How Does Costco Compare to Wal-Mart's Sam's Club?
Do you find it odd that despite being similar businesses, Costco is still achieving positive quarterly financial results against Wal-Mart’s under-performing Sam’s Club? Wall Street analysts seem to think so. What’s Costco’s secret, and why is there this strange disparity? According to financial news publication The Street’s Dana Blankenhorn, Costco’s secret is that “it continues to profit even though it pays wages that satisfy its employees.”
We’ve seen evidence that appears to suggest this “secret” as well. Late last week, jobs site Glassdoor ranked Costco as the second most satisfactory company for compensation and benefits in 2014, based on testimonials and workplace insights shared by employees. Costco was the only retailer on the list of 25 companies. For more on this story, check out the link below.
Click here to read: Costco's Employee Benefit Satisfaction Ranks Higher than Silicon Valley Companies
Costco’s Q3 2014 results showed that net income for the quarter was $473 million, compared to $459 million last year, a 3% increase. Costco reported a 4% increase in same-store sales growth. Meanwhile, sales at Sam’s Club stores open for a year or more fell 0.5% from a year earlier in Wal-Mart’s first quarter.
Sam’s Club CEO Rosalind Brewer said that this drop is due to a decline in public assistance for poor customers, according to Huffington Post. Shoppers are being more frugal now, and while Sam’s Club’s membership fee is cheaper than Costco’s ($45 yearly versus $55 yearly), it may not be enough to convince the consumer to shop there instead. Interestingly, this map (from Morgan Stanley) and chart (from research group Wealth-X) below shows that California is the state with the most Costco stores; yet it is also the state with the most high-net-worth individuals.
Other reasons for this financial disparity could be because Sam’s Club is losing shoppers to its big brother Wal-Mart and even Amazon, according to Huffington Post. Both Wal-Mart and Amazon offer similar products and services at competitive prices when compared to Sam’s Club.
But does Costco’s success truly lie in its employees’ wages? The Street’s Blankenhorn states that Sam’s Club low-level employees and cashiers earn, on average, “several dollars per hour less than those at Costco,” while supervisors average almost $50,000 a year, or about $25 an hour. Costco wages, on the other hand, range from $10 to $23 an hour for cashiers, and $22 to $24 an hour for supervisors. Blankenhorn concludes that “good wages translate into happy employees, and happy employees make for happy customers.”
It’s an interesting assessment, for sure. While it remains to be seen if Sam’s Club may adapt a different strategy, one thing that remains clear is that Costco is doing something right on a consistent basis. Whether that has to do with merchandising, employee wages, both, or something else entirely, remains up for speculation.
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