SOURCES OF VALUE
HIGHER NUMBER OF WAREHOUSES IN THE U.S. THAN INTERNATIONAL
The Core Merchandise US segment is the most valuable to the company. Costco has built a strong relationship with its customers and is clearly positioned to thrive in a weak economy. Costco operated about 439 warehouse clubs in the U.S. versus 169 warehouse clubs internationally as of the end of 2012. These warehouses contributed more than 70% of Costco's total merchandise sales.
INCREASING PENETRATION OF EXECUTIVE MEMBERS
Executive members pay $110 as membership fee (as opposed $55 paid by the other members) to get 2% (maximum of $750) annual rewards on their purchases. They represent one-third of Costco’s overall customers and two-third of its revenues. Executive membership penetration is on an upward trend and has increased from about 23% in mid 2007 to about 38% in 2012.
INTERNATIONAL MARKETS PRESENT A HUGE OPPORTUNITY
Costco has expanded in Canada and in the U.K. It still has the big opportunity to expand in the Asian and Australian markets, where it has a limited presence. Costco has the capability to operate about 100 stores in Taiwan, Korea and Japan combined and about 20 stores in Australia. This clearly indicates the expansion opportunity in these selected countries. China and India could be potentially huge markets for future expansion. Other big retailers like Wal-Mart have expressed interest in these markets and are exploring various opportunities to grab the share of the growing retail market in these two economies.
UNIQUE BUSINESS PROPOSITION LIKELY TO BE RECEIVED POSITIVELY IN NEWER MARKETS
Warehouse clubs like Costco present unique opportunities for regular and bulk buyers to save money by buying merchandise discounted at higher rates compared to other retailers. This business model has enabled Costco to thrive despite the weakening economy and is likely to boost sales in developing markets where consumers and businesses are even more cost conscious.
FOCUS ON INTERNET AND SMARTPHONE EXPANSION
Costco.com has been successful in attracting traffic to its site. Both sales and profits have witnessed impressive increases over the past year. Costco has plans to transition to a new platform this summer which would provide greater visibility to its online platform. It also has plans to launch its first app on smartphones to lure tech savvy customers.
KEEN TO FORAY INTO OTHER LUCRATIVE AREAS
Costco is strategically trying to enter other market segments by partnering with strong existing players in the industry. In April 2012, Costco launched a mortgage program in partnership with First Choice Bank and 10 other lenders. It intends to leverage its customer base and wider presence to market this program. Costcofinance.com, Costco's mortgage lending site, gathers rates from different lenders and provides a summary of competitive quotes to its customers. In return, it gets paid for marketing this service to its customers.
It has also partnered with Aetna, one of the world's largest managed health care services company, to offer health insurance services. The Costco Personal Health Insurance program offers five Aetna health plans with major medical benefits and dental coverage. This partnership would likely benefit from several synergies associated with Costco's affluent customer profile and Aetna's expertise in the health insurance industry.