The Analysis of General Environment Segments

The external analysis discovers that the following external factors of the general environment have the most impact on Costco’s performance.

The economic segment. General economic factors have an adverse effect on the discount/variety store industry. It refers to significant challenges for the industry that include a highly competitive trading environment due to globalization, unsettled financial markets, slowed consumer spending, increased savings rates, and reduced consumers’ confidence (USSEC, 2012). Globally, many markets for consumer products are depressed. Domestically, weakness in housing and real estate markets exacerbates the issues. All these global and domestic factors lead to decreasing retail sales (PricewaterhouseCooper, 2009).

The health of the U.S. economy is a substantial factor that influences Costco’s performance. Therefore, the fluctuations in prices of certain commodity products including gasoline and other food products affect their operations and financial results. Other important economic factors include the U.S. high labor costs and a high labor intensiveness of the industry. These factors deteriorate attracting the company’s new members and retaining existing member base.

Although the U.S. economy recently indicated some signs of recovering and improving consumers’ confidence, U.S. consumers are still deleveraging (Shinesrooms.com, 2013). Consequently, this means that consumers’ spending will remain tight making consumers more price-conscious. In fact, it is a competitive factor for the discount stores industry.

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