A PESTEL ANALYSIS OF COSTCO Wholesale
Apart from being one of the leading retail brands in USA, Costco is also the largest warehouse chain in the world. Costco Wholesale was founded in the year 1983. Since then the brand has seen a lot of national and international growth. Today, Costco is a financially strong brand with an impressive presence outside US. The brand is known for its innovative and unconventional business model. It has also proved its leadership in supply chain management. Not just low prices, Costco is also known for its excellent customer service. However, for any large brand operating on an international scale, there are several forces that influence its growth and profits. From political to economical and technological there are various forces influencing the growth and profits of Costco. This is a PESTEL analysis that illustrates the impact of these forces in the national and international sphere on the famous retail brand.
Political forces can have a big and deep impact on business. It is because they affect the economic environment of any country. The government’s policies, its attitude towards businesses and other government and regulatory factors affect how open the business environment will be for foreign businesses. The nature of politics and governance varies from nation to nation. Not all of them are equally open to Foreign investment. It is why these retail brands are flourishing in some areas of the world and in some they face hurdles like Red Tape and regulatory pressures that obstruct their growth. In the recent years Costco has expanded its presence to more than 200 warehouse stores outside the US. In the US alone it has 494 stores open across 43 states and Puerto Rico. Moreover, political stability represents economic stability and such an environment is conducive to good business outcomes. Political disruption on the other hand can be deeply problematic for such retail brands that depend on the efficiency of their supply chain for business. Political turmoil disrupts business and brings sales down. Moreover, it depends upon the government of a nation or state that how business friendly its policies are.
The economic forces shape the business world and unless for a sound economy, growth is not possible for the business brands. The world has recently been through a recession and during the recessionary period, people were cutting down costs which meant hard times and losses for the international brands. The recession is over and the condition of the world economy is better. This has led to a boost in the consumers’ confidence. With consumer confidence boosted, people are ready to spend more on small and big items. So, the changing economic environment is good news for the large business brands. The retail industry has performed very well as the condition of the economy has improved. In 2015 it generated more than $20 trillion and by 2020, it is expected to have grown past $28 trillion. The condition of labor market has also improved fast and people’s hourly earnings have gone up. It all means they have more dispensable income to spend on retail goods. These signs just indicate that in the coming years, the brands like Costco could enjoy very high growth.
Socio-cultural factors too have an important say in business. Businesses cannot stand divorced from society and culture both of which are important and influential forces. A brand’s social image decides its performance and affects its productivity. If you have a good social image it will work to boost your sales. If your social image is spoiled you end up losing sales fast. Social trends too can have a deep impact on the state of your business. Changing consumer demographics and other related factors can impact the size of your sales and your profitability. The millenial generation is crazy for technology and wants shopping convenience coupled with great customer service and excellent prices. E-retail is growing popular because it offers all of these. People can check items and their prices and get things delivered at their doorsteps. Costco has also planned to deepen its venture into e-commerce. As per the news sources, its online sales are growing at an impressive rate. So, the trends are a sign that the retail brands will have to please their millenial customers and work for their satisfaction. In this way, it can be easily understood that socio-cultural factors have a major impact on businesses and their profitability.
One cannot imagine to do business without technology in the 21st century. At the core of everything is technology. From marketing and HR to finance and customer service everywhere the use of IT and software is must for efficiency. Information technology has helped businesses grow and expand at a faster rate. It is why Costco is focusing on e-commerce to grow at a faster rate than its rivals like Walmart. Artificial Intelligence and Cognitive Intelligence are also growing in importance for predicting trends and serving the consumers better. Costco has already proved it in its supply chain that how great technology with a great strategy can help you acquire unmatched efficiency. Based on these factors, it can be understood how much technology matters in the 21st century. So, the technological forces have kept and will continue to grow in importance for the business whether operating at a national or an international scale.
Sustainability and environmental factors have become central to business in the 21st century. Even for the retail brands like Costco concerns like sustainable packaging, waste reduction and renewable energy are becoming central to business. Some of the key areas where Costco has maintained a strong focus in this area are:
- Maintain a low carbon footprint
- Enhance the energy management systems at its warehouses.
- Expand its packaging design initiatives.
- Develop its recycling and waste stream management systems
Big brands that are investing in sustainability and environment friendliness are not just enjoying increased profits but also better reputation of the brand and social image.
The legal forces have also grown more important in the 21st century. Apart from labor laws, laws protecting the consumers have also grown in number. The pressure on brands is higher that engage in ethical practices and are legally compliant. Costco has generally managed to maintain a very good image in terms of HR and other areas including quality and customer service. So, compared to its rival Walmart, it has had to face less of legal issues. Still, the threat from legal challenges cannot be underestimated and Costco would have to maintain its focus on legal compliance to continue doing business profitably and hassle free.
Costco Wholesale Sustainability Report 2015