ACCT105 Financial Accounting

Discuss factors that led to this decision, including industry analysis as a whole and current and expected economic climate.

In America, the largest membership only wholesale club is Costco Wholesale Corporation. The company is also the world's second largest retailer after Walmart. The company is a subsidiary of the Sears holding. The sears is selling Kmart to Costco in order to reach out to one of the major competitors (Calboli, 2013). The rank of Sears Holdings is 10 in the top 100 list of retailers and the rank of Costco is 6. The recent performance of Costco shows that it has doubled the retail sale in the United States and across the world. Therefore, it can be said that the Costco has acquired Kmart in order to make further expansion. Many other factors that contributed in the decision of acquiring Kmart by Costco are discussed in the following paragraphs.

The Kmart has retail stores in various location in US and across the world. The acquisition will help Costco in increasing its presence and as a result, it will have the opportunity to derive more revenue and profit (Testa, 2015). The acquisition will save the cost of Costco for building the distribution network that is already existed with Kmart. The popularity of Kmart is decreasing but still it is an attractive brand and has a set of loyal customers that will automatically switch to Costco after its acquisition.

The Kmart has certain strengths that are taken into consideration before acquiring the company by Costco. These are given below:

• The company has exclusive product like boxer, Route 66 and others.
• The stores of the company are mostly located in the urban areas and there are concentration of population.
• The stores provides special plans for the individuals that want to pay in instalments. This has helped the company in gaining popularity among different buyers.
• The company has an excellent reputation of customer service. This helps them to be high in the ranking of customer satisfaction (Zhang et al., 2016 ).
• In case of smaller customer base, the brand loyalty is the highest.
• The company has a long presence in the retail segment. This has helped the company to develop a unique brand image and equity.
• The company has a great reputation in the segment of food and perishable items.

Therefore, it can be said that acquisition of Kmart by Costco will help the later by utilizing the advantages of the former. These are the important reason for Costco to acquire Kmart. In addition to this the acquisition is also important from the competitive prospective.  The industry analysis highlights that the competition in the retail industry is continuously growing from the pressure it receives from both the internal and external players (WELLS & ELLSWORTH 2016). The preference of the customer in the retail sector changes very rapidly and it is important to keep pace with this change. In addition to this there are economic uncertainties and regulatory pressure, that increases the volatility in the market.   The decision of acquiring the Kmart by the Costco will help both the companies to avoid the treats and take advantages of the opportunities. Hence, it can be said that the decision taken is correct and is expected to provide fruitful result in the future.

References

Calboli, I. (2013). Corporate Strategies, First Sale Rules, and Copyright Misuse: Waiting for Answers from Kirstaeng v. Wiley and Omega v. Costco (II).

Testa, P. (2015). Decoding the formation of a retail giant: The evolving geography of Costco's store network (Doctoral dissertation, University of North Texas).

WELLS, J. R., & ELLSWORTH, G. (2016). The Inexorable Rise of Walmart? 1988–2016.

Zhang, Z., Sun, L., & Han, X. (2016, February). A Joint Model for Entity Set Expansion and Attribute Extraction from Web Search Queries. In AAAI (pp. 3101-3107).