While Cost is the leading wholesale provider in the world, it still has obstacles and barriers to navigate through as t continues to sustain its operations. To summarize some of these challenges and to determine which of the challenges is the strongest and why, the 5 competitive forces model will be used. The 5 competitive forces model holds that competitive pressures on companies within an industry come from 5 different sources. These include: 1. Competition from rival sellers 2. Competition from potential new entrants 3. Competition from producers of substitute products 4.
Supplier bargaining power 5. Customer bargaining power Most often, the strongest of the 5 competitive forces is often the competitive erasures created by the rivalry among competing sellers. This remains true in this case with Cost Wholesale as well. The wholesale segment of retailing in North America as a whole produced over $1 55 billion in 2011 alone, and it was growing at a rate of 15-20 percent faster than retailing as a whole. The three competitors that dominate the wholesale market are Cost Wholesale, Cam’s Club ( the wholesale division of Walter), and BBS Wholesale club.
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As of 201 1 there were nearly 1 ,400 wholesale warehouses across the United States and Canada. Most major metropolitan areas had at least one to choose from. Cost Wholesale had around 57 percent of those warehouse distribution centers, Cam’s Club had around 35 percent and BBS and other small wholesale providers made up the other 8 percent. Judging strictly from the numbers presented, it would appear that Cost, at the time being holds a firm grasp on the majority of the wholesale market.
It holds a solid advantage over Cam’s Club and a significant advantage over Bi’s as the leading warehouse distributor in the United States and Canada. All wholesale providers aim to offer bulk at a lower price. Cost has distinguished itself as the leader of all hose by paving the way for wholesale providers. By offering between 3. 600 to 4,000 quality brand name items, and by offering a wide range of products of all types, from food to furniture as well as beginning to offer ancillary departments for other needs, Cost has remained ahead of its competitors as the leading wholesale provider.
The second and third strongest competitive force affecting Cost, is the potential that new entrants could break into the business and steal a market share away from wholesale distributors and providers offering substitute products. Wholesale providers like Cost don’t just compete against other wholesale providers; they also compete against retailers and discount operations such as Walter or a Dollar Tree. With the growth of other online mass retailing operations like Amazon that offer low prices and free shipping on many items with a discount membership, it has grabbed a portion of the market share.
However, the competition from other retailers and discounters, the low prices and merchandise selection found at a wholesale provider are still attractive to small business owners, non- profit organizations, restaurants, and those with large families. Supplier bargaining power is most likely one of the least affective of the nominative forces affecting Cost. However, the suppliers of Cost Wholesale do have some bargaining power, although it may be weak. Supplier bargaining power tends to be weaker when the industry members being supplied have a low cost to switch to an alternative supplier.
For example, if a supplier of Cost decided that it wanted to put pressure on Cost for whatever reason, it would be relatively easy for Cost to go ahead and rid themselves of that pressure because it would be easy for them to partner with another supplier at relatively the same or better costs. Likewise, applier bargaining power is weaker when the industry member being supplied accounts for a big fraction of the supplier’s sales. The same is true for a potential situation with Cost, or any other wholesale provider.
Cost would be considered a top seller of the materials received from any supplier since they buy products at such a large quantity and move that quantity to their customers at a rapid pace. In the same way, supplier power is weaker when the industry members are major customers of suppliers, which is the case for the wholesale distributors such as Cost. The weakest of the competitive forces affecting Cost would be bargaining power of the buyers. Buyer bargaining power is certainly weaker when the cost of the buyer is high to switch to competing products. For the most part that statement is true.
For example, if a buyer at Cost Wholesale wants to exercise bargaining power and wants to switch to a different provider of his products, he will more than likely not find a provider that offers lower pricing than a wholesale distributor such as Cost. Cost offers high quality products at ultra-low prices. So the cost of the buyer wanting to exercise his bargaining power would be much higher. In general, Cost offers high quality products and products attributed to a high quality label at an extremely low price compared to other retailers of the same or similar products.
With that offering, it would be hard for a buyer to exercise any influence at all or exercise any bargaining power over a provider of product. Financial Analysis Appendix Below in figure 1. 1 is a table that gives a breakdown of key components of Cost Wholesale financial ratio’s concerning their financial data presented in the book, as well as the most recent data found online under the 10-K filings with the Securities and Exchange Commission. The data spans the years from 2008-2014. Graphs will breakdown important figures moving forward to show projections and trends that have developing and may be developing for future purposes.