Case Study Description of Costco Wholesale Corp. Financial Statement Analysis (A)
A financial statement, ratio analysis involving a high-growth retail company. An individual shareholder in the Costco Wholesale Corp. is trying to evaluate the operational performance of the business she has invested in over the last five years. She seeks to answer two questions: Has Costco become more or less efficient over this time period? And how has it financed its growth? She organizes her analysis into three parts: common-size financial statements, sustainable growth modeling, and benchmarking ratios particular to retail companies. Provides information on developments in mass merchandising in the United States, with an emphasis on discounter retailing over the last 40 years. Costco's performance set in historical context provides the relative background information necessary to make a comparative evaluation between Costco and other industry participants.
Swot Analysis of "Costco Wholesale Corp. Financial Statement Analysis (A)" written by Maureen McNichols, Brian Tayan includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Costco Wholesale facing as an external strategic factors. Some of the topics covered in Costco Wholesale Corp. Financial Statement Analysis (A) case study are - Strategic Management Strategies, Financial analysis, Forecasting and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Costco Wholesale Corp. Financial Statement Analysis (A) casestudy better are - – digital marketing is dominated by two big players Facebook and Google, increasing household debt because of falling income levels, supply chains are disrupted by pandemic , there is increasing trade war between United States & China, increasing government debt because of Covid-19 spendings, increasing transportation and logistics costs, increasing inequality as vast percentage of new income is going to the top 1%,
technology disruption, competitive advantages are harder to sustain because of technology dispersion, etc
Introduction to SWOT Analysis of Costco Wholesale Corp. Financial Statement Analysis (A)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Costco Wholesale Corp. Financial Statement Analysis (A) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Costco Wholesale, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Costco Wholesale operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Costco Wholesale Corp. Financial Statement Analysis (A) can be done for the following purposes –
1. Strategic planning using facts provided in Costco Wholesale Corp. Financial Statement Analysis (A) case study
2. Improving business portfolio management of Costco Wholesale
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Costco Wholesale
Strengths Costco Wholesale Corp. Financial Statement Analysis (A) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Costco Wholesale in Costco Wholesale Corp. Financial Statement Analysis (A) Harvard Business Review case study are -
Ability to recruit top talent
– Costco Wholesale is one of the leading recruiters in the industry. Managers in the Costco Wholesale Corp. Financial Statement Analysis (A) are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Analytics focus
– Costco Wholesale is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Maureen McNichols, Brian Tayan can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Organizational Resilience of Costco Wholesale
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Costco Wholesale does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Diverse revenue streams
– Costco Wholesale is present in almost all the verticals within the industry. This has provided firm in Costco Wholesale Corp. Financial Statement Analysis (A) case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
High brand equity
– Costco Wholesale has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Costco Wholesale to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
High switching costs
– The high switching costs that Costco Wholesale has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Highly skilled collaborators
– Costco Wholesale has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Costco Wholesale Corp. Financial Statement Analysis (A) HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Effective Research and Development (R&D)
– Costco Wholesale has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Costco Wholesale Corp. Financial Statement Analysis (A) - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Sustainable margins compare to other players in Finance & Accounting industry
– Costco Wholesale Corp. Financial Statement Analysis (A) firm has clearly differentiated products in the market place. This has enabled Costco Wholesale to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Costco Wholesale to invest into research and development (R&D) and innovation.
Ability to lead change in Finance & Accounting field
– Costco Wholesale is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Costco Wholesale in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Strong track record of project management
– Costco Wholesale is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Superior customer experience
– The customer experience strategy of Costco Wholesale in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Weaknesses Costco Wholesale Corp. Financial Statement Analysis (A) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Costco Wholesale Corp. Financial Statement Analysis (A) are -
Need for greater diversity
– Costco Wholesale has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Aligning sales with marketing
– It come across in the case study Costco Wholesale Corp. Financial Statement Analysis (A) that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Costco Wholesale Corp. Financial Statement Analysis (A) can leverage the sales team experience to cultivate customer relationships as Costco Wholesale is planning to shift buying processes online.
Products dominated business model
– Even though Costco Wholesale has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Costco Wholesale Corp. Financial Statement Analysis (A) should strive to include more intangible value offerings along with its core products and services.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Costco Wholesale Corp. Financial Statement Analysis (A), in the dynamic environment Costco Wholesale has struggled to respond to the nimble upstart competition. Costco Wholesale has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Costco Wholesale supply chain. Even after few cautionary changes mentioned in the HBR case study - Costco Wholesale Corp. Financial Statement Analysis (A), it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Costco Wholesale vulnerable to further global disruptions in South East Asia.
Low market penetration in new markets
– Outside its home market of Costco Wholesale, firm in the HBR case study Costco Wholesale Corp. Financial Statement Analysis (A) needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Skills based hiring
– The stress on hiring functional specialists at Costco Wholesale has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Capital Spending Reduction
– Even during the low interest decade, Costco Wholesale has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Increasing silos among functional specialists
– The organizational structure of Costco Wholesale is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Costco Wholesale needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Costco Wholesale to focus more on services rather than just following the product oriented approach.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Costco Wholesale Corp. Financial Statement Analysis (A), is just above the industry average. Costco Wholesale needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Costco Wholesale Corp. Financial Statement Analysis (A), it seems that the employees of Costco Wholesale don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Opportunities Costco Wholesale Corp. Financial Statement Analysis (A) | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Costco Wholesale Corp. Financial Statement Analysis (A) are -
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Costco Wholesale can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Costco Wholesale to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Costco Wholesale to hire the very best people irrespective of their geographical location.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Costco Wholesale is facing challenges because of the dominance of functional experts in the organization. Costco Wholesale Corp. Financial Statement Analysis (A) case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Costco Wholesale can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Costco Wholesale can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Costco Wholesale Corp. Financial Statement Analysis (A), to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Leveraging digital technologies
– Costco Wholesale can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Costco Wholesale can use these opportunities to build new business models that can help the communities that Costco Wholesale operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Better consumer reach
– The expansion of the 5G network will help Costco Wholesale to increase its market reach. Costco Wholesale will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Using analytics as competitive advantage
– Costco Wholesale has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Costco Wholesale Corp. Financial Statement Analysis (A) - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Costco Wholesale to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Costco Wholesale in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
Manufacturing automation
– Costco Wholesale can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Loyalty marketing
– Costco Wholesale has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Costco Wholesale can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Threats Costco Wholesale Corp. Financial Statement Analysis (A) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Costco Wholesale Corp. Financial Statement Analysis (A) are -
Stagnating economy with rate increase
– Costco Wholesale can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Increasing wage structure of Costco Wholesale
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Costco Wholesale.
Regulatory challenges
– Costco Wholesale needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Costco Wholesale in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Costco Wholesale.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Costco Wholesale in the Finance & Accounting sector and impact the bottomline of the organization.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Costco Wholesale business can come under increasing regulations regarding data privacy, data security, etc.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Costco Wholesale can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Costco Wholesale Corp. Financial Statement Analysis (A) .
Technology acceleration in Forth Industrial Revolution
– Costco Wholesale has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Costco Wholesale needs to keep up with the evolution of technology in the Finance & Accounting sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Costco Wholesale can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Shortening product life cycle
– it is one of the major threat that Costco Wholesale is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Weighted SWOT Analysis of Costco Wholesale Corp. Financial Statement Analysis (A) Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Costco Wholesale Corp. Financial Statement Analysis (A) needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Costco Wholesale Corp. Financial Statement Analysis (A) is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Costco Wholesale Corp. Financial Statement Analysis (A) is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Costco Wholesale Corp. Financial Statement Analysis (A) is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Costco Wholesale needs to make to build a sustainable competitive advantage.