Costco and Sam's Club have earned the right to be compared to some of the great retail competitors.
It seems like many categories have two major players like Coca-Cola and Pepsico, Lowe's and Home Depot, and Target and Walmart. In the warehouse club space, it's even more pronounced as the only other competitor is the much smaller BJ's Wholesale.
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In many ways, the Costco (COST) and Sam's Club rivalry hits harder than others because customers are not likely to pay a membership fee to join both warehouse clubs. A dedicated Pepsi fan many also like Coke's Sprite and a Lowe's loyalist might hit a more convenient Home Depot, or visit one that has a needed item in stock.
A Sam's Club member probably won't join Costco because it has a specific deal that's better. That means that both companies are fighting for the same customers.
One of the biggest factors in which chain customers join is where its warehouse clubs are located. Sam's Club, after years of being dormant, has big plans to expand its warehouse club footprint. That's something Costco has decided to answer.
Image source: John Moore/Getty Images
Sam's Club shares expansion plans
Sometimes it feels like Walmart (WMT) has prioritized its namesake brand over growing Sam's Club. If that had been true, the retail giant has decided to pay more attention to its warehouse club.
Sam's Club plans to open over 30 new U.S. warehouse clubs over the next several years.
"The first location, which is planned in Florida, is slated to open in 2024. In addition to new clubs, the company has a multiple-year plan to invest in and modernize its supply chain through new distribution and fulfillment center locations across the country, including cutting-edge automation. Sam's Club will launch five new supply chain fulfillment and distribution centers in 2023, with the first location planned in Georgia in Q3," Walmart shared on its website.
The company decided to expand after seeing significant same-store growth at its existing locations. Walmart will also be tweaking the format of its new stores.
"The new clubs will be approximately 160,000 square feet, larger than most current locations. Most new clubs will feature a seafood/sushi island, full-service floral, and walk-in dairy, and fresh coolers. Additionally, members will benefit from a larger healthcare space inclusive of a patient waiting area, health services suites, private consultation rooms, and dedicated hearing and optical centers. Many of the new locations will also include fuel stations and liquor offerings," the company added.
Costco will grow faster
Costo has generally grown at a steady pace. Former CFO Richard Galanti, who retired in March, talked about the warehouse club's expansion plans during its second-quarter earnings call.
He noted that the company has been very steady in its growth, except for the pandemic period.
"If you look back, excluding that year over a three or five-year period, plus or minus a couple of years there, it was about 23 a unit. Without looking at numbers, about 23 units a year. At the time, you said, what do you see over the next 10 years? What we saw collectively was is somewhere in the, hopefully, targeting, let's say, 25 for the next five years per year, and then going up to 25 to somewhere in the high-20s, if not 30. I think that's generally the sense that we feel," he said.
Galanti shared that while Costco could step up its growth somewhat, it would not expand rapidly because of the nature of its business.
"Could we do more? Yes. Are we comfortable doing it this way? Yes. I think part of that is it's such a hands-on business. I get to say that from sitting here in headquarters most of the time, not traveling like my colleagues do in operations," he added.
Costco plans 28 new locations in 2024, down from an original projection of 31 as three new stores have been delayed into 2025. That still puts the chain on pace to exceed Sam's Club's growth plans.
Costco is up 8.1% so far in 2024. Walmart has gained 13.9%. In 2023, Costco turned in a 44.6% gain, while Walmart was up 11.2%.
