November 5, 2012
Can Sam’s Club Overtake Costco?
There will be skeptics, but Rosalind Brewer, CEO of Sam’s Club, since January, believes the company has a chance to catch up to Costco — or at least make it a competitive race.
In an interview with The Wall Street Journal, Ms. Brewer laid out some strategies and tactics that could help the wholesale club achieve its goal of being a $100 billion dollar business. Costco, for its part, is nearly there with $97 billion in annual sales vs. Sam’s $53.8 billion. While Sam’s has only about 68 percent of the employees of its rival, the company has 616 stores to Costco’s 612.
Here are some things Sam’s Club is doing, or will do soon, to build business:
- Open stores earlier in the morning to meet the needs of same-day shopping small business customers.
- Raise membership fees (current cheapest consumer membership is $40 vs. Costco’s $55).
- Build stores in metro areas vs. rural.
- Offer a rebate to members based on purchases.
- Bring in new brands such as Eddie Bauer and Lucky to differentiate from discounters.
- Emphasize Apple products. (Costco doesn’t carry many of them.)
- Open more new stores than in recent years.
- Expand self-checkout and enable associates to spend more time on the sales floor.
- Get pharmacists to interact more with members to offer complementary services.
- Provide more organic food and better produce, meat and seafood.
As Sam’s Clubs opens new stores or expands and updates older ones, it will take a three-pronged approach to announcements, emphasizing job creation, savings for the community and donations to charity.
A press release on the just expanded Addison, IL store noted that:
- The store employs 190 associates and created 40 new jobs.
- The revamped store includes expanded pharmacy services, a new vision and hearing center, a new digital photo center and a fuel station.
- Members receive a 200 percent guarantee on fresh produce and meat, with 100 percent on everything else.
- With the expansion, Sam’s presented grants totaling $19,000, to a variety of charities including the Addison Food Pantry, the Boys and Girls Club and the Autism Society of Illinois.
- Sam’s Club Plus members receive additional savings including customized offers without having to clip coupons.
Discussion Questions
What do you think of Sam’s Clubs strategies and tactics to grow faster? Is the company concentrating on the right areas of its business? How do you think Costco will respond?
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The biggest in store problem I have seen with both, but more so with Sam’s Club, is the lengthy check out lines; and typical of Walmart, employees who don’t know how to smile. The other issue is not enough associates on the floor to assist you in finding what you need.
While it is always questionable to go negative on Walmart, the points listed seem to come down to attempting to make Sam’s more like Costco, which is a dubious strategy at best. Like all large, successful companies, Costco’s success is in its DNA. Trying to out-perform another company by acting more like it seems like a sure road to a perpetual second place.
Sam’s club is one of five Walmart companies and they share executives from one business to the other. Costco is a single company completely dedicated to the warehouse club business and its customers. Enough said?
Well, this is a lot like the Walmart vs. Amazon conversation. It’s a different customer, and I don’t see Costco customers switching. One caters to individuals, the other more to small businesses. I don’t expect to see Mercedes’ parked in Sam’s lot any time soon.
Anecdotally, Costco appears to have the edge in perishables, beer and wine selection, and perhaps a slightly better mix of merchandise, especially for the individual consumer vis-a-vis the small business consumer. To close the gap in sales and market share, Sam’s must make notable progress in these three critical areas, but in my view, there needs to be more than just improvement of existing offerings. I believe their strategy should focus on new services and values that Costco does not offer, beyond Apple products.
On the other hand, raising fees is a very risky strategy unless it is directly tied to access of these new and exclusive benefits. To that end, I would experiment regionally with fee adjustments, new product lines, and services to determine which changes produce the needed impact to move the business.
Here in Arizona at least, Sam will have to give me a life-long ‘all you can eat’ coupon to get me to even think about switching. Just walking into the local Sam’s Club gives me a ‘yuck’ feeling. (See my comments about ‘energy’ in the item about “Win or Lose in a Minute.)
Sam’s came to Canada … and left shortly afterwards. Upon their arrival Costco retrenched, reinvested and reclaimed their turf here. It’s not that the folks that run Sam’s aren’t bright (they are), it’s just that the team that runs Costco is so darn advanced with their understanding of ‘who’ they are and how to execute that every day in their stores. While Sam’s will likely grow, I don’t expect them to put much of a dent in the Costco empire.
I don’t see it. As Sam’s tries to be more like Costco, Costco will continue to evolve and change. We shop at Costco because of not only the service and selection, but because they always are coming up with new things and new programs.
“Me-tooism” at best and an example of Gresham’s Law — bad money chases out good — at worst.
Sam’s should worry less about how to be more like Costco and worry more about how to be a better Sam’s.
Walmart appears to be developing ‘direct competitors’ marketing strategies. For its supercenter business it is taking direct aim on traditional supermarkets, drug and dollar stores with its ‘smashmouth’ campaign, which is a price-compare campaign taking direct aim at the noted competitors. Early feedback suggest the campaign is working.
To an extent the announced assault by Sam’s Clubs on Costco is similar to the ‘smashmouth’ campaign by supercenters. However, in the case of winning versus Costco, Sam’s recognizes it is not simply price. Rather it is the Costco experience. The tactics Sam’s intends to use are designed to enhance the Sam’s Club experience. Sam’s will not overtake Costco any time soon. However, the planned tactical improvements will give potential club store shoppers another choice beyond simply Costco.
Sam’s has a ways to go to even think about taking out Costco. Their current image is that of a warehouse full of Walmart goods. Their pricing is not even competitive on most products. Although their selection in some departments is better, it is rare. If they raise membership dues, they’ll see fewer customers. I personally would not pay any more for a membership. Accepting all credit cards would be an advantage instead of just discover; rebates would help.
The membership club format has reached maturity. Competition now understands they will not take over the retail world. If Sam’s Clubs believes achieving equal sales as Costco is important, yes it can be achieved. Just double the number of stores they currently operate.
Where Sam’s Club falls down is merchandising. Costco has maintained the treasure hunt feel in their stores. Couple this with good merchandising and their sales per square foot is almost double Sam’s Club. This also means Costco is more profitable than Sam’s Club. When you do double the sales with the approximately same capital investment, profits increase. So for Sam’s Club to double their store count will not match Costco on profits. The plan presented is neither earth shaking or going to have much impact. These changes are tactical, not strategic.
Sam’s customers and Costco’s customers are not the same. Sam’s mission and Costco’s vision are not the same. Making Sam’s more like Costco does not help Sams’ Club. I am a Costco customer. None of the strategies listed above would make me want to switch to Sam’s.
My apologies to the writer, but the list above seems very kindergarten to me. I see no strategy, just a list of stuff with no heart. When you say or visit Costco, you feel and know the brand. Sam’s must find their own brand and develop a strategy. Then comes the tactical.
Raise membership fees — yeah, that’s a good way to increase business. I wonder if a reduced fee senior membership might be a better approach. Also, some smaller package sizes; few need 6 lbs of hamburger at once.
It sure looks like Sam’s is trying to be more like Costco to beat Costco. I’m not sure that’s a good strategy. I’m a huge Costco fan and have not hidden that in many previous comments. The issue that will be most important for Sam’s isn’t necessarily what they do, it is what Costco does.
My most recent experiences have been great for products at Costco, but tremendously disappointing from a service point of view. For several months, service levels at both locations in my market have dramatically declined. Customers on all of my visits have been lined up down the aisles to get to checkout. Even while they have three associates per lane for those open, more than half of the lanes have been closed. Worse yet, the line to be checked at the door to leave has backed up to the checkout area.
We all know that when all becomes equal, price will win out. Costco is giving up any advantage they had by reducing service levels to as low as the worst performing retailers in the industry. It has taken the fun out of shopping there for quite a few months now.
If Sam’s just wins on price, with an equal offering, they win hands down. Costco is quickly giving up their differentiation. It is disappointing to see this take place in what I believe to be one of the top retailers — period.
Sam’s Club employees are drones, compared to Costco. It is a chore to get help inside a Sam’s Club, with tons of workers standing around and checkout lines not managed properly at all. Costco does it better; their employees have a stake in the future, and you can see it on their faces and in their work ethic.
For many Costco shoppers, better features won’t sell the store. Cohorts will. There are Costco shoppers who won’t go to Sam’s simply because it is “Sam’s.” The demographics of Costco traffic are different from Sam’s; the selling proposition, merchandise and shopping experience need to be different too. Sure, Sam’s will gain some ground, but I don’t believe they will put Costco on the ropes.
I don’t think Costco will care. Comparing Costco to Sam’s Club is like comparing Walmart to Wegmans. Maybe not that extreme but you get my point. Two totally different demographic segments.
There is an unnoticed factor driving Costco to sales as high as one million dollars for many days of the year in their #1 store: they have an intuitive, instinctive, distinctive single path that circumnavigates the wide open center of store, with “merchandise to the heavens” on the perimeter, that conveys an IMAGE of a huge selection.
A VERY large share of shoppers take a wide, U-turn path around that central area, buying from an array of single item displays (end caps.) This is as close to the Stew Leonard’s experience as I have seen, without the coercive single path, but instead, a suggestive single path. The results are phenomenal. See Tell ’em Where to Go; Tell ’em Which to Buy!
My advice to Sam’s Club would be, “Go thou, and do likewise!”
Costco doesn’t need to respond as the “tactics” listed above are largely ineffective. Costco members shop Costco because of value and I don’t see this addressed anywhere above. Also the Costco experience provides a clean store and first class employees. Sam’s isn’t willing to train employees and seems to take the first body who passes through the door. Ms. Brewer should take a few minutes and actually go to a Costco. Look at the faces of the shoppers; you won’t see that at Sam’s!
Sam’s is missing the boat. A typical Costco in the same market area as a Sam’s Club will do 5 to 10x the dollar volume. It is the management. I live in Sacramento California and shop almost daily at Sam’s. I dare any Sam’s regional or higher manager truly interested in growing Sam’s to visit both with me to compare. Just view the difference in volume and customer satisfaction. It isn’t even close, Costco is the clear winner. The management at Sam’s just doesn’t get it. People will wait for Costco to open and pay a higher price for membership. Our Sam’s Club has had longer hours for years.
This forum is too short to begin suggesting ways for Sam’s to compete, but I can tell you the old adage: If you want what they have do what they did to get what they got….