2 Reasons Why Costco is Hammering Sam’s Club

2 Reasons Why Costco is Hammering Sam’s Club
Photo (cc) by David McKelvey

When it comes to membership warehouse stores, it appears Costco is king.

After laying off 2,300 workers in January, Walmart-owned Sam’s Club recently reported dismal first-quarter earnings, while Costco netted $463 million in profits. Costco’s latest numbers trailed Wall Street expectations, but they were a far cry from Sam’s Club’s 0.5 percent drop in sales.

The Huffington Post said:

“The divergence from Costco is striking, because they’re basically in the same business — but apparently they’re not in the same business,” said Faye Landes, a senior research analyst at the Cowen Group, a financial services company. Sam’s Club, said Landes, doesn’t “seem to have it quite right.”

According to HuffPo, there are two big reasons Costco is crushing its competition:

  • Knowing your customer base. Sam’s Club reported that its recent earnings suffered as a result of declining public assistance for poor customers. If Sam’s Club is banking on sales to customers who need food assistance, Landes said, “it’s not clear if they have the right merchandise for that consumer.” Costco targets consumers with more income, HuffPo said.
  • Customer loyalty. While it appears that Sam’s Club is losing customers to Amazon and even Walmart, Costco customers are loyal, with a nearly 90 percent membership renewal rate. In addition, HuffPo said Costco’s Kirkland brand is a pull for customers.

Cleveland’s WEWS TV recently reported that Costco beat Sam’s Club on the price of more than 20 common items, including detergent, food and baby products. Costco never marks anything up more than 15 percent, HuffPo said.

Costco is also the clear winner when it comes to employee wages. As we discussed here, Costco pays its workers an average of $20.89 per hour, compared with $12.67 at Walmart.

I live 90 minutes from a Sam’s Club and three hours from the nearest Costco. While I shop as often as possible at Costco without making a special trip to do so, I’ve only been to Sam’s Club once. Not only do I prefer the quality of Costco’s goods, I’ve also enjoyed unrivaled customer service at Costco.

In addition, I’m more willing to support a business – like Costco – that treats its employees well.

Do you shop Sam’s Club or Costco? Share your comments below or on our Facebook page.

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