Costco solves a problem Sam’s Club hasn’t figured out yet

Costco has a sort of magic that’s not explained simply by the chain’s treasure hunt model.

Yes, it’s fun to shop there with free samples, the cheap food court, and the ever-changing merchandise, but the chain offers members something that’s harder to explain. As a former retailer who commanded a very loyal following, I’ll call it a mix of trust, respect, and maybe a dash of magic.

Whatever it is, it has driven Costco members to spend more per visit than Sam’s Club members, while also buying more discretionary items.

“Nonfoods benefited from strong sell-through rates and a shift in sales mix as higher-margin departments outperformed in the quarter,” CFO Gary Millerchip said during its fourth-quarter earnings call.

It’s a question of how Costco members see their shopping trips versus how Sam’s Club members view a visit to one of that chain’s warehouses.

Costco and Sam’s fill different needs

While Costco and Walmart’s Sam’s Clubs have similar operating models, consumers don’t treat them the same way.

“You go to Sam’s Club because you need something. You go to Costco because you need something, and somehow leave with a television, a giant bag of pistachios, and a kayak,” RTM Nexus CEO Dominick Miserandino told TheStreet.

He also explained where magic, of a sort, comes into it.

“Costco has figured out how to make spending money feel like saving money. That’s a pretty incredible trick, and consumers keep falling for it, myself included,” he added.

GlobalData Managing Director Neil Saunders told RetailWire that while Sam’s has an edge in terms of overall technology and automation, as well as online, Sam’s in-store experience “isn’t quite as fun, with less tasting and less of a treasure hunt atmosphere.”

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His Brain Trust colleague, Mark Ryski, CEO of HeadCount, shared how “you can achieve excellent outcomes, but get there taking different paths.”

He sees Costco sales being driven by a merchandise edge.

“Costco’s product mix leaning toward higher-quality, tested goods has been critical to their success. Shoppers have come to trust the Kirkland brand. Sam’s doesn’t have the same private-brand strength, but they have key strengths in logistics and efficiency,” he wrote.

It’s an edge that allowed Costco to drive higher sales, even as customers visit less often.

TheStreet

Costco sells an experience

Costco members are looking for value, according to Millerchip, but they’re also willing to buy nonessentials.

“We see members being very thoughtful about where they’re spending their dollars. They’re looking for value in everyday items,” he said. “But they’re also, as I mentioned, willing to spend on items where they see it’s a great value, even if it is in some of those discretionary categories. “

Retail expert Maurie Backman explained that Costco simply offers a better shopping experience.

“You can save money at Sam’s Club. You can save money and enjoy the shopping experience at Costco. The Kirkland brand is a draw by itself, and the product quality Costco is known for keeps members not only renewing, but spending beyond just their needs,” she told TheStreet.

Retail expert Bruce Winder thinks that Sam’s Club members are focused on meeting their basic needs for one key reason.

“I think it has to do with the difference in customer segments that frequent each. Costco tends to skew to higher income shoppers while Sam’s caters a bit more to slightly lower income shoppers,” he told TheStreet.

Costco has done well with discretionary items.

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Costco visits are entertainment

Back when I was a regular Costco visitor when we lived in Connecticut, I never went to the chain because I needed something. Maybe I had a small list of things to look for, but I wasn’t shopping for dinner or everyday items.

Instead, I was visiting Costco as entertainment. I would take my son and browse the aisles looking for interesting buys.

That’s very different from the Sam’s Club shopper visiting the chain often because they need groceries.

Now, with the economy tighter, I can see more people like me taking advantage of Costco’s prices while also still using a visit as entertainment, where I might buy something I don’t truly need.

“We’re seeing both of those dynamics at play of looking for that great value on every day, but also willing to buy items that are maybe more discretionary where they see the value,” Millerchip added.

Related: Costco members buying things most Americans have avoided