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Costco vs. Sam’s Club, who has the edge?

So many articles have been written on shopping at a warehouse or wholesale club like Sam’s Club and Costco. An article I recently read was written in 2012 and it asked why in the world would anyone shop at a place where they never advertise, have no signs in its aisles, don’t bag what you purchase and charges you a fee just to walk in the door? As it turns out, millions of loyal customers shop at wholesale clubs…. every day.

So which one is at the top, appealing to consumers with low prices and high volume? Costco!

Ferocious attention to detail and price has made Costco the nation’s leading warehouse retailer with about half of the market, compared with 40 percent for the No. 2, Sam’s Club.

Comparison

  Costco Sam’s Club
Sales for 2014 $110 billion $57.2 billion
Clubs: 672 615
Membership renewal 91% Unknown
Members 72 million 47 million
Associates 189,000 110,000

Costco: Doing the Little Things Right, Over and Over Again. Costco currently operates 672 warehouses, including 474 in the United States and Puerto Rico, 89 in Canada, 34 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, seven in Australia and one in Spain. The Company plans to open up to an additional 16 new warehouses (including one relocation to a larger and better-located facility) prior to the end of its fiscal year on August 30, 2015. Costco also operates electronic commerce web sites in the U.S., Canada, the United Kingdom and Mexico.

The average annualized sales of the thirty new warehouses opened during the year was the highest ever – coming in at $108 million per location. Average annual sales of all (663) warehouses also reached an all-time high – at $164 million per warehouse; and 165 locations generated annual sales greater than $200 million. Of these, 60 warehouses exceeded $250 million in annual sales – including two with sales in excess of $400 million! Wow!

Sam’s Club – their numbers are not published by Walmart. The only information available is what they are telling investors of their plans to…. roll out cash rewards nationally, providing an opportunity to reward our best members, grow membership income and drive loyalty. Second, we’ll introduce a new cash-back credit card offering. Both enhancements will provide significant value to our members, making a membership with Sam’s Club more rewarding than ever. I think you call this “follow the leader”.

In May 2003 I invested $1,000 in nine service leaders. Costco, Walmart and Amazon were 3 of these. As of May 4, 2015 the stock of these three firms was: Costco $5,256, Walmart $1,786 and Amazon at $13,560. After Sam Walton died, Lee Scott, starting in 2000, lost interest in the service strategy.

Customer service: Costco beats Sam’s Club hands down. On a recent trip to Sam’s Club, my wife and I had two options. Check everything out on my own. They prefer machines vs. humans. About 60% of the checkout lanes are always closed. I hate lines. I chose a human. A young man chewing gum that was slow. Everything at Sam’s is slow. Speed is not important. I wanted some ice cream. After waiting about 5-6 minutes they said it would be another 5 minutes. I left.

Targeting their customers:

Sam’s club is relying on customers who need food assistance. And according to Faye Landes, a senior research analyst at the Cowen Group, “it’s not clear if they have the right merchandise for that consumer. The stores are relatively upscale compared to that of Walmart.”

Costco, on the other hand, explicitly targets customers with more money and with locations in more upscale shopping areas. Costco is committed to low costs and high wages.

They dared to be different by stripping away the non-essentials.

  • Costco’s high sales are achieved without advertising
  • New members are added by positive word-of-mouth of existing members
  • 91% of all members currently renew their membership
  • They pay their employees very well
  • They choose to increase profits by selling more volume at lower margins
  • Culture is not the most important thing—it’s the only thing
  • Costco wants to build an institute that will be here 50-60 years from now

Be on the lookout for a new team entering the market….Amazon. In 2014, Amazon.com, Inc launched a new grocery delivery system challenging the country’s largest supermarket chains. Now Amazon is equally quietly taking aim at warehouse stores with a new service called Amazon Prime Pantry. Their customers are paying for the convenience of not having to go to the store for many of the usual household items. The quantities are not the same but they are targeting the more affluent customer that is sizing down and doesn’t have the storage space for bulk buying plus has their purchases delivered right to their door at the cost of a gallon of gas.

I thought that was some very valuable information! Sam’s Club or Costco or now Amazon….worth the price of admission, if you ask me.

Customer Service Survey and NET (Net Promoter Score)

Every firm seems to be doing some type of customer service survey. It is becoming over kill. I can see every 5th call but NOT every transaction. I fly a lot. Delta airlines who has never spent much money on training their staff to deliver great customer service, loves surveys. I am a Platinum flyer, one of the highest users of Delta. Too much time on EVERY call is spent asking if I want to do a survey when the call is over. I always say “no” and then…. they email me a survey to complete.

I believe it is overkill. Customers are getting tired and annoyed with the survey request. Not smart to irate your customer with a survey on every transaction. Most firms manipulate the results and questions. Yes I know the NPS has just one simple question. Would you recommend us to a friend?

Years ago Target had a survey and the results were so bad they just changed the survey and no longer had any problems. I recently needed a replacement bag for an outside leaf blower called Worx. Their web site like most firms talks about the incredible focus on customer service. It takes them 2-3 days to respond to emails. They do not have enough people answering the phone. I hate 30 minute hold times (especially when they talk about their customer service focus). Their survey questions were really not related to my concerns. The product is great but the problem is when you need customer service. It took me 6 days to get a replacement bag, that’s way too many emails and phone calls.

Customer service surveys and NPS’ are fine but NOT 100 PERCENT OF THE TIME. IT WILL DESTROY YOUR REAL OJECTIVE WHICH IS TO BUILD A CUSTOMER SERVICE BRAND.

Comcast $45 Billion acquisition of competitor Time Warner Denied

The FCC turned down the merger because Comcast would have too big of a market share. I think the real reason is because Comcast has NO brand equity. They have the worst customer service scores in the US. “Comcast is one of the worst and most consumer-hostile corporations on the planet,” stated a customer from Oakton, VA.

They spent over $22 million on political contributions to leverage their support with Congress. The money for the first time did not work. In 1980 one of my first customers was Northwestern Bell Telephone. They had a Telsam survey which measured customer satisfaction. We made a huge impact.

Large companies who fail to understand the power of great service will have the same problems Comcast had. I am not sure top management understands how negative an image they have with consumers.

According to The Free Press, this failed attempt to monopolize Internet access should put Comcast, AT&T, Verizon and other industry giants on notice. Rather than spending millions to eliminate their competition, these companies should build better networks and improve their services.

John Tschohl
President
Service Quality Institute
Minneapolis, Minnesota 55420
Office 952-884-3311
Cell 612-382-5636
http://movingup.johntschohl.com
www.customer-service.com
www.JohnTschohl.com

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