In the world of retail, the consumer has a lot of choices, so for a store to pop up and be successful, it often needs to have a unique pull. Big retailers like Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT) use low prices to draw in customers, but this isn't a model that works for everyone. Other retailers must find different ways to drive consumers to their businesses. We see those that focus on healthy foods, locally grown or made products, specialty niche stores, those that only carry high end brands, those that only carry low end brands, and in the case of Costco Wholesale Corp. (COST) and Sam’s Club, those that only sell in bulk. How do these last compare? Here’s a look.

The Costco Business Mode

Costco is considered the original bulk retailer. It has been selling bulk goods through its warehouse style stores for over 30 years now, and has had that area of the market captured for quite a while in most states.

The idea is simple. Costco builds a warehouse that is very minimal. It only sells in bulk, and it keeps frills to a minimum. Pair this with a membership fee (currently $60 per year), and you get access to what is usually the best deal around. The caveat is that you either need a large family to eat all of the food that you buy, or a method to preserve it (canning or freezing). Throughout the years the store has expanded and started to offer a number of other items, including large electronics, vehicles, and vacation packages. (For more, see: Grocery Wars: Who Will Win in 5 Years?)

The Sam’s Club Business Model

Sam’s Club is actually just as old as Costco. Both were founded in 1983 and have more or less the same business model in place: sell memberships to a store where customers buy bulk items. The difference is that Sam’s Club didn’t expand to the same areas as Costco did.

Sam's Club made headlines in January of 2018 when they announced they had closed 63 stores, laying of thousands of workers. Sam's Club didn't give an explanation other than a statement reading "After a thorough review of our existing portfolio, we’ve decided to close a series of clubs and better align our locations with our strategy. Closing clubs is never easy and we’re committed to working with impacted members and associates through this transition." 

A membership to Sam’s Club is slightly cheaper than at Costco (currently $45 per year). Other than this, there is no major difference (unless you want to start nitpicking prices, but when it comes down to it $6.99 vs $6.49 per pound for beef is really a non-issue). The biggest factor for many consumers: which corporation do you want to support?

Corporate Backing

Costco is owned by Costco. It has several smaller subsidiaries, such as Costco Travel and Kirkland brand, but aside from that, the company has not branched out into a multitude of other brands and stores.

Sam’s Club, on the other hand, is owned by Walmart. Some may recognize, through the names of the stores, the founder of the company: Sam Walton.

Both Walmart and Costco are huge multinational corporations. Some people have a special allegiance to one or the other because of the prices, the way they treat employees, or a host of other reasons. But for the most part, shopping at either one of these stores is supporting large corporate America. 

Customers

While both Sam's Club and Costco offer the same thing, membership to a store that sells in bulk, the two pull largely different customers. The value is the same, the pricing is essentially the same (you can see a breakdown of how they compare here), the membership dues are different, but fairly 

Costco membership has a certain caché that membership to Sam’s Club doesn’t have. Although it costs less than $5 per month, the membership comes with the idea that you are now a part of an elite club. Not everyone has a Costco membership, but once you sign up, you get to be a part of the special few that are members. Does it matter? Not really, it’s all psychological.

Sam’s Club also offers the membership, but that membership doesn’t carry the emotional feeling that Costco's does largely due to the fact that many people feel that Sam’s Club is just bulk Walmart. Why pay for a membership so you can buy, in bulk, the same thing that you can get at Walmart? While there are unique offerings and this isn’t entirely the case, it does weigh on consumers' emotions. (For more, see: The Best 5 Grocery Companies To Work For.)

Sales

Those emotional ties also translate into how well each of the businesses are doing as far as sales go. While both are successful, there is a big discrepancy in profits, and a lot of it boils down to these intangibles.

When you hold a Costco membership, and you don’t use it for a few months, you begin to wonder why you have it. Because the price is slightly higher, the membership actually drives more people to shop at the store. It’s similar to paying for a gym membership: it’s a financial incentive to work out. Costco could afford to offer their products to the general public without the membership dues; they are a tiny drop in the bucket on their bottom line. But they keep them because people will shop at their store simply because they don’t want to “waste” their membership. By offering a membership for slightly less, Sam’s Club is taking the gamble that more people will sign up, even though fewer might have that emotional draw to shop.

Now that raises the question of what happens during a recession. People are strapped for cash, and many would think that paying for a membership, and then buying in bulk, is not the way that they want to use their money. However, that ends up not being the case.

In 2009, when the recession was well underway, most businesses were either losing money, or saw a huge decline in sales. These two bulk suppliers were an anomalyCostco saw sales dip a mere 2% (and then increase right back up in 2010). Walmart saw a steady growth of sales. It turns out that people aren’t as short sighted as we like to believe, and they still see the value in bulk and good prices even if it means more money out of pocket now. Costco currently has net sales of $127.6 billion for the most recent financial year. Sam's Club had 2017 sales of $57.36 billion. 

The Bottom Line

Costco and Sam’s Club have very similar business models. They charge essentially the same prices for their memberships and the same prices for their goods. Yet Costco generally fares better. The reason is that Sam’s Club may be shooting themselves in the foot with their counterpart Walmart. Many of their potential customers simply shop at Walmart for many of the same deals, but without the hassle of membership

Two companies, both founded the same year, both with similar business models, both attracting the same customers, and both highly successful. Who says that you need a unique idea in order to draw in customers and have a thriving business that lasts over 30 years?

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