How Costco Is Beating Out Walmart In A Big Way
Costco says that they beat Walmart and Target because they work better deals with their vendors.
This article is more than 2 years old
Costco fans are die-hard. It takes a particular type of person to pay a monthly membership fee to shop, walk around a massive warehouse for about two hours, stuff tons of groceries and the random sweatshirt or two into their large carts, and then grab a hotdog and a coke on the way out. It’s almost ritualistic and nothing like your quick trip to Walmart.
Is it the gallon drums of mayo or the gigantic bottles of olive oil that cause people to light up with delight when you mention a Costco run? Well, yeah, it’s all of that. And more. According to The Street, Costco knows how valuable it is. And the brand says its competitors, Walmart and Target, can’t hold a candle to it.
If you’re a Target-goer, you’re probably confused. But, it all has to do with the number of items that Costco carries. Because they carry far fewer items than a typical grocery store and choose those items carefully, they are able to make deals with vendors for better prices—which the brand carries over to its customers.
Take groceries, for example. The perception is that prices have gone through the literal roof! In reality, they haven’t though. Yes, grocery prices are up, but only by 13.1 percent. It’s not great, but when folks were polled they estimated that prices are up as high as 22.8 percent.
Experts say this is good news for Costco because when prices are up, shoppers appreciate value more. Thus, those “rising prices” benefit retailers that traditionally offer good value. And that is the main perception of Costco. You’re getting good value for what you’re buying. That’s not exactly the perception of Target or even Walmart. Target is the market holder for trendy, fun, and low-cost, whereas Walmart is the king of low prices. Neither exactly screams value. Because low cost does not always equal good value.
Costco is able to provide this value by carrying fewer SKUs (individual, unique items) but in larger bulk packaging. In addition to this, it raises its perceived value through perks like cheaper gas, really cheap, but really yummy food, and other items that are discounted like vacations, tires, jewelry, and home items like couches and even grills.
And part of the perception of savings and value is that you pay for the membership, so you must be getting something great. Not to say that those discounts aren’t great, but it’s the perception that really makes a difference in the minds of consumers. And, consumers shop with emotion first.
Walmart and Target both use groceries as a low-margin way to attract consumers. And, when you’ll there, you’ll more than likely buy other things. But Costco is winning. Last month, the retailer held its 4th quarter earnings call and unlike other brands, earnings are up. Sales grew more than 16% over last year. However, stock is slipping because of a lot of other factors at play.
Stockholders are fearful of geopolitical tensions, supply chain, and labor issues. Although this is the case for most publicly traded companies, Costco is still up while other brands and retailers are indeed, down.
