Strategies for Membership Based Wholesale Good Firms: A Comparison of Costco Wholesale
Corp vs. BJ's Wholesale Club Holdings
Anton Kashcheyev, David Vilana, Prince Amanakwah (Group Chelsea)
MGS 5010 – 01
Professor Joseph Cho
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Strategies for Membership Based Wholesale Good Firms: A Comparison of Costco Wholesale Corp vs. BJ's Wholesale Club Holdings Anton Kashcheyev, David Vilana, Prince Amanakwah (Group Chelsea) MGS 5010 – 01 Professor Joseph Cho
Tentative Table of Contents Introduction A) Thesis B) Scope a. Market Segments b. Competitors c. Industry Trends C) Research Method D) Company Introductions E) Mission Statements F) Vision Statements Analysis A) Tangible Resources B) Intangible Resources C) SWOT Analysis D) PEGTEL Analysis E) Five Forces Model Internal Mechanisms: A) Strategic Approach a. Corporate Level Strategies b. Business Level Strategies c. Functional Level Strategies B) Core Competencies C) Competitive Advantages D) Internal Resources Final Analysis Insights and Recommendations References (APA Style)
gluten-free foods, or for wealthier customers who want premium products. Costco has stores all over the world, while BJ’s is mostly on the East Coast, so BJ’s may need to expand to compete with Costco in other areas. Both companies face stiff competition from online giants like Amazon, so they need to improve their e-commerce strategies to appeal to shoppers who prefer shopping online. In terms of trends, both stores could improve their sustainability efforts, with Costco already focusing on sustainable sourcing, while BJ’s has an opportunity to be more eco-friendly by offering products with less plastic and more sustainable choices. They also need to use technology better like AI and apps to make shopping easier and more personalized. Lastly, both stores could grow by offering more health- focused products like organic foods, fitness gear, and wellness services like pharmacies. By addressing these areas, both BJ’s and Costco can better meet the changing needs of consumers and stay competitive in a crowded market. E-commerce and Online Competitors With the rise of online shopping, there is a gap in the e-commerce strategies of both companies. While Costco has made progress in online sales, BJ's has been expanding its digital presence. Unfortunately both face strong competition from online giants like Amazon, which offer fast delivery and convenience. We will be exploring how each company can bridge the gap in e-commerce to appeal to digital-first shoppers. This could be a key area for growth. Sustainability and Eco-friendly Products There is growing consumer interest in sustainability, and both companies could explore gaps in their current efforts for sustainability. Costco has been focusing on sourcing products sustainably, but BJ's might have an opportunity to emphasize more environmentally friendly practices, such as reducing plastic packaging and offering more sustainable product lines to attract eco-conscious consumers. Technology As technology continues to reshape the retail landscape, there may be gaps in how BJ's and Costco use innovations such as AI, data analytics, and automation. For example, Costco might fall behind in adding self-checkout systems or mobile apps that enhance the shopping experience, while BJ’s could further develop its tech offerings to make shopping more personalized and convenient. Pricing and Cost Efficiency When it comes to pricing and cost efficiency, Costco is known for offering lower prices per item, especially when buying in bulk. This is because they focus on selling large quantities, which allows them to negotiate better deals with suppliers and pass
those savings onto their members. BJ's, on the other hand, also offers competitive pricing but might be a little more expensive than Costco, as they don’t focus as much on bulk purchases. However, BJ's makes up for this by offering coupons and promotional discounts, which can help save money on individual items. Costco has a strong following thanks to its simple membership model. Members can access a wide range of products at discounted prices, including exclusive items like the Kirkland brand. They also offer an "Executive Membership," which gives additional savings but costs more upfront. BJ's, however, offers more flexibility with its membership options. They have a standard membership as well as a “Perks” membership, which provides extra benefits like additional discounts, a longer return policy, and exclusive coupons. This variety in membership options may appeal to different types of shoppers. Our term project will seek to identify marketing information like mission statements and product comparisons and which company is better overall for both BJ's Wholesale Club and Costco. We will conduct research to see which market is better and where they lack in some areas and where they can improve. We will then offer our findings of BJ's and Costco’s strategic approaches, including their corporate, business, and functional strategies. We will report on both firms’ core strengths, competitive advantages, and internal resources.
5. Customer & Market Behavior Analysis Conduct customer sentiment analysis by reviewing online reviews, customer feedback, and social media discussions. Compare spending habits and shopping frequency among BJ’s and Costco members. Evaluate pricing perception (e.g., do customers feel they get better value from Costco’s bulk model vs. BJ’s discount-driven approach?). 6. Supply Chain & Operational Efficiency Analysis Examine supply chain logistics to compare how each firm manages costs, inventory, and distribution. Investigate how Costco's global supplier network differs from BJ’s regional partnerships. Analyze the impact of warehousing automation and technological innovations on operational efficiency. 7. Financial & Economic Performance Analysis Compare financial performance using key metrics like revenue, net income, profit margins, and stock performance over time. Analyze cost structure differences, particularly in supply chain costs, operational expenses, and marketing budgets. Assess how economic downturns (e.g., inflation) impact their membership and spending patterns. 8. Digital Transformation & E-commerce Strategy Compare how each company is adapting to the shift toward online grocery shopping and curbside pickup. Evaluate e-commerce platform effectiveness, online membership engagement, and digital payment options. Assess the role of third-party partnerships (e.g., Instacart, DoorDash) in enhancing online shopping experiences.
Tangible Assets Costco and BJ’s both have a pretty significant list of assets. On the tangible asset front, both Costco and BJ’s have their key bases of their sales, being the warehouse style stores, distribution centers, storage facilities, trucks for transport, and other equipment used within these facilities. On top of that, each business boasts thousands of employees across various business sectors (corporate, distribution, and main stores). Lastly, their own personal internal POS systems, e-commerce platforms (built within their websites), and IVS’s are a key tangible asset within their businesses. Intangible Assets On the intangible asset front, both businesses have strong brand recognition (Kirkland under Costco for instance has become a staple of shopping at their stores), high trust of from their customers due to low-costs and high quality products, and perceived exclusivity due to their membership model requiring an annual subscription. Their corporate cultures are a little different, however, they do both provide high salaries for their employees which leads to low turnovers. The other intangible assets that both businesses have, are their relationships; this includes relationships with suppliers for bulk-purchasing, and lastly their own private labels themselves. What is potentially the biggest intangible asset for these businesses though, is all of the data that they are collecting on consumers: due to the membership requirement, these businesses are able to analyze customer specific data in all areas with clean demographic information included, as well as provide custom recommendations on future purchases.
BJ’s Strengths
- Strong Membership-Based Business Model and Consistent Revenue Growth BJ’s Wholesale Club Holdings Inc (NYSE:BJ) has demonstrated solid financial results, highlighted by an increase in net sales reaching $5.1 billion and membership fee revenue growing to $113.1 million in the most recent quarter. This upward trend underscores the effectiveness of BJ’s membership-driven business model, which promotes customer retention and steady revenue inflow. Its streamlined store layout and limited SKU variety enable cost-efficient procurement and allow the company to offer highly competitive prices, further reinforcing its market competitiveness.
- Effective Integration of Omnichannel Capabilities BJ’s has successfully blended its physical store footprint with digital solutions to deliver a cohesive omnichannel experience. By investing in online shopping tools such as Buy Online, Pick-Up In-Club (BOPIC), ExpressPay, and same-day delivery services, the company has significantly improved convenience for customers and broadened its market reach. These strategic efforts align BJ’s with the rise of e-commerce and position it strongly within the dynamic retail environment. BJ’s Weaknesses
- Heavy Debt Load and Interest Obligations Although BJ’s saw a reduction in net interest expenses from $16.3 million to $12.8 million compared to the previous year, it remains burdened by considerable debt levels. Its dependence on external financing to support operations and growth initiatives presents potential risks to its financial stability— particularly amid fluctuating interest rates. Managing this leverage effectively is essential for long-term financial sustainability and growth.
- Regional Market Concentration While BJ’s maintains a dominant presence on the East Coast—especially in New England—its limited geographic reach could hinder national expansion. This regional focus increases exposure to localized economic challenges and heightens competition from nearby retailers. Broadening its geographic footprint would allow BJ’s to mitigate regional risks and access untapped markets. BJ’s Opportunities
- Growth Through New Club Openings and Additional Services BJ’s has room to expand its network of warehouse clubs and complementary services, such as gas stations. With plans to establish new locations, the company can enter underserved areas and grow its customer base. Its broad product assortment—including groceries and general merchandise—positions BJ’s to cater to a wide variety of consumer needs, potentially boosting overall revenue.
- Leveraging Technological Innovations With the rapid evolution of retail technologies, BJ’s can capitalize on tools like AI, machine learning, and data analytics to streamline operations and enhance customer engagement. These innovations offer opportunities to refine supply chain logistics, better understand shopper preferences, and create personalized shopping experiences—fostering loyalty and boosting sales. BJ’s Threats
- Unpredictable Economic Conditions and Consumer Behavior Economic instability—such as changes in inflation and interest rates—can directly influence consumer spending, especially for non-essential goods. BJ’s must remain adaptable in the face of these challenges to uphold its value-driven brand and continue attracting budget-conscious shoppers.
- Strict Regulations and Intense Industry Competition Operating in a heavily regulated industry, BJ’s must comply with evolving laws that can impact its operational costs and processes. Additionally, competition from major retailers like Walmart and Costco necessitates constant innovation and differentiation. Staying proactive amid regulatory shifts and competitive dynamics is critical for maintaining market relevance and profitability.
COSTCO SWOT ANALYSIS:
Costco’s Strengths
- Broad Product Range Costco, as a leading player in the retail space, offers a wide variety of goods, spanning groceries, tech gadgets, home furnishings, apparel, and more. This extensive product lineup appeals to a broad customer base—ranging from families to small businesses—and supports its strong presence in the industry. Its focus on delivering quality products at competitive prices across categories has made it a preferred destination for value-seeking shoppers. In addition, location-specific inventory variations help differentiate Costco from its competitors, increasing its appeal to local customers.
- Value-Based Pricing Strategy One of Costco’s major competitive advantages lies in its commitment to keeping prices low. By offering bulk goods in no-frills, warehouse-style locations and maintaining minimal profit margins, the company delivers high value. According to Fortune, Costco's average markup is just 11%, significantly lower than Walmart’s 24% and Home Depot’s 35%. This pricing strategy aligns with Costco's brand promise: affordability without compromising quality.
- Membership-Driven Model Unlike traditional retailers, Costco operates on a membership-only model, charging customers an annual fee—currently set at $130. Only those with active memberships can shop at Costco, which provides the company with a steady revenue stream. This structure also helps reduce operational costs and creates deeper customer engagement. Moreover, the membership system enhances inventory forecasting, enabling more accurate supply chain management and product availability, while helping Costco maintain lower prices across its assortment.
- Highly Engaged Customer Base Costco enjoys a loyal following, with 128 million cardholders that include both households and small to medium-sized enterprises. Nearly 50% of U.S.
consumers visited Costco at least once last year, and 87% of them returned multiple times, according to Numerator. On average, a shopper visits Costco about every two weeks—around 30 times annually—spending close to $100 per trip. This translates to an average yearly spend of over $3,000 per customer.
Costco’s Weaknesses
- Geographic Dependence on North America Although Costco has international operations, a significant majority of its warehouses—and revenue—are concentrated in the United States and Canada. Out of 859 global locations, 591 (approximately 69%) are domestic. These two markets generate about 80% of its total revenue, highlighting its limited global diversification and reliance on a few regions for growth.
- Limited Variety Within Product Categories While Costco’s product categories are broad, the number of individual product options per category is relatively small. For example, an average Costco location stocks around 3,700 SKUs, compared to 150,000 at Walmart and 80,000 at Target. This bulk-focused approach may exclude some everyday essentials and restrict shoppers from comparing brands, potentially limiting appeal to more choice-driven customers.
- Reliance on Membership Revenue Although the membership model provides reliable income, it also introduces risk. If customer renewals decline or competitors offer more appealing options, Costco’s revenue could suffer. The company's heavy dependence on subscription fees means any disruption in customer retention could significantly impact financial stability.
- Weak Online Retail Capabilities Costco lags competitors in digital retail. While other retailers have leaned into e- commerce, Costco continues to focus heavily on its in-store model. This limited online presence can be a disadvantage in today's marketplace, where convenience and doorstep delivery are priorities for many shoppers, particularly among younger generations.
Costco’s Opportunities
- Growth in E-Commerce The surge in global online shopping represents a huge growth avenue for Costco. In 2023, global e-commerce was valued at roughly $25.93 trillion and is projected to grow at a CAGR of 18.9% through 2030. Currently, e-commerce contributes only about 6% to Costco’s total revenue, suggesting untapped potential. Expanding its digital shopping experience could help Costco reach a broader audience and enhance customer convenience.
- Digital Marketing and Social Media Outreach The digital advertising market is thriving, with a projected CAGR of 6.87%,
cost of goods for BJ’s. Since BJ’s operates in a price-sensitive wholesale market, such cost increases may affect its pricing strategy and profit margins.
- Effect of Tax Cuts and Jobs Act This act reduced the corporate tax rate in the U.S., providing companies like BJ's with more after-tax income. The extra funds can be reinvested in expansion, technology upgrades, or returned to shareholders, helping the company grow.
Economical
- Effect of fluctuations in US and Canadian economy Economic slowdowns in North America can reduce consumer spending, especially on non-essential goods. Since BJ’s depends on discretionary income, economic fluctuations directly influence its revenue.
- Exchange rate fluctuations Although BJ’s operates primarily in the U.S., fluctuations in exchange rates can affect the cost of imported goods. This may influence sourcing decisions and overall cost efficiency.
- Disruptions in the supply chain due to COVID- The pandemic caused widespread disruptions in logistics, manufacturing, and labor. BJ’s faced inventory challenges and had to adapt quickly to ensure product availability and maintain customer trust.
Social
- Low unemployment levels While good for consumer spending, low unemployment can create labor shortages and increase wages, raising BJ’s operating costs. It also affects hiring for BJ’s retail stores and distribution centers.
- Buying preference shift of millennials Millennials tend to value convenience, sustainability, and digital experiences. BJ’s must adapt by expanding online shopping options, offering eco-friendly products, and aligning marketing strategies with these preferences.
- Growing acceptance of private labels Consumers are increasingly open to buying store-brand products. BJ’s can boost profitability by promoting its own brands, which generally have higher margins than national brands.
Technological
- Omni-channel opportunities Customers expect seamless integration between online and offline shopping. BJ’s must invest in apps, curbside pickup, and online ordering to stay competitive and improve customer satisfaction.
- Digital payments is a growing payment mode in retail The rise of contactless and mobile payments means BJ’s must ensure secure
and efficient payment processing systems. This also improves checkout speed and customer convenience.
- Internet of Things (IoT) can be the future of retail IoT can enhance inventory management, track customer behavior, and personalize experiences. BJ’s could use smart shelves or real-time data analytics to optimize operations and improve service.
Legal
- Legal Disputes related to product safety BJ’s must comply with regulations on food and product safety. Any incidents (like contaminated goods) can lead to lawsuits, recalls, and damage to brand reputation.
- Intellectual property rights and trademarks Protecting BJ’s private label products and avoiding infringement of other brands is crucial. Proper IP management safeguards the company’s innovations and brand image.
Environmental
- Impact of climate changes and natural catastrophes Extreme weather (hurricanes, floods, etc.) can disrupt BJ’s supply chain and operations. The company must have contingency plans and consider sustainability in logistics and sourcing.
- Concern on environmental issues Consumers and regulators are pushing for eco-friendly practices. BJ’s can respond by reducing plastic packaging, sourcing sustainably, and promoting green initiatives, enhancing its brand image and compliance.
mind, the consumer is very sensitive to price changes, so an increase in either membership costs or the costs of the goods within their stores risks dropping the number of customers shopping there. Because of that, the consumer has high bargaining power. Threat of New Entrants: Getting into this industry is incredibly difficult. The main selling location, is required to be a warehouse, leading to high building, land, and construction costs. Then on top of that, you need to ensure that you have strong relationships with key suppliers who can provide products in significant bulk quantities at a low cost (most of which have already signed agreements with competitors within the industry, lowering the availability of such suppliers). On top of that, you need to have a supply chain built out to transfer all of these goods not only between suppliers and your main storage warehouses, but locations as well. Overall, such a requirement for an economy of scale such as this is very high, and because of that, the threat of new entrants is low. Threat of Substitutes: We live in an age of innovation – less than 100 years ago, the idea of a supermarket that had a major location in every single key and sub-key city in the nation was unthinkable. Since then, our understanding of how to get products to consumers has only continued to evolve and change. Now, this industry has not only local supermarkets, but those very same major markets, and online retailers to compete with. And at the end of the day, the buyer will purchase and go to the location that can offer goods and services at the lowest possible cost. Because of that, the threat of substitutes is not only high currently, but will remain high as long as the business continues to exist. Industry Rivalry: The industry already has significant competition within it – the key 3 players are Costco (with 60% of the market share), Sam’s Club (with ~25% of the market share), and BJ’s (with ~15% of the market share) ( National Retail Foundation ). As only 3 major companies make up the majority of the industry, the competition between them is incredibly high for suppliers, to ensure their costs remain low, and lower membership costs, to bring in higher member counts. Because of this, industry rivalry remains high. Core Competencies:
- Costco Efficient Bulk Purchasing and Supply Chain: Costco is able to negotiate high- volume purchases at discounted prices, allowing it to pass on those savings to
customers. Its efficient supply chain ensures quick turnover of inventory and cost-effective sourcing. Private Label Brand: Costco created the Kirkland brand to ensure that they are able to provide a low cost high quality product, that is fully under their control. With that in mind, unlike the other businesses in it’s category, Kirkland is seen as high quality and because of that, they are able to continue expanding the line of what is available from them, reaching from food to clothing to office supplies and medicine. This helps Costco not only maintain their margins, but build brand loyalty as well. Membership Model: The membership fee generates a steady stream of revenue, regardless of individual product sales. This model also helps cultivate a sense of exclusivity and encourages customer loyalty, with members being more likely to return regularly to maximize their membership value. Strong Brand Loyalty and Customer Satisfaction: Costco enjoys high levels of customer loyalty, driven by the quality of its products (Kirkland and other brands), the value it offers, and the exclusive benefits of its membership model. Customer satisfaction is a key pillar that fuels repeat business.
- BJ’s Regional Focus: Unlike Costco that focuses on more populated areas and regions, BJ’s has a more strategic focus on more suburban and urban areas, allowing them to access customers who may not live in an area that Costco or Sam’s club may have set up stores. Club Membership Flexibility: While they run a traditional club membership like Costco and other competitors, they provide further discounts by allowing coupons to be used at their stores. For value conscious shoppers who live in suburban and urban areas, this has a massive value benefit on showing them additional savings. Private Label: Like Costco, BJ’s has a personal private label that allows them to create low cost, high quality items within their own control without relying on suppliers. Their products also range from food to household items to health and beauty products. Variety and Convenience: Unlike Costco, BJ’s focuses on providing a significantly wider variety of products – as they aim to be a one-stop shopping location for anything their consumer might need. Additionally, the stores themselves are usually smaller than those that you would see with Costco making them more convenient for quick visits. Strong E-Commerce and Delivery Integration: BJ’s has done a lot of work on their e-commerce side, focusing on providing quick delivery or pickup options for those shopping from home. This allows them to also compete with services like