Costcp vs Sams Club

Costco buys the majority of its merchandise directly from manufacturers for shipment either directly to Costco’s selling warehouses or to a consolidation point where various shipments are combined so as to minimize freight and handling costs. As a result, Costco eliminates many of the costs associated with multiple step distribution channels, which include purchasing from distributors as opposed to manufacturers, use of central receiving, storing and distributing warehouses, and storage of merchandise in locations off the sales floors. (1)

The competition between the wholesale club industry is pretty strong but is mostly dominated by the three main competitors which are: Costco, Sam’s club and BJ’s Wholesale club. These three wholesale clubs for the most part dominate the industry and take away customers from other retail stores because they can offer much lower prices, brand name items and a wide variety of items to purchase from them. When it comes to shares of warehouse sales, Costco had roughly 56 percent of sales, Sam’s club had 36 percent and BJ’s wholesale had a low 8 percent. Unlike most retail stores, these three display all of their items on pallets or their inexpensive shelving which provides them with low cost on décor, labor and advertising.

Costco is turning in much higher numbers for total revenue than BJ’s and higher sales than Sam’s. Costco holds 57 percent of the market share while BJ’s has 8 and Sam’s has 35 percent.

For operations, Costco's in charge of managing their store brand Kirkland Signature. Since they have domain over that brand, they are better able to control the caliber of their product. They also maintain the packaging assembly-line in order to accomplish the goal of having an efficient shipment arrangements, and low shrinkage rates. This way Costco can have low rates for quality goods. By keeping their operational costs low they can continue to pass the savings onto their customers.

Costco has a simple strategy for being one of the leaders in the wholesales, which is concentrating on driving sales. If the sales of a company are good than everything else will take care of itself. While other companies such as Wal-Mart, Target and BJ’s pour money into marketing; Costco has a no-frills approach and doesn’t advertise. Costco focuses on selling fewer items which increases sale volume and

Costco’s inventory management strategy focuses on three main points: (a) point-of-sales system (POS), (b) vendor managed inventory and (c) low volume of stock keeping units. Costco takes aid from innovative inventory system that provides real time inventory information called Collaborative Retail Exchange (CRX). The system monitors and re-orders at the optimum inventory as part of the continuous re-order system. The CRX system analyses the sales for the previous weeks and inventory level which acts as information to the suppliers. Costco Wholesale follows a Bulk-buying strategy. It aims at selling products in large volume and comparatively low prices. The company also follows lower number of stock keeping units (SKU’s), an average of ~4,000

Costco’s business model is focused on producing high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of national name brands and select private-label products in a wide range variety. Costco is focused in low-cost strategy is concentrated on a narrow buy segment and out competing rivals by having lower costs, therefore being able serve a niche consumers at a lower price. (Gamble, John and Thompson, Arthur (2009)

It was in the twentieth century that the world was first introduced to a now well-known household name, Costco. In 1976 that the first Costco was opened, formerly known as Price Club, in San Diego. The philosophy of this company is simply stated, “Keep costs down and pass the savings on to our members.” (Costco.com) It has held onto its philosophy of keeping prices low for almost half a century. Costco is self defined as a “membership warehouse club.” (Costco.com) It provides a wide variety of brand name products in their warehouse-style store, and strives to provide all members with the lowest prices that they can offer. Today, Costco is a well known and loved company by consumers.

The US warehouse club and superstore industry includes about 20 companies; however the major competitors that Costco faces are Sam 's Club (owned by Wal-Mart), BJ’s Wholesale Club, and Meijer. The club superstore industry is so competitive that these four companies alone hold over 90 percent of sales. These superstores are able to offer competitive pricing because as large companies they can offer a wide selection of products and have purchasing, distribution, marketing, and financing advantages. Due to low margins, the profitability of these individual superstore companies depends on high volume sales and efficient operations. This is where Costco has been able to succeed and set itself aside from the competitors.

Costco's mission is to “continually provide our members with quality goods and services at the lowest possible prices (Costco Wholesale Mission Statement - Profits and Prices Revolve Around Ethics, 2013)

Costco is among the leading global retailers which provide customers a wide range of merchandise, ranging from small to well-known brands. The company began operations in 1983. Over the years, Costco has been a retailer in low cost membership-only leader, in warehouse club of merchandise. Moreover, Costco does not offer frills warehouse business models as its competitors do.  Costco’s major competitors are BJ’s Wholesale Club and Sam Club (Costco, 2010).

This results in a high volume of sales from a single vendor, allowing further reductions in price, and reducing marketing costs. If Costco management feels the wholesale price of a product is too high, they will refuse to stock the product.

Another important aspect is a limited selection of goods. Whereas Walmart or Target may have upwards of 150,000 items sold in their stores. Costco will have less than 4000. They also have their own private label which is only equal to 15% of what they carry in the stores, but it equals out to over 30% of their total sales currently. Another aspect of the product selection is that instead of buying many

Costco is the best cost provider in the wholesale club category and the strategy is associated with Costco’s capabilities and resources, which includes; a streamlined supply chain, good supplier relationships, purchasing power, high sales volumes, quick inventory turnover, and excellent customer service. The three vital components of the company strategy are low pricing, limited product selection and high-end products acquired in closeouts and liquidations. While Costco strives to beat the competitors pricing, it also delivers exceptional value in its high-end offerings and customer service, giving consumers more for their money. Given its customers are the most affluent of all the warehouse clubs, with average incomes around $75,000 and this strategy works well for Costco. However, these customers are conscious not only about money but also value for the product, this fact is supported by the members who choose for executive

Costco’s CEO, Jim Sinegal, quoted, “Costco is able to offer lower prices and better values by eliminating virtually all the frills and costs historically associated with conventional wholesalers and retailers, including salespeople, fancy buildings, delivery, billing, and accounts receivable. We run a tight operation with extremely low overhead which enables us to pass on dramatic savings to our members”.2 They stored the inventory on racks above the items being sold in the warehouse. That reduced their labor cost and saved them a lot time on handling and stocking. They treat their manager as enterpeneur and allows them to decide what item should be sold in their store. They odered most of the inventory directly from the manufactures. It either came directly to the store or went to their distribution center called crossdocking depots. The point of these deposts were to reduce the transportation cost by making sure all truck are full when they come the store.