Costco case

1.What is competition like in the North American wholesale club industry? Which of the five competitive forces is strongest and why? Use the information in Figures 3.4, 3.5, 3.6, 3.7, and 3.8 (and the related chapter discussions on pp. 57-70) to do a complete Five-Forces analysis of competition in the North American wholesale club industry. In North American wholesale club industry, there are three principal competitors: Costco Wholesale, Sam’s Club and BJ’s Wholesale Club. Costco has approximately 56% share of warehouse club sales in North America; Sam’s Club has about 36% share and the rest 8% goes to BJ’s Club and other small warehouse clubs. A five forces analysis
Rival Sellers: This is a strong competitive force in this case. All these three principal competitors: Costco Wholesale, Sam’s Club and BJ’s Wholesale Club, charge membership fees and offer low prices to attract members. The competition among them is vigorous: the products they offer are similar and they all have price advantage. Customers may easily switch membership from one to another.
Potential New Entrants: This is a weak competitive force in this case. The three principal competitors: Costco Wholesale, Sam’s Club and BJ’s Wholesale Club have advantage because it is difficult for new companies to enter this industry. To be a new entrant, a company must have large amount of capital to acquire big enough building and land to satisfy large scale buying and selling; also it has to have an established distribution network and has to compete with these three companies which already have high superiority in this industry.

Substitute Products: This is a strong competitive force in this case. Not all families and business go to warehouse club to shop. Individuals, families with small size and small business usually don’t shop at warehouse. They could go supermarket or online retailers. The threat of substitute products is strong because supermarkets are more traditional and acceptable; online shopping is more convenient; and the products that can be purchased at supermarket or online retailer are not different from those warehouse offer.
Supplier bargaining power: This is a moderate competitive force in this case. One of key strategies of Costco is to have a limited selection of nationally branded products. Manufacturers of these products are large and good reputations among consumers. Costco doesn’t have considerable bargaining power over these manufacturers because not carrying these products will make its member go to its competitors if they carry these products. Sam’s Club and BJ’s Wholesale are in the similar situation.
Buyer bargaining power: This is a very weak competitive force in this case. The main reason customer go to warehouse is they offer low price. A customer could not satisfy with price of one product and don’t buy it; but other customers may choose to buy it because warehouse’s limited selection strategy. Buyer doesn’t have much bargaining power in this case.