Case 4 Competition among North American Warehouse Clubs

1. What is competition in the North American wholesale club industry? In 2010, the nearly $125 billion discount warehouse and
wholesale club industry consisted of three principal competitors: Costco, Sams and BJs. Which of the five competitive forces is strongest and why? From looking all five the threat of new entry is the strongest because of the extreme pricing and limited access to the distribution channels. Threat of New Entry Economies of Scales Extreme pricing in the industry Distribution channels limited access Initiate brand identity Threat of Substitute Too many substitutes

Competitive Rivalry Several sellers in the market Low Switching costs Supplier Power Many suppliers High cost of changing suppliers Buyer Power Price sensitive from the customers

2. Do all three warehouse club rivals-Costco, Sams and BJs wholesale have highly similar strategies? No; What differences in
their strategies are apparent? Costco is providing items in bulk and at low prices; consumers gravitate toward discounting hoping to get the most out of their money. Sams is decreasing product costs by buying from low cost labor countries like China and Mexico. BJs is focusing on retail shoppers offering more grocery items and smaller quantities of packaged goods. Does one rival have a better strategy than the others? I think Costco has the best strategy due to the cost efficient distribution through the use of the cross dock distribution. Cross docking allows the club has the ability to minimize inventory, improve product quality and increase responsiveness to any changes in the market conditions. Does one rival have a somewhat weaker strategy than the other two? Yes; BJs because theyre not as popular and theyre concentrated in the Eastern United States, which allows the company to streamline distribution and marketing. Theyre also not benefiting from the economies of scales, because the margins are very thin and making low costs/high volumes are essential to profitability.

3. Which of the three warehouse club rivals has the strongest financial performer in recent years? See attached.
Sams has a favorable Operating Profit Margin and CAGR operating income; Costco has a favorable Asset Turnover and CAGR Total Assets and BJs has favorable CAGR total revenue.

4. Does the data in case Exhibit 5 indicate that Costcos expansion outside NA (the U.S. and Canada is financially successful? Yes,
because CAGR has a rate of 10.24% for the total revenue and the operating income has 18.20% for the five year period (2009 to 2005. I looked at the year by year for the total revenue and from 2005 to 2008 the CAGR ranged from 12.96% to 21.91%. See attached

5. Five years from now, is Costcos standing as the industry leader likely to be stronger or weaker? Are the other two rivals likely to
gain or lose ground to Costco? Why or why not. I think Costco will continue to be the industry stronger leader; because there strategy is not very risky. This makes them, less vulnerable to general conditions in the world economy and differentiates them from Sams and BJs as the stronger industry leader. The other two could possible gain grounds to Costco, however if Costco consider acquiring BJs Wholesale Club, reducing the market share between themselves and Sams Club. Costco needs to tackle its major competitor by initiating its existence into the market place, because Sams Club has more operating stores. 6. What recommendations would you make to Jim Sinegal regarding the actions that Costco management need to take to sustain the companys growth and improve its financial performance? Acquire BJs so only 2 major companies own the majority of the entire market share Make sure that 95% of all stores sell gas Use Facebook and Twitter as an advertising media to attract to the younger consumers, educating them about buying in bulk and saving money. Aisle markers and use of all credit cards as a method of payments
Darlene Evans Franklin MBA 5900 Case #4 Warehouse Club Industry Page 1 of 2

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Open the store for the business customers earlier like Sams

What actions do you think management at Sams club should take to boost revenue growth and overall financial performance? Review and invest in your employees wages and benefits theyre paid Reduce the amount of imports from China, use more made in America vendors Make sure that 95% of all stores sell gas Aisle markers The Treasure-hunt items needs to be upscale and better quality What actions do you think management at BJs club should take to boost revenue growth and overall financial performance? Resolution to the 20% shrinkage problem Expand to all 50 states, putting one store in the presence of a Sams and Costco (within 10 miles) Implement the Treasure-hunt strategy for your customers to keep coming back frequently Use Facebook and Twitter as an advertising media to attract to the younger consumers, educating them about buying in smaller quantities; however larger than the supermarkets and saving money.

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Darlene Evans Franklin

MBA 5900 Case #4 Warehouse Club Industry

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