Costco Wholesale PESTEL/PESTLE Analysis

Costco Wholesale Corporation PESTEL PESTLE analysis case study, political economic sociocultural technological ecological legal external factors
A Costco in Markham, Ontario, Canada. Costco Wholesale Corporation’s PESTEL/PESTLE analysis shows that the company has mostly opportunities based on the external factors in its remote or macro-environment. (Photo: Public Domain)

Costco Wholesale Corporation develops strategies that address the opportunities and threats identifiable in its PESTEL/PESTLE analysis. The PESTEL/PESTLE analysis model enumerates the external factors in the firm’s remote or macro-environment that act as opportunities or threats in the business. Costco Wholesale needs to consider these opportunities and threats to maintain its market position as the biggest membership warehouse club chain in the United States. This PESTEL/PESTLE analysis indicates that Costco has many options for growth and improvement, based on opportunities in its business environment. However, Costco must develop competencies to protect itself from the threats in the retail industry.

This PESTEL/PESTLE analysis of Costco Wholesale Corporation shows that the company can experience growth through opportunities in most of the dimensions of its remote or macro-environment.

Political Factors Affecting Costco Wholesale’s Business

The performance of Costco’s warehouses/stores is partly dependent on the political influences in its remote or macro-environment. In the PESTEL/PESTLE analysis model, this dimension refers to the effects of governmental action on a firm’s external environment. The political factors in Costco’s case are as follows:

  1. Political stability of major markets (opportunity)
  2. More complex environmental policies (opportunity)
  3. Animal rights policies (opportunity)

Costco Wholesale Corporation has the opportunity to grow with minimal political disturbance in major markets. In addition, the company has the opportunity to improve its policies and strategies to exceed the expectations based on environmental and animal rights policies. In this dimension of the PESTEL/PESTLE analysis model, Costco has major opportunities to grow its business.

Economic Factors Important to Costco Wholesale

Costco Wholesale needs to align its business with the economic situation. This dimension of the PESTEL/PESTLE analysis model covers the external factors that affect firms’ economic viability. In Costco’s remote or macro-environment, the following are the notable economic factors:

  1. Increasing international trade agreements (opportunity)
  2. Rapid growth of developing markets (opportunity)
  3. Slow growth of American market (opportunity)

The increasing international trade agreements give greater support for Costco to expand its supply chain and warehouses/stores. The company also has the opportunity to establish new locations in developing markets to boost financial performance. In addition, Costco can improve its growth and stability in the U.S. even though economic growth remains low. In this dimension of the PESTEL/PESTLE analysis model, Costco Wholesale Corporation has opportunities for further growth.

Social/Sociocultural Factors Influencing Costco’s Business Environment

Sociocultural issues impact the remote or macro-environment of firms like Costco. In the PESTEL/PESTLE analysis model, this dimension identifies the social or sociocultural external factors that could change consumer and employee behaviors. In Costco’s case, the following are significant sociocultural factors:

  1. Increasing demand for business social responsibility (opportunity)
  2. Animal rights trend (opportunity)
  3. Environmentalism (opportunity)

Based on the external factor of increasing demand for business social responsibility, Costco Wholesale has the opportunity to improve its corporate social responsibility programs to strengthen its brand image and consumer perception. Also, Costco has the opportunity to improve customer satisfaction by implementing policies and strategies for better animal rights and environmental performance. In this dimension of the PESTEL/PESTLE analysis model, Costco Wholesale Corporation has major opportunities to satisfy customers and interest groups.

Technological Factors in Costco Wholesale’s Business

Costco Wholesale’s remote or macro-environment is subject to the effects of technologies. This dimension of the PESTEL/PESTLE analysis model deals with the influence of technologies and technological innovation on firms. In Costco’s case, the following are significant technological external factors:

  1. Increasing e-commerce transactions (opportunity)
  2. Increasing business automation (opportunity)
  3. Rapid rate of technological innovation (opportunity)

Costco has the opportunity to attract a larger market share through e-commerce. In addition, the company can implement new automation technologies to increase its business efficiency, which should translate to savings and better financial performance. Also, Costco can innovate in terms of other technological applications, such as in information processing, knowledge management, and HR training. This dimension of the PESTEL/PESTLE analysis model shows that Costco has technological opportunities to improve its business processes.

Ecological/Environmental Factors

As a retailer, Costco needs to consider the effects of ecological concerns on its remote or macro-environment. In the PESTEL/PESTLE analysis model, this dimension refers to the ecological conditions that influence business performance, such as through supply chain performance or market growth. In Costco’s case, the following are the main ecological external factors:

  1. Climate change (threat)
  2. Low-carbon lifestyles (opportunity)
  3. Collapsing bee colonies (threat)

Climate change threatens Costco Wholesale Corporation because part of the business sells produce, which is dependent on optimal climate conditions. In relation, Costco must adapt its product mix to satisfy the changing lifestyles of consumers. Also, the continuing colony collapse disorder (CCD) affects bees and, in turn, the supply of food products that Costco sells. However, the company cannot do much about this specific threat of CCD. In this dimension of the PESTEL/PESTLE analysis model, Costco must consider adjusting its strategies to strengthen its supply chain.

Legal Factors

Legal systems impose requirements on firms like Costco. This dimension of the PESTEL/PESTLE analysis model shows the effects of laws or regulations on firms’ remote or macro-environment. Some of the important legal external factors in Costco’s case are as follows:

  1. Changing employment laws (opportunity)
  2. Tax reforms (opportunity & threat)
  3. GMO regulations (opportunity)

Costco has the opportunity to improve its employment practices to exceed the requirements of employment laws. Also, Costco can adjust its policies and strategies to optimize its performance despite tax reform issues. In addition, the company can impose new policies that require more accurate GMO labeling for its food products. This dimension of the PESTEL/PESTLE analysis model shows that Costco Wholesale Corporation can change its business practices to exploit legal opportunities.

Costco Wholesale’s PESTEL/PESTLE Analysis – Recommendations

Costco Wholesale has many opportunities to improve its processes, increase its financial performance, and grow its business. However, this PESTEL/PESTLE analysis also shows that Costco needs to address a number of significant threats. To address the threat of climate change, the company can expand and further diversify its supply chain. Costco must also expand its business in high-growth economies to exploit the opportunities linked to their rapid development.

References
  • Costco Wholesale Corporation Form 10-K, 2015.
  • Housing Industry Association (2011). An Introduction to PESTLE Analysis. HIA Ltd.
  • Murphey, M., & Gause, R. (1974). UCF Research Guides. Business Research–Industry Analysis. PESTLE Analysis. Business Horizons17(5), 27-38.
  • Roper, K. (2012, November). BIM Implementation: PESTEL Drivers & Barriers (Cross-national Analysis). In World Workplace 2012. IFMA.
  • Yuksel, I. (2012). Developing a multi-criteria decision making model for PESTEL analysis. International Journal of Business and Management7(24), 52.
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