Competition Among the North American Warehouse Clubs: Costco Wholesale Versus Sam's Club Versus Bj's Wholesale

Background Summary

Costco Wholesale, Sam’s Club, and BJ’s Wholesale Club are the three principal competitors representing the wholesale club sector of the North American retailing industry and held worth of nearly $125 billion in 2010. There were more than 1,250 warehouse clubs in North America with Costco controlling about 56% of the market, Sam’s Club controlling 36%, and BJ’s and other small warehouse club competitors controlling 8%. These warehouse clubs drew customers away from other wholesale and retail outlets such as supermarkets, department stores, drug stores and supply stores by having a business model that “operated no-frills, self-service big-box facilities where customers could choose from a relatively narrow assortment of discount-priced merchandise across a wide range of product categories.”

The warehouse club’s stores main objective is to attract customers by having a business model that offers low-prices products which are difficult for traditional retail outlets to match. They are able to offer substantially lower prices by their significantly lower operating costs than conventional retailers. Costco, Sam’s Club, and BJ’s are able to keep their operating costs lower than the other retailers because they purchased full truckloads of merchandise directly from manufacturers, displayed merchandise on pallets on inexpensive shelving directly on the floor, they also maintained relatively low labor costs, and spent very little on advertising and customer service. Because of their high volume of sales that allowed for rapid inventory turnover warehouse clubs are able to finance big percentages of merchandise inventory through vendor payment terms rather than by having to maintain large amounts of working capital. The low price and broad merchandise selection found at the three stores were attractive to small-business owners, churches, restaurants, homeowners and a wide variety of businesses and non-profit organizations, all which paid for annual...