costco Wholesale Corporation, Share Data
Price (USD) as on 25-Mar-2013
Book value per share (USD)
Shares Outstanding (in million)
Strategic Expansion in
Existing and New Markets
Risks Associated With
Growth in Non-Store Format
Changes in Labor Laws and
Other Issues
Intense Competition
Source : GlobalData
Source : GlobalData
Performance Chart
Costco Wholesale Corporation, Performance Chart (2008
– 2012)
Financial Performance
The company reported revenues of (U.S. Dollars) USD 99,137.00 million during the fiscal year ended September 2012, an increase of 11.50% over 2011. The operating profit of the company was USD 2,759.00 million during the fiscal year 2012, an increase of 13.12% over 2011. The net profit of the company was USD 1,709.00 million during the fiscal year 2012, an increase of 16.89% over 2011.
Source : GlobalData
Costco Wholesale Corporation- Financial and Strategic Analysis Review
Reference Code: GDRT28577FSA
Page 1
Costco Wholesale Corporation
Costco Wholesale Corporation – SWOT Analysis
SWOT Analysis – Overview
Costco Wholesale Corporation (Costco) operates as an international chain of membership warehouses, based in the US. The company operates a retail chain of around 608 warehouses in countries including the US, Puerto Rico, Mexico, Canada, the UK, Japan, Korea, Taiwan and Australia. It’s diverse product mix and Value-Added Services, serves as its strengths. Its value added services to its members enhance their loyalty towards Costco. The company can ensure a strong growth by enhancing its e-retail operations and opening new stores. However, the company’s prospects may be limited due to its high dependence on vendors challenges from growing competition and labor issues. Costco Wholesale Corporation – Strengths
Strength – Strong Financial Performance
Strength – Value-Added Services
Costco, being a chain of membership warehouses, offers two types of memberships for individuals, namely, Business and Gold Star Memberships, with minimal charges for their private labeled and better quality products. Members can utilize their memberships at any Costco warehouse locations across the US and Canada. As of September 2, 2012, the membership service base of the company includes 26.7 million Gold Star members and 6.4 million Business members, excluding 3.8 million add-on cardholders. In fiscal 2012, the company reported member renewal rate of 89.7% in the U.S. and Canada; and about 86.4% on a worldwide basis. The company also provides business services, consumer services and insurance services to its customers. Costco charges an annual membership fee of about $55 for business members and Gold Star cared members.
The membership fee as a part of total revenue increased to $2,075m, indicating an increase of 11.1% from $1,867m in 2011 mainly due to the new membership sign-ups at warehouses and increased penetration of the company’s higher-fee Executive Membership programs. Membership fee contributed 2.13% of the company’s total sales. These memberships not only increase the company’s revenues, but also help increase loyalty among its customers. Strength – Diverse Product Mix
The company offers a broad assortment of merchandise at prices consistently lower than other retailers. With the company providing six product categories including Sundries, Hardlines, Food, Softlines, Fresh Food, and Ancillary and others, it provides a wide variety to its members. The Sundry category consists of different products such as candy, snack foods, tobacco, alcoholic and non-alcoholic beverages; and cleaning and institutional supplies. Under Hardline category, the company offers various products such
as major appliances, electronics, automotive supplies, sporting goods, office supplies, hardware, cameras, office supplies, garden and patio, and health and beauty aids. The Food category provides mainly dry and institutionally packaged foods. Costco’s Softline category comprises small appliances, media, housewares, apparel, jewelry, domestic and home furnishings.
The Fresh food category of the company comprises meat, bakery products, delicacies and fresh produce goods. The Ancillary and other businesses comprise operation of food courts and hot dog stands, optical dispensing centers, one-hour photo centers, pharmacies, gas stations, hearing-aid centers and travel centers. In addition, it accepts return of merchandise. It has a 90-day return policy in the US, Canada and the UK in case of certain electronic items and also offers free of charge, technical support services and extended warranty. Thus, the strategy of providing goods of high quality and diverse assortment at lower prices to its members enables the company to retain and attract a lot of customers.
Costco Wholesale Corporation – Weaknesses
Weakness – Decline in Liquidity
Costco’s limited liquidity position would affect its short term funding plans. In 2012, the company’s total current assets decreased with 1.31% to $13,526m, from $13,706m in 2011; while its current liabilities increased with 1.74% to $12,260m, from $12,050m in 2011. The increased current liability and declined current asset burdened its working capital with 23.55% decline compared to the previous financial year. The decline in current asset could be attributed to decline in its cash and equivalents from $4,009m in 2011 to $2,528m in 2012, a decline of 12% compared to 2011. Moreover, the company’s current receivables increases by 6.32% to $1,026m compared to $965m in 2011, representing sales on credit. As a result,
Costco Wholesale Corporation- Financial and Strategic Analysis Review
Reference Code: GDRT28577FSA
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Costco Wholesale Corporation
Costco’s net working capital decreased to $1,266m from $1,656m in 2011. In addition, the company’s cash ratio and current ratio declined to 0.39 and 1.10 from 0.46 and 1.13 in 2011 respectively. Costco Wholesale Corporation – Opportunities
Opportunity – Strategic Expansion in Existing and New Markets
Opportunity – Growth in Non-Store Format
Costco Wholesale Corporation – Threats
Threat – Risks Associated With Suppliers
Threat – Changes in Labor Laws and Other Issues
Threat – Intense Competition
Costco Wholesale Corporation- Financial and Strategic Analysis Review
Reference Code: GDRT28577FSA
Page 3
Costco Wholesale Corporation
* Sector average represents top companies within the specified sector The above strategic analysis is based on in-house research and reflects the publishers opinion only
Costco Wholesale Corporation- Financial and Strategic Analysis Review
Reference Code: GDRT28577FSA
Page 4

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