Costco's Main Resources of Competitive Advantage

Costco is one of the leading wholesale clubs in the U.S. They have a lot of rivals in the industry, but they come out as the second in the wholesale industry following Walmart. They have opened and are still opening stores in other countries. They have expanded their brand name around the world in order to promote their products and services. They have managed to gain the loyalty of a lot of customers and sustained a good relationship with them. They have a lot of resources that are valuable, rare, costly to imitate, and organized to exploit. The Three highly important resources that Costco has are their employees, their private label Kirkland signature, and distribution plants and specialized machinery. These resources are a good source of competitive advantage for Costco and will help them stay ahead in the wholesale industry because they offer good products and services that others cannot compete with.

A great resource that Costco has is its employees. They are very valuable to the company and are a great asset. Most of them are very well trained which leads to them being able to have better and faster production for the company, thus providing more for customers. Also, their employees seem to stay with Costco since they are well compensated. This helps a lot with production since employees tend to work harder if they are benefiting from their job and they don’t need to waste time on training new staff because if they prevent any turnover, they wouldn’t need to hire more people to replace the past employees. Which makes them very rare since most employees in this industry are not well trained. Trying to hire the right employee can be hard because not everyone is qualified for the job. Then again it is not hard to imitate these employees. Employees come and go all the time in this industry so it’s all about the training that is given, and anyone can perform the job well. A company can offer a Costco employee a better pay rate and have them work for them or they can just train their employee better. So, it is a good asset to have, but it only gives them a small edge on the competition since it can easily be copied. Therefore, the employees at Costco are great and are loyal to Costco, but I do not think they are a great competitive advantage for the company. They should keep doing what they are doing with them but do not need to focus on this aspect of the company.

Costco began their own private label ‘Kirkland Signature’ in 1995 and since then they have used this brand to provide lower price items than the national brands. According to their recent Form 10-K, this brand allows them to maintain lower prices while also maintaining their margins high thus making it a high-value resource. As of 2017 about 25% of Costco’s annual sales are from Kirkland brand products, and according to company executives this percentage is growing (The Wall Street Journal). Though this is not a rare choice since most grocery stores have their own private label. What makes it somewhat rare is that Kirkland Signature Brand Products accounts for nearly 30% of all private label sales in the United States (The Motley Fool). Though many grocers have their own private label many times these brands are perceived to be “generic” as in lower quality but in the case of Kirkland, Costco has made it their mission to make this brand as good if not better than the name brand. According to The Wall Street Journal, they give a brand-name supplier a chance to make a Kirkland brand version of their product but if it doesn’t come to fruition, they will go forward with making their own products. This would be difficult to imitate by other grocery stores unless they have the power amongst suppliers as Costco does. Costco has also organized themselves to take advantage of this strategy by telling its employees to “play fair ball, but hardball” with suppliers. Thus, being able to have the upper hand in negotiations and when not appeased able to use their own brand.

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A valuable asset that Costco has is its capability to use their distribution plants and specialized machinery to produce and distribute their products at a rate that other companies cannot easily imitate. These distribution plants and machineries are used to allow Costco to resupply their warehouses at a constant rate in order to meet the demand of their customers. It is very expensive to get a hold of these resources and capabilities; a company will need to spend anywhere between $100 to $200 million just to cover the cost of the distribution plants with the specialized machinery. These assets for Costco are rare since their distribution plants and machineries are customized to help them manufacture and distribute their wide range of products. The fact that their distribution plants and machinery are rare and specifically made for them makes it hard for new companies to find and imitate.

Due to the cost and how rare these assets are for Costco it would still cause trouble for competitors such as Sam’s Club. Warehouse stores such as Sam’s Club would have a hard time covering these costs to imitate Costco because they already have their own distribution plants and machinery that is already tailored to their needs. It just wouldn’t make sense for Sam’s Club to scrap what they already have and waste their time and money researching Costco’s distribution plants and machineries when what they are doing would most likely work better for their organization. With the ability to easily supply their warehouses with their quality products at an impressive rate and offer low prices, Costco is able to beat out their competitors.

It is known worldwide that Costco is the second leading in the wholesale industry. They have branched out in many different countries and their brand name is well known. Costco has a few important resources that it offers as stated above are its employees who are assets to the company and tend to stay at the company because of the benefits and they are treated well. The Kirkland signature that offers a wide variety of items. Lastly its distribution plants and specialized machinery that help Costco distribute their products at a fast rate.

According to our analysis the resource that seems to give Costco their competitive advantage is their Kirland brand Signature products. Recommendations regarding their Kirkland Signature resource would be to keep expanding the private label brand since overall the desire for this type of product is growing while maintaining high standards for these products since the customer is paying a membership to enter the store and procure them. Focus on economic developments and when it is most lucrative create products that would lower prices for the customer. Keep employees that negotiate with brands aware of the products that have been developed and are being developed to maintain bargaining power. These recommendations will allow Costco to gain a sustainable competitive advantage over other competitors in the industry.