Costco Wholesale is a global warehouse firm implemented in 1976, they are known for selling necessity products like food, toiletry and health items in bulk at significantly low prices. According to Investopedia, the firm is struggling because their main customer base of baby boomers are ageing, and with high threats from competitors such as Wal-Mart their future may lead to their potential failure due to their lack of targeting different market segments (Sec Database). Costco has two options that could eradicate the possibility for Costco’s downfall; merging with a market leader such as Wal-Mart to build a brand new name with combined strengths for synergy or the firm could build more retails to target a vaster range of costumers thus stocking
…show more content…
(Refer to appendix #2) The economic factors that are at play contain the poor economic conditions (inflation) that cause customers to limit their shopping needs thus limiting the income Costco receives. The technological factors include that Costco’s competitors sell more technology-based items in which Costco lacks that target the younger market segments. Therefore, Costco should invest into technology based items to save space, reduce costs and increase IT agility to make services easily accessible for younger customers and making it practical to build more retails. With fierce competition there is a low survival rate, which makes it safe to merge as well. The PEST Analysis supports both options equally; if Costco merges with Wal-Mart they will benefit from a greater market share as both strengths are combined by having access to each other’s resources like distribution channels, technologies, management skills and human resources to stimulate strength. Although it seems rational to merge with a market leader they could suffer from loss of control of the owners and management of Costco as the new team of Board of Directors will need to be reorganized. Another issue is culture clash where people and processes need to adapt to the desired corporate culture of the new firm. According to Sec Database, this may entail changes of Costco’s core values and missions’ statement. Also, large-scale operations are likely to suffer from diseconomies of scale. The firms could suffer from slower methods of communication leading to less efficient decision-making and production. If more retails get built they would increase their sales thus widening their market segments and diversifying their product range. For example, if they decide to build a Costco specifically made for university students where they cater to their needs, they would target a whole new market segment
(Refer to appendix #2) The economic factors that are at play contain the poor economic conditions (inflation) that cause customers to limit their shopping needs thus limiting the income Costco receives. The technological factors include that Costco’s competitors sell more technology-based items in which Costco lacks that target the younger market segments. Therefore, Costco should invest into technology based items to save space, reduce costs and increase IT agility to make services easily accessible for younger customers and making it practical to build more retails. With fierce competition there is a low survival rate, which makes it safe to merge as well. The PEST Analysis supports both options equally; if Costco merges with Wal-Mart they will benefit from a greater market share as both strengths are combined by having access to each other’s resources like distribution channels, technologies, management skills and human resources to stimulate strength. Although it seems rational to merge with a market leader they could suffer from loss of control of the owners and management of Costco as the new team of Board of Directors will need to be reorganized. Another issue is culture clash where people and processes need to adapt to the desired corporate culture of the new firm. According to Sec Database, this may entail changes of Costco’s core values and missions’ statement. Also, large-scale operations are likely to suffer from diseconomies of scale. The firms could suffer from slower methods of communication leading to less efficient decision-making and production. If more retails get built they would increase their sales thus widening their market segments and diversifying their product range. For example, if they decide to build a Costco specifically made for university students where they cater to their needs, they would target a whole new market segment