Competition Among the
North American Warehouse Clubs:
Costco Wholesale vs. Sam’s Club vs. BJ’s Wholesale

Tami Bouldin-Golt
March 1, 2013

Provide an overview of the company and/or industry and add any pertinent information relevant to the case (5 points) From eggs to tires to coffee, the everyday consumer can find whatever he or she needs in a warehouse club; at a much lower price from the common retailer the drawback: annual membership fee. The warehouse industry operates on the idea that by customers buying memberships to shop at their locations, the companies can afford to lower their prices beyond that of major retailers. The idea of having a membership to shop somewhere not only allows the company to lower prices but also creates a loyal customer base that tends to come back year after year. There are three major competitors in this industry, Costco Wholesale Corporation, Sam’s Club (a subsidiary of Wal-Mart), and BJs Wholesale club. Costco and Sam’s Club opened in 1983 to immediate success. By the end of 1984, Costco had nine stores and over 200,000 members and became the first company to reach over $1 billion in sales within the first six years. Sam’s Club had sales in excess of $12.3 billion within 10 years. Both companies rely on a low-cost strategy. B J’s is considerably smaller than Costco and Sam’s club but has still maintained success behind a best cost strategy. While BJs has fewer locations, their stores offer over 7,000 products compared to 4,000 at both Costco and Sam’s club. Together these three companies cover nearly 100% of the industry. Their strategies are not perfect, however, and their sales have seen slight declines in revenue from 2008-2009 with the exception of BJs. All three competitors are dealing with the economic situation as most retailers are.

1. Do all three warehouse club rivals – Costco, Sam’s, and BJ’s Wholesale – have highly similar strategies? What differences in their strategies are apparent? Does one rival have a better strategy that the others? Does one rival have a somewhat weaker strategy than the other two? (15 points) All three of the competitors have similar strategies in place. Costco, Sam's Club and BJs all employ the low cost provider strategy. BJs incorporates some best cost factors into their strategy; i.e. “inner circle” focus, larger product assortment, more efficient shopping experience, excess amount of store hours, more buying options (not just bulk), manufacturer’s coupons accepted, variety of payment options, specialty services, and clustered locations. Costco and Sam’s club strive to be the lowest cost provider and they all exert efficiency and high sales volume and cross-docking to increase efficiency. They are all able to have low overhead and production costs. Of all three Costco’s strategy is the strongest and has 56% of the market, surprisingly Sam’s club strategy is the weakest. BJs strategy still provides success for the small business where Costco and Sam's Club have turned their focus more towards grocery items for families.

2. Which of the three warehouse club rivals has been the strongest financial performer in recent years? Complete the following calculations to help support your answer. (30 points)
|COSCO |
| |
| |2009 |2008 |2007 |
| FY2009 for Costco and 2010 for Sam’s/BJ’s |10.2% |n/a |8.6% |
| FY2009 for Costco and 2010 for Sam’s/BJ’s |8.1% |12.5% |10.3% |

FY2009 for Costco and 2010 for Sam’s/BJ’s |4.9% |n/a |4.2% | | | | | FY2008 for Costco and 2010 for Sam’s/BJ’s |6.2% |n/a | | | | | | FY2007 for Costco and 2010 for Sam’s/BJ’s |5.5% |n/a | | | | | | FY2006 for Costco and 2010 for Sam’s/BJ’s |6.3% |n/a | | | | | | Costco’s financial performance during the 2000-2009 period has been acceptable, but well short of what could be termed “very good” or “excellent”. Costco’s net sales increased from $31.6 billion in fiscal 2000 to $71.0 billion in fiscal 2008, equal to a respectable compound average growth rate (CAGR) of 10.65% since 2000. But net sales fell slightly to $69.9 billion in 2009 due to the down turn in the economy, dropping CAGR for 2000-2009 down to 9.22%. Costco’s total revenues (sales plus membership fees) increased from $32.2 billion in fiscal 2000 to $72.5 billion in fiscal 2008 with a slight drop to $71.4 billion in fiscal 2009, equal to an average annual compound rate of 9.25% from 2000 through 2009. Costco’s net income rose from $631 million in 2000 to $1.1 billion in 2009, a decent CAGR of 6.3% considering the decline in net income from $1.28 billion in 2008 to only $1.09 billion in 2009. Costco’s diluted earnings per share have increased from $1.35 in 2000 to $2.47 in 2009, a compound average growth rate of 6.9%. • Costco’s profit margin has been up and down every year since 2006 • BJs was the only company whose profit margin continued to increase from 2007-2010 • Sam’s operating profit margin has continued to slowly decrease since 2007

3. Five years from now, is Costco’s standing as the industry leader likely to be stronger or weaker? Are the other two rivals likely to gain or lose ground on Costco? Why or why not? (15 points) Costco is standing as the industry leader and will likely be stronger five years from now because they have a more complex growth strategy. This strategy has 3 main elements; open more warehouses, build a large, loyal membership base, and induce members to shop at Costco more often. Costco plans to grow not just domestically, but internationally as well. With this growth strategy, it is reasonable to conclude that Costco will further increase its standing as the industry leader.

4. What recommendations would you like to make to Jim Sinegal regarding the actions that Costco management needs to take to sustain the company’s growth and improve its financial performance? (15 points)
Costco created a niche market by providing the most economical prices with a limited product selection to reduce expenses. Seneal should focus on improving Costco’s long-term financial performance and keep evolving their current business strategy to the current economic characteristics. Senegal should implement a stronger advertisement campaign to create a stronger customer base.

5. What actions do you think management at Sam’s Club should take to boost revenue growth and overall financial performance? (10 points) Sam’s is similar to Costco and their business strategies are comparable. Sam’s club needs to implement a stronger advertisement campaign and build a stronger customer base to expand their current market share. Sam’s club should work with Walmart to try and obtain further financing and strategic methods to boost their revenues; i.e. adapt their current business strategy towards Costco’s since they have the strongest market share. Sam’s club should increase their membership fee to generate stronger profits.

6. What actions do you think management at BJ’s Wholesale should take to boost revenue growth and overall financial performance? (10 points) BJs should continue to expand operations by building new stores and focusing on at gaining a stronger customer base. They must market themselves better to take a larger portion of the market share. Management should continue to price products accordingly to compete with Costco and Sam’s club, but they must gain market share to boost their revenue and overall profit to help with expansion.