Costco BJ's (2)

Costco BJ's (2) - Background Information: Warehouse clubs...

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Background Information: Warehouse clubs have become a popular form of retail over the past few decades, specializing in providing large quantities of goods to consumers for low prices. Two of the largest warehouse clubs in the United States are Costco Wholesale Corporation and BJ’s Wholesale Club. Costco, which opened its first warehouse in 1983, now operates in 560 locations, while BJ’s, which opened in 1984, operates in 182 locations. Costco is headquartered in Issaquah, Washington, with other branches throughout the US, Puerto Rico, Canada, Mexico, the UK, Japan, South Korea, Taiwan, and Australia. BJ’s is headquartered in Natick Massachusetts, and unlike Costco, all of its branches are located within the continental US, in a modest 16 states. External: With the recent economic crisis, consumers have been tightening their belts and looking for any way possible to save money. Unemployment in the United States has reached astonishing levels, hitting a staggering 10.2% in October of 2009 and disposable income for many families has been reduced (“Latest Numbers”). These factors have forced individuals to make cutbacks on retail spending. However, warehouse retailers are still attractive to consumers, due to the overall low-cost strategy that companies such as BJ’s and Costco strive for. Many factors come into play when determining the overall attractiveness of the retail industry. The threat of new entrants coming into the business is low. In order for warehouses to provide such low prices, they must be able to attain economies of scale, buying large quantities of the same good from a supplier at a reduced cost. Because suppliers receive such large order quantities from warehouse retailers, it limits the power that these suppliers have over warehouses. Furthermore, path dependency becomes an issue, because creating solid
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relationships with suppliers takes time, which is another deterrent to potential new entrants. Additionally, the capital required to start a warehouse can be an entry barrier. While the cost of outfitting the interior of a warehouse is relatively low, to build or lease a building of that capacity with ample parking is a tremendous cost in itself. The retail industry faces little competition from other industries in terms of substitute products and services. Because the industry is so broad, it includes a vast array of goods, and many retails firms must compete with each other within the industry rather than competing with outside firms. Hence, there is rivalry among existing firms, especially for warehouse retailers. For instance, BJ’s and Costco must not only compete with grocery stores, they also face competition from retailers that sell clothing, electronics, sundry items, holiday decor, and much more. Buyer bargaining power of consumers in regards to warehouse retailers is relatively
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This note was uploaded on 03/02/2010 for the course ECON 345 taught by Professor Ricks during the Spring '10 term at Bay State.

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Costco BJ's (2) - Background Information: Warehouse clubs...

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