A notable exception to Walmart’s dominance in discount retailing was in the warehouse club segment. Despite significant efforts by Walmart’s Sam’s Club, Costco was the established leader. Sam’s Club had almost exactly the same number of stores as Costo-620 to 622-yet. Costco still reported almost twice the sales-$105 billion versus $54 billion for Sam’s. Costco stores averaged considerably more revenue per store than Sam’s Club (see Exhibit 6).
To the casual observer, Costco and Sam’s Club’s appeared to be very similar. Both charged small membership fees, and both were “warehouse” stores that sold goods from pallets. The goods were often packed or bundled into larger quantities than typical retailer offered. Beneath these similarities, however, were important differences and Costco focused on more upscale small business owners and consumer while Sam’s following Walmart’s pattern, had positioned itself more to the mass middle market. Relative to Costco, Sam’s was also concentrated more in smaller cities.
Consistent with its more upscale strategy, Costco stocked more luxury and premium-branded items than Sam’s Club had traditionally done. This changed some-what when Sam’s began to stock more high-end merchandise after the 1990s, but some questioned whether or not its typical customers demanded such items. A Costco executive pointed to the differences between Costco and Sam’s customers by describing a scene where a Sam’s customer responded to a $39 price on a Ralph Lauren Polo shirt by saying, “Can you imagine? Who in their right mind would buy a T-shirt for $39?” Despite the focus of pricier goods, Costco still focused intensely on managing costs and keeping prices down. Costco set a goal of 10 percent margins and capped markups at 14 percent (compared with the usual 40 percent markup by department stores). Managers were discouraged from exceeding the margin goals.