Pest Analysis of Costco Although

¶ … PEST Analysis of Costco Although Walmart continues to dominate the warehouse club sector, Costco is fast becoming a major player as well. In fact, Costco has expanded its operations into a growing number of other countries in recent years and current signs indicate the company is well situated to continue this growth in the future. Nevertheless, Costco is confronted with some significant challenges as it applies its business model to other cultures where consumer tastes vary widely and legal requirements differ.

In this environment, identifying potential threats as well as opportunities for growth for Costco represents a timely and valuable enterprise. To this end, this paper reviews the relevant literature to provide an overview of Costco and the sector in which it competes, an analysis of political/legal, economic, social and technological issues facing the company today, followed by an analysis of the strategic alternatives that are available to Costco to grow its market share.

A summary of the research, important findings and their implications for Costco are provided in the conclusion. Review and Analysis Background and Company Overview According to Costco Wholesale Corporation's (hereinafter alternatively "Costco" or "the company") latest quarterly report (November 2011), the company operates a chain of membership warehouses that feature bargain prices.

The company keeps its prices low by restricting its selection to a limited number of nationally branded and select private-label products, but they offer a wide range of merchandise categories in what it describes as its "no-frills, self-service facilities" (Form 10-Q, 2011, p. 4). According to analysts at Zacks Investment Research, "Costco continues to be a dominant retail wholesaler based on the breadth and quality of merchandise it offers.

The company's strategy to sell products at heavily-discounted prices has helped it to remain on a positive growth track amid the beleaguered economic conditions, as cash-strapped customers continue to see it as a viable option for low-cost necessities" (Costco exits 2012 with strength, 2012, para. 3). This strategy has clearly paid off, and at the end of 2011, the company operated almost 600 warehouse facilities as set forth in Table 1 and illustrated graphically in Figure 1 below. Table 1 Breakdown of Costco Worldwide Membership Warehouse Facilities Country No.

Of Membership Warehouses United States Canada 82** Mexico 32 United Kingdom 22 Japan 9 Taiwan 8 South Korea 7 Australia 3 *Forty states and Puerto Rico **Nine Canadian provinces Source: Form 10-Q (2011, November 20) Figure 1. Breakdown of Costco Worldwide Membership Warehouse Facilities Source: Based on tabular data in Form 10-Q (2011, November 20) As can be clearly discerned from Table 1 and Figure 1 above, the company's operations are primarily in North American, but it has a substantial presence in Mexico and, increasingly, Asia as well.

These far-flung operations mean that the company is faced with some profound political and legal factors in its operations, and these issues are discussed further below. Political/Legal Political. Many of the countries, especially the U.S., have been adversely affected by the lingering effects of the global economic downturn, and in some cases, these countries have adopted pro-business policies including tax incentives and credit initiatives that are especially advantageous for Costco at present (Starr, 2008).

Nevertheless, the company also competes in political volatile regions of the world and the potential for shifts in political ideologies are always a possibility (Form 10-Q, 2011). Legal. In reality, the company is faced with a bewildering array of legal issues ranging from its human resource practices, to its accounting methods as well as what types of procedures are in place for the food and beverage products is markets in different countries. Moreover, controlling laws are in constant flux, making this area a particularly challenging one for the company.

Despite these challenges, people always need groceries and Costco is ready to deliver the goods -- literally -- and these issues are discussed further below. Economic Although Costco enjoys a healthy share of its market, the company has not been immune from the Great Recession of 2008 as reflected in its historic stock performance shown in Figure 2 below. Figure 2.

Costco Stock Performance: July 2003 to Date Source: http://charting.nasdaq.com/ext/charts.dll?2-1-14-0-0-5120-03NA000000COST-&SF:1|5-WD=539-HT=395- Despite this temporary downturn, the company has regained its momentum and has exceeded its pre-Great Recession performance levels.

As noted above, though, while Costco is continuing to grow, the 800-pound corporate gorilla in the department/specialty retail store sector is still Walmart, with the company trailing at a distant second followed closely by Target Corporation as shown in Table 1 and illustrated graphically in Figure 2 below. Table 1 Costco Competitors -- Respective Market Caps: Department/Specialty Retail Stores Company Market Cap Walmart 207,913,354,870 Costco 35,371,251,300 Target Corporation 33,613,429,850 Dollar General Corporation 14,405,891,760 Source: Costco Wholesale Corporation (COST) Competitors, 2012 Figure 2.

Costco Competitors -- Respective Market Caps: Department/Specialty Retail Stores Source: Based on tabular data in Costco Wholesale Corporation (COST) Competitors, 2012 A recent analysis by Zack's Equity Research concerning the company's recent performance indicates that Costco ended 2011 well situated to continue its pattern of growth into the foreseeable future. According to these market analysts, "Costco has battled through a tough economy and exited 2011 boldly. The U.S. economy has been reeling under the ongoing financial crisis, whose rippling effects gradually engulfed the global market.

Amid this turbulent environment, Costco has almost been able to overcome the hurdles keeping an upbeat note, and we believe it to continue with its momentum in 2012" (Costco exists 2012 with strength,.