Usually, it's not a good strategy to pick on the biggest person in the room.
That might be a good play if you're trying to establish credibility in prison, but in most cases, it ends very badly.
DON'T MISS: Costco Members Lose a Big Discount
Costco (COST) has never seemed all that concerned that it's competing with the biggest retailers in the world. In fact, its biggest competitor is arguably Walmart (WMT), which owns the rival Sam's Club warehouse club chain.
That's Costco's biggest direct competitor and the only other major player (sorry BJ's) that operates using the same membership-based model. Sam's Club, which has not added many stores over the past decade plans to change that by opening new locations that match where population growth has occurred.
"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," the company said in a press release.
That seems like a direct challenge to Costco, but the warehouse club seems to not be very concerned, according to remarks made by CFO Richard Galanti during its third-quarter earnings call.
Image source: Ting Shen/Xinhua via Getty) (Xinhua/ via Getty Images
Costco Seems Unconcerned About Walmart, Sam's Club
In addition to expanding its Sam's Club locations, Walmart also plans to increase the technology used at those stores. Galanti does not seem worried about the warehouse club brand or its parent company.
"Well, I think we're fortunate in one way that, first and foremost, the biggest value attribute or customer attraction attribute is the best-quality goods at the lowest price, and we dwarf everybody in that regard. I mean, our average markup on goods is in the low double digits, 12%, 13%. You know what they are at other traditional retailers, anywhere from 25% to 35% to 100%. So we have that extreme benefit to start with," he said.
Galanti also believes that keeping things simple offers the best value for Costco members.
"In terms of the benefit of buying online and picking up in-store and things like that, we, frankly, view that as more costly than it is beneficial," he said.
Costco Rarely Innovates In Technology
Costco has generally let its rivals sort out new technology and then picks and chooses where it needs to follow. Since prices are its biggest concern, the chain simply does not need to make major investments in technology to be ahead of its peers.
That's why the retailer was one of the last major chains to go online. Even now, the warehouse club has a relatively small online presence (at least compared to the size of its total business) and that's an area where Galanti believes growth is possible.
"We think we can certainly do more online. We don't have some strategic goal to go from 8%, which is still a $20 billion business, but to go from 8% of sales to 16%. But let's go from 8% to 9% to 10%, 10% to 11% over a certain period of time. And we think that, with some of the things we're doing on that side, we can," he shared.
