Sam’s Wants a Piece of Costco’s Pie

Discussion
Apr 20, 2006
George Anderson

By George Anderson


Sam’s Club is thinking more upscale these days, reports Reuters.


Just as Wal-Mart has looked to offer higher quality items in an effort to capture some of the purchasing dollars that often go Target’s way, now Sam’s is looking to selectively go more upscale with the intent of grabbing higher-end sales a la rival Costco.


Speaking at Wal-Mart’s media conference, Doug McMillon, Sam’s Club president and CEO, said, “We don’t have as much market share as we believe we should have. Affordable luxuries present a great opportunity for us, if we deliver on quality.”


To accomplish its goal of selling more “affordable luxuries,” Sam’s will need to put increased emphasis on individuals rather than its normal small business customer. Costco has been extremely successful in this area in categories such as fine wines where consumers can purchase their favorite vintage at prices often much lower than sold elsewhere.


While “affordable luxuries” are a major emphasis in Sam’s sales development, Mr. McMillon said that the warehouse club is also finding opportunities in “unaffordable luxuries,” as well.


“We have been selling some high price points and having a ball with it,” he said. “It’s amazing to me how much people will spend.”


Sam’s CEO is not sitting behind his desk looking for answers on how to get more Costco shoppers in his clubs. He often visits the competition’s clubs to speak with its customers.


“I’ll go up to him and say, “Hi, I’m Doug. I’m with Sam’s. What are you doing here?”


The answers he gets are helping to shape what Sam’s is doing in its business.


Moderator’s Comment: What changes will Sam’s have to make to attract Costco shoppers? How will it communicate these
changes to consumers who are not already shopping in its clubs?

George Anderson – Moderator

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15 Comments on "Sam’s Wants a Piece of Costco’s Pie"


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Daryle Hier
Guest
Daryle Hier
14 years 10 months ago

Sam’s will need to overcome their style of being a Wal-Mart with a warehouse feel. Also Costco’s unique selective buys with incredible price points, is something Sam’s need to adjust to – Costco’s core constituents love these deals. Although both marketing departments profess their main base is small businesses, I’ve never been impressed with either ones business products selection, so this is one area Sam’s could take advantage of. I agree the culture difference may be Sam’s biggest hurdle.

David Livingston
Guest
14 years 10 months ago

I read SuperValu’s well prepared report a few years ago on wholesale clubs. Costco had a 77% to 23% individual to business customer ratio and Sam’s had something like 60%-40%. Sam’s has focused too much on small business driving the individual customers away. One way they have personally kept me from shopping their stores is their awkward store hours. They open early for business customers while banning individual customers from coming into the store. Well maybe I don’t want to wait until noon to come back. I want to be able to enter the store during normal business hours.

Sam’s has seen they have made mistakes. Costco is doing more than $2 million per store per week and Sam’s Club barely a million. Obviously Costco has the better business model.

I’ve often wondered if Wal-Mart is concerned about the impact of Sam’s Club on nearby Wal-Mart stores. Lucky for Costco, they don’t have other formats they have to compete against.

John P. Roberts
Guest
John P. Roberts
14 years 10 months ago

Lofty goals and aggressive plans are, of course, not enough. In particular, when it comes to upscale food and beverages, changes must start at the core; the heart and soul of the culture must change.

A super efficient supply chain, items with long shelf life, suppliers with the “where with all” to meet some retailers needs for tightly integrated delivery demands, and below market pricing, are not always compatible with the capabilities of suppliers who have the food and beverage products upscale consumers desire.

Just attempting to match the offerings of a somewhat similar existing competitor seems to shoot too low and in the end will not create a new option for consumers. Visiting the best food and beverage retailers – those that Costco set out to emulate in terms of product range, quality, and store atmosphere – might establish a better benchmark.

Ed Dennis
Guest
Ed Dennis
14 years 10 months ago

Clean up the parking lot.

Clean up the store.

Clean up the bathrooms.

Clean up the Hot Dog stand.

Get lighter colored fixtures.

Increase lighting.

Hire more check out personnel.

Hire buyers who are familiar with mid and up scale clientele.

Do a better job of training – employees should know something about the products in the store, starting with where they are located.

That ought to just about cover getting started!

Kai Clarke
Guest
14 years 10 months ago

Sam’s is already moving forward with their upscale trend. More name brands and a store which looks and feels like Costco (down to the lighting and types of coating on the floor) have already been implemented. However, some of their policies, like not carrying the same name brands as Costco, will continue to hurt their bottom line, since this precludes their being directly competitive with Costco. Sam’s also needs to move towards supplying more business and electronics products as a total portion of their mix in order to continue to continue to appeal to both the upscale consumer and the small business owner.

Carol Spieckerman
Guest
14 years 10 months ago
I tend to agree with Art on the aspects of Costco that will be hard to duplicate, particularly that private label über brand, Kirkland which has managed to not only become a high value destination brand in multiple categories on its own, but has has spun off into successful co-brands in difficult categories such as cosmetics (Kirkland by Borghese). I attended a Sam’s talk a couple of weeks ago in which many of these efforts were announced prior to media day. Sam’s and Wal-Mart are determined to mirror one another’s efforts by capturing “selective” shoppers and by becoming more “relevant” to any and all higher income customers who shop their stores. They can certainly make inroads here through new product introductions and high-end treasure hunts at Sam’s and they already have done so with new private label apparel initiatives and store prototypes at Wal-Mart. The first step of getting shoppers who are already in the store to buy “up” is already happening. Now, about that second hurdle (wicking sales away from the next level of… Read more »
Anthony CAIRO
Guest
Anthony CAIRO
14 years 10 months ago

Sam’s Club will need to make major improvements in the caliber of the staff and how they treat their employees. The major difference between them is how the staff responds. At Costco they make sure every question is answered and/or find someone knowledgeable. At Sam’s they don’t seem to care. This “don’t bother me” attitude is seen throughout the organization.

Art Williams
Guest
Art Williams
14 years 10 months ago

Costco insists on a very high quality in their private label that I don’t think Sam’s thinks is as important. Costco understands their customers and has achieved a trust with them that I doubt that Sam’s can relate to. Jim Senegal seems to genuinely care about their customers and employees, I don’t see that at Sam’s/Wal-Mart.

By trying to go more upscale, Sam’s will most likely increase their average ring but I don’t think Costco has too much to worry about in the short term. Changing a culture is much more difficult and time-consuming.

karen haigh
Guest
karen haigh
14 years 10 months ago

I think, as a female consumer, Costco is more appealing because it is bright, clean, and has a lot of product offering. Sam’s seems a bit on the gloomy side and it is not really a fun shopping experience.

Ben Ball
Guest
14 years 10 months ago

The selection missing in this survey is MERCHANDISING. Costco certainly has its club feel — but I feel like I’m in a giant Trader Joe’s with hard and soft lines when I’m there. In Sam’s I feel like I’m in a big box with stuff stacked up.

Mark Lilien
Guest
14 years 10 months ago

Sam’s would do better for itself by focusing on how to gain market share from stores that aren’t Costco or Wal-Mart. Copying Costco won’t maximize profits, it will just make Wal-Mart look bad, or worse, will cause a war of attrition causing both companies great pain. Wal-Mart should not aspire to knock off Target and Sam’s should not aspire to knock off Costco.

James Tenser
Guest
14 years 10 months ago

Sam’s would do well to adjust its image and offerings toward the people who spend the most. But it’s got a tough climb ahead of it to catch Costco. It’s not the $98,000 necklace that matters here, it’s the $999 stainless outdoor grill, the $399 set of tires, the $1,999 flat screen HDTV, the $5,999 trip to Bora Bora. Costco has very successfully persuaded people of means that it is the most competitive place to make certain large purchases.

Sam’s has a very different image and positioning. Changing that will take time and investment. Simply offering more high-end products will not be enough. It will have to cultivate a new persona that matches the “trading up trading down” mentality of today’s well-heeled consumers.

Dwayne Kelly
Guest
Dwayne Kelly
14 years 10 months ago

Would the acceptance of Visa, Master Card and Amex help to grow sales?

Mark Burr
Guest
14 years 10 months ago
Carry caskets? Seriously… I’ve visited Sam’s. I’ve shopped Costco. Think about that differentiation factor. Costco is a completely different model. In this case what’s on the shelves (or should I say racks) and who is shopping in the store is a result of other things than the products themselves. Costco can sell what they do and perform as they do because of their ENTIRE business model. You can’t just put a grand piano in the front of your store and call yourself a place desirable to more affluent consumers. It’s more than that. It’s sort of like saying you would like Nordstrom’s customers and all you need to have is the same brands. In both the case of Costco and Nordstrom it’s not simply about the product. It’s really about the entire culture created at both retailers that allows you to serve the customer base that you have targeted. Simply saying you want them and offering a few items or the same brands isn’t it. If that were so, Target wouldn’t be successful either. It’s… Read more »
steve olson
Guest
steve olson
14 years 1 month ago

It all starts with the way you treat your employees. Costco clubs are a direct reflection of its employees; you can tell the minute you walk in the door. Walking into a Sam’s Club is like walking into a 150,000 sq.ft. Big Lots.

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