Costco Wholesale free essay sample

While Cost is the leading wholesale provider in the world, it still has obstacles and barriers to navigate through as t continues to sustain its operations. To summarize some of these challenges and to determine which of the challenges is the strongest and why, the 5 competitive forces model will be used. The 5 competitive forces model holds that competitive pressures on companies within an industry come from 5 different sources. These include: 1. Competition from rival sellers 2. Competition from potential new entrants 3. Competition from producers of substitute products 4.Supplier bargaining power 5. Customer bargaining power Most often, the strongest of the 5 competitive forces is often the competitive erasures created by the rivalry among competing sellers. This remains true in this case with Cost Wholesale as well. The wholesale segment of retailing in North America as a whole produced over $1 55 billion in 2011 alone, and it was growing at a rate of 15-20 percent faster than retailing as a whole. It has no assurances of continued supply, pricing or access to new products, and any vendor could at any time change the terms upon which it sells to it or discontinue selling it. Because of its efforts to adhere to high quality standards for which available supply may be limited, particularly for certain food items, the large volume its demand may not be consistently available. Costco’s suppliers are also subject to risks, including labor disputes, union organizing activities, financial liquidity, inclement weather, natural disasters, supply constraints, and general economic and political conditions that could limit their ability to timely provide us with acceptable merchandise precluding delivery of merchandise and may not be identified before it sells the merchandise to its members (Costco Wholesale Corp. , 2012). Costco has the buyer power in the big box industry. When Costco is the primary obligor, is subject to inventory risk, has latitude in establishing prices and selecting suppliers, can influence product or service specifications, or has several but not all of these indicators, revenue and related shipping fees are recorded on a gross basis. Because of its high sales volume and rapid inventory turnover, it generally sells inventory before it is required to pay many of our merchandise vendors, even though we take advantage of early payment discounts when available. To the extent that a greater percentage of inventories are financed through payment terms provided by suppliers rather than by its working capital (Costco Wholesale Corp. , 2012). Costco buys the majority of its merchandise directly from manufacturers and route it to a cross-docking consolidation point (depot) or directly to our warehouses. Costco’s depots receive container-based shipments from manufacturers and reallocate these goods for shipment to our individual warehouses, generally in less than twenty-four hours. This process maximizes freight volume and handling efficiencies, eliminating many of the costs associated with traditional multiple-step distribution channels (Costco Wholesale Corp. , 2012). Making its operations more efficient and its members loyal to its rapid service. Facing competition from discounters that dont charge a membership fee, Costco has been busy expanding and retrofitting its warehouses to accommodate fresh food sections and other ancillary units, such as gas stations, optical departments, pharmacies, and food courts (Hoover’s, Inc. 2012). Along with the expansion of products, Costco has expanded its premium private-label, Kirkland Signature, to differentiate the companys offerings from intense competition. On the international front,