Question

Mass discount retailers entered the market since 1960s. A typical example is Wal-Mart. They originally (and most of them still) targeted at lower-income customers and offered broader lines of products than department stores like the Macy’s and Sears. In 1960, the combined sales of discounters were $2 billion and that of Wal-Mart alone increased to $218 billion for the fiscal year ended January 31, 2001. While mass discounters continued to prospered, another type of discounters were introduced in the early 1980s – wholesale clubs. Take Costco as an example, the company became the largest wholesale club in the industry with sales of $34 billion in 2001. Although it is smaller than Wal-Mart, Costco adopt a different set of business strategy and delivered its value in a different way.

            Compare Wal-Mart vs. Costco Wholesale Corporation and list the business strategies (different from Wal-Mart’s) that Costco employs to deliver value to its customers. Note: news articles and company’s annual reports could be good source of evidence. Please cite each news article or company’s annual reports.

Answer 1

About Costco :

• Membership Fee for Purchasing of goods. Consumers are not Subscribing for Goods, but actually they are subscribing for Services.
• They are selling at less margins to maintain Capped Margins
• Maximum, on all products the average margin in an year is 11-12%
• For maintaining average margin, they have their own brands, where in that brands the margins are much higher than their average margin
• These higher margins of own brands will be compensated with lower margins of other brands to maintain average margin.
• They don't offer lower prices only on weekends or on some other days, they continuously offer discounts throughout the year on most of the products.
• High Employee wages - This allows employees to do more productive work rather than lazy.
• Fewer Stock Keeping units - They have only limits brands in all segments, say only one or two brands in toothpaste. This allows them to gain higher margin as the brandowners wants their product to be in store.

About Walmart:

• Targetted both Wholesale and Retail Consumers.
• They are using technology in a better way. This allows them for online sales high when compared with costsco.
• Everyday Low prices - Mostly all the time they are offering discounts.
• Large sales volume made possible by a large customer base and scale of operation.
• They have divided the stores into categories based on the size and prices - Supercenters, Discount Stores, Neighbourhood Markets
• A highly efficient supply chain system that maximizes productivity and reduces outlays. They have their own logistics which includes Tractors, Trailers and own drivers. This allows them to reduce costs of Transportation, ontime delivery of products.
• Low operational and overhead costs - When compared with cotsco, the employees salaries are less in walmart. Their overhead costs are also less as they have their own Logistics facility and mostly they are doing business online also.
• International Presence is an added advantage to walmart .