Costco and Sam's Club have earned the right to be compared to some of the big retail competitors.
It seems like many categories have two main players like Coca-Cola and Pepsico, Lowe's and Home Depot, and Target and Walmart. In the warehouse club space, it's even more pronounced as the only other competitor is the much smaller BJ's Wholesale.
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In many ways, Costco (COST) and the rivalry with Sam's Club hits harder than with others because customers are not likely to pay a membership fee to join warehouse clubs. A dedicated Pepsi fan many also like Coca-Cola's Sprite and a Lowe's loyalist might go to a more convenient Home Depot or visit one that has a needed item in stock.
A Sam's Club member probably won't join Costco because it has a better specific deal. That means both companies are fighting for the same customers.
One of the most important factors that the chain's customers attach to is the location of its warehouse clubs. Sam's Club, after years of being dormant, has big plans to expand its warehouse club presence. That's something Costco has decided to answer.
Image source: John Moore/Getty Images
Sam's Club shares expansion plans
Sometimes it feels like Walmart (WMT) has prioritized its namesake brand over the growth of Sam's Club. If that had been true, the retail giant would have decided to pay more attention to its warehouse club.
Sam's Club plans to open more than 30 new warehouse clubs in the U.S. over the next few years.
“The first location, planned in Florida, is scheduled to open in 2024. In addition to new clubs, the company has a multi-year plan to invest and modernize its supply chain through new distribution and fulfillment center locations throughout 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 the third quarter,” Walmart shared on its website.
The company decided to expand after seeing significant same-store growth at its existing locations. Walmart will also modify the format of its new stores.
“The new clubs will be approximately 160,000 square feet, larger than most current locations. Most of the new clubs will feature a seafood and sushi island, full flower and dairy service, and fresh refrigerators. Additionally, members will benefit from a “Larger healthcare space including a patient waiting area, healthcare suites, private consultation rooms and dedicated optical and hearing centres. “Many of the new locations will also include fuel stations and liquor offerings,” the company added.
Costco will grow faster
Overall, Costo has grown at a steady pace. Former CFO Richard Galanti, who retired in March, spoke about the warehouse club's expansion plans during his second quarter results call.
He noted that the company has been very consistent in its growth, except during the pandemic period.
“If you look back, excluding that year over a three or five year period, give or take a couple of years there, it was about 23 units per unit. Without looking at numbers, about 23 units per year. At that time, said, what do you see in the next 10 years? What we saw collectively was that somewhere, hopefully, we aimed for, say, 25 for the next five years per year, and then we went up to 25 to some point at the lower level. high. 20 years, if not 30. I think that's the feeling we have in general,” he said.
Galanti shared that while Costco could accelerate its growth somewhat, it would not expand quickly due to the nature of its business.
“Could we do more? Yes. Are we comfortable doing it this way? Yes. I think part of that is that it's a very hands-on business. I can say that from sitting here at headquarters most of the time, without travel like my colleagues do in operations,” he added.
Costco plans 28 new locations in 2024, down from an original projection of 31, as three new stores were delayed until 2025. That still puts the chain on track to surpass Sam's Club's growth plans.
