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 - – challanges to central banks by blockchain based private currencies, there is backlash against globalization, digital marketing is dominated by two big players Facebook and Google, increasing government debt because of Covid-19 spendings, banking and financial system is disrupted by Bitcoin and other crypto currencies, competitive advantages are harder to sustain because of technology dispersion, central banks are concerned over increasing inflation,
wage bills are increasing, customer relationship management is fast transforming because of increasing concerns over data privacy, 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 -
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.
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.
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.
Operational resilience
– The operational resilience strategy in the Costco Wholesale Corp. Financial Statement Analysis (A) Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Low bargaining power of suppliers
– Suppliers of Costco Wholesale in the sector have low bargaining power. Costco Wholesale Corp. Financial Statement Analysis (A) has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Costco Wholesale to manage not only supply disruptions but also source products at highly competitive prices.
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.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Costco Wholesale digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Costco Wholesale has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
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.
Cross disciplinary teams
– Horizontal connected teams at the Costco Wholesale are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Training and development
– Costco Wholesale has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Costco Wholesale Corp. Financial Statement Analysis (A) Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
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.
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.
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 -
Workers concerns about automation
– As automation is fast increasing in the segment, Costco Wholesale needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
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 operating costs
– Compare to the competitors, firm in the HBR case study Costco Wholesale Corp. Financial Statement Analysis (A) has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Costco Wholesale 's lucrative customers.
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.
Slow decision making process
– As mentioned earlier in the report, Costco Wholesale has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Costco Wholesale even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Costco Wholesale is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Costco Wholesale Corp. Financial Statement Analysis (A) can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
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.
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.
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 -
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.
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.
Buying journey improvements
– Costco Wholesale can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Costco Wholesale Corp. Financial Statement Analysis (A) suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Low interest rates
– Even though inflation is raising its head in most developed economies, Costco Wholesale can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
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.
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.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Costco Wholesale to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Creating value in data economy
– The success of analytics program of Costco Wholesale has opened avenues for new revenue streams for the organization in the industry. This can help Costco Wholesale to build a more holistic ecosystem as suggested in the Costco Wholesale Corp. Financial Statement Analysis (A) case study. Costco Wholesale can build new products and services such as - data insight services, data privacy related products, data based consulting services, 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.
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.
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.
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.
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 -
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.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Costco Wholesale will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
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.
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.
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) .
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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Costco Wholesale Corp. Financial Statement Analysis (A), Costco Wholesale may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
High dependence on third party suppliers
– Costco Wholesale high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Consumer confidence and its impact on Costco Wholesale demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Costco Wholesale needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
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.
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.
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.
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.