The Globe and Mail recently reported about Costco’s unexpected gains. Costco Wholesale Corp., who recently raised membership fees, experienced higher profits than originally expected. They earned $609 million in the fiscal fourth quarter, a vast increase compared to the $478 million earned in the same period last year. Despite a 10% increase in membership fees, revenue from memberships grew by 18%.

These recent findings further outline the attractiveness of the wholesale industry. Low supplier power is evident due to the large quantities that stores like Costco purchase. Since suppliers rely on Costco to purchase such a great amount from them, Costco can buy for a lower cost. The recent figures regarding the inelasticity of raising membership fees show that the wholesale industry also has low buyer power. When Costco increased their fees, customers were not sensitive to the change. To still experience the unique service that Costco offers, they had to accept the increased fees. In addition, there are only a handful of rivals that offer a similar service to compete with.

With this all information, it’s is inevitable to wonder why there are not more discount wholesale stores competing with stores like Sam’s Club and Costco. Of course, one must consider the high entry barriers that eliminate almost all threat of new competition.

Claudia’s post about Herbal Essences provides good insight to a successful repositioning of a brand. Over the past few years, the brand has undergone a total makeover. They changed their entire image, from packaging to product names. While maintaining its reputation of using organic ingredients, Herbal Essences can now also appeal to a younger generation.

In their book, Ries and Trout explained the importance positioning your brand in the mind of the consumer. It further states that it is especially difficult to change a consumer’s impression. However, the story of Herbal Essences shows that successful repositioning is possible. This contrasts greatly from the results that many other brands see when trying to establish a new identity.

In a previous post on this blog, the future of Burberry was called into question. The CEO was changing the identity of the company through putting an emphasis on technology and taking away from the traditional sophisticated look. Comparing the two companies shows that a change of identity must be done appropriately.

It is much harder to see success from reinventing a brand’s image in some industries compared to others. Creating a new image is a very difficult task to accomplish, but Herbal Essences provides a good example of how it can be done successfully.

Burberry Goes Digital – The Economist

Choosing a new direction for a company can be a very risky decision. For company’s as old and established as Burberry, the risk is even larger. Unfortunately, the recent decline in sales and popularity of Burberry requires new tactics to revive the brand founded in 1856.  In Asia, the company has seen a significant fall in sales growth while other luxury brands like Louis Vuitton and Hermes have been scarcely affected. The firm’s current CEO, Angela Ahrendts, believes that an integration of technology is the way forward for the company. Along with interactive screens in stores, Ahrendts plans to implement ‘Customer 360’. It will allow store clerks to access the customer’s buying history.

New Burberry store opened in London features a 22 feet high screen

Although these ideas seem very modern and technologically savvy, it takes away from the reason shoppers choose Burberry in the first place. The brand has an identity of providing luxury garments in a sophisticated setting. The current, loyal customers of Burberry do not come to the store expecting to be amazed by technological innovations. The article mentions a quote from a London designer: “Louis Vuitton offers them deep-pile carpets. Burberry offers them big computer screens,”.  This sums up the loss of Burberry’s identity. It’s important for companies to not forget their initial attraction. As a luxury clothing brand, Burberry needs to maintain their image as a prestigious place for higher-class shoppers.