One of Costco’s largest challenges
facing the organization is its shortcoming with its internet presence. Despite continued sales growth, it will be
essential that Costco increases its 11% annual online sales growth to surpass
the national average of 15% (Boyle, 2017, para. 12). If Costco is unable to increase its internet
presence, it will be difficult to stay relevant and maintain increased sales
Many organizations are diversifying
at a much quicker pace, putting pressure on Costco to add to its current
business ownership. Goliath sized online
retailers (i.e. Amazon) have now started to diversify into other industries
such as grocery chains (Whole Foods) and brick and mortar goliaths (i.e.
Walmart) have started to purchase online retailers (Jet.com) leaving Costco
particularly vulnerable for staying with its brick and mortar strategy. The lack of diversification on behalf of
Costco will also leave the organization vulnerable to changes in market
conditions (i.e., low economic growth or recession). Another key challenge is
Costco’s narrow product line and its low markup on products; this will need to
be addressed to ensure that more consumers do not look to Amazon and Walmart
for more expansive product lines.
Additionally concerning for Costco
is that a “Morgan Stanley survey based on 2,700 people revealed that 45% of
Costco members also had a Prime membership” (Forbes, 2017, para. 3). With almost half of Costco members owning
membership with Amazon, the members may start to take notice of Amazon
discounts and abandon the brick and mortar retailer. Additionally, this could signal that Costco
is missing something that Amazon offers.
At the very least the dual membership means that consumers of Costco are
purchasing from both companies; thus, splitting the profits. Additionally,
Walmart which does not have a membership fee now offers free 2 day shipping on
qualified purchases; which puts more pressure on Costco and Amazon in the
online retail environment (Walmart, 2017).
Now that Walmart has purchased Jet.com; Walmart is starting to counter
the growth of Amazon and further diversifying its own product lines.
With all of the challenges that are
presented to Costco in the modern technological business environment, it is
essential as stated by Demining (1993) that “a company that is healthy, doing
well, is in an excellent position to improve management, product, and service,
thus to contribute to the economic welfare of itself and the rest of us, and
moreover has the greatest obligation to improve” (p. 6). Deming is stating that, particularly while a
company is in good economic position and healthy, that they should look to
improve and expand upon their success.
Though Costco has been successful in providing high quality products
with great customer service, they must look to meet the future needs of their
current and future customer base.