Round 2003: Costco vs. Sam’s

Aug 28, 2003
George Anderson

By George Anderson

Costco is feeling the heat, now that its chief rival, Sam’s Club, has seemingly found its way under a new management team.

Sam’s has turned to parent company Wal-Mart to help it slash prices on merchandise while doing a better job of marketing to small-businesses, reports Business Week. The warehouse club Sam Walton built has been posting higher store traffic counts while increasing the size of the average ring.

Costco has responded to Sam’s price cuts by reducing prices (and margins) on its own merchandise. James Sinegal, Costco’s chief executive, stops short of calling the present competition a price war.

“The term ‘price war’ is a little overdramatic. There’s been tightening of pricing, but that moderates from time to time,” Sinegal told Business Week. “I’d say it’s a sharpening of prices.”

Jeff Tryka, analyst at Delafield Hambrecht doesn’t appear to share Mr. Sinegal’s view. He said, “This price war has just begun. We could see it last well into [2004].”

Jason Asaeda, an analyst with Standard & Poor’s adds. “Costco believes it has faced the worst of price pressure from Sam’s, but we’re skeptical.”

Moderator’s Comment: How will Costco fare now that
Sam’s Club appears to have regained its focus? What points of differentiation
should Costco and Sam’s try to leverage to gain a competitive advantage against
the other?

Business Week reports analysts are concerned because Costco
has yet to publicly answer how it plans to combat Sam’s price cuts and maintain
the margins necessary to continue growing as earlier forecast. They’ve got to
be kidding, right? Perhaps these analysts would also like Jim Sinegal to send
Kevin Turner a letter detailing how Costco plans to proceed.

Anderson – Moderator

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