Costco is winning the discount race… for now
When you need to buy two dozen rolls of paper towels or five gallons of Mayonnaise, do you shop at Sam’s Club, or at Costco?
Recent first-quarter sales reports from the two wholesale buyer’s clubs indicate that Costco Wholesale Corp. is outshining Sam’s Club by significant margins. Sam’s Club, a wholesale division of Wal-Mart, saw a three percent drop in revenue and an 11 percent decline in operating income, while Costco’s sales increased by 4.4 percent, and revenue increased by eight percent.
What’s more, Sam’s Club reports its net sales at $13.5 billion, less than half of Costco’s, which hit $27.5 billion for the period ending February 15.
How Sam’s and Costco differ
Executives at Sam’s and business experts agree that the product selection at Sam’s simply isn’t as diverse or appealing as the merchandise stocking the shelves at Costco. Brian Yarbrough, an analyst at Edward Jones tells Bloomberg, there is a “stunning difference” between the products – and the profits – of Sam’s Club and Costco.
Costco’s private label, Kirkland Signature products, makes up 20 percent of total sales, while Sam’s stores brands have failed to generate such significant profits. Rosalind Brewer, president and CEO of Sam’s Club, also admits that Sam’s has “opportunities for improvement.”
The two brands enjoy different types of shoppers
The fact that Sam’s Club is declining while Costco continues to grow also reflects general trends in the retail economy, as well as the different customer bases of the two clubs. Sam’s lower-income customers are holding on to their cash in these meager times, while Costco can continue to count on its more affluent customers and small business owners to keep shopping.
According to Brewer, Sam’s merchandising teams will have to work hard on “bringing newness and trend-right merchandise into the clubs.” This is likely to include stocking the grocery section with more organic items, a move that might help Sam’s to attract a higher-income clientele and generate new interest in the club.