Sam’s Club vs Costco and the Help-U-Sell Business Model

by David Bartels on September 22, 2014

Interesting reading this morning about Costco and Sam’s Club.  Sam’s is failing while Costco is soaring like an eagle.  They are both membership warehouse retailers offering a similar consumer proposition:  pay an annual fee and buy in bulk for less.  So why would one succeed and the other fail?

It’s all about the business model.

Sam’s Club is Walmart’s attempt to emulate Costco;  but they have the emphasis on the wrong syllable.  They opened Sam’s intent on making hefty profits selling things to consumers.  In other words:  they simply duplicated the model they had in place at Walmart and applied the discounts afforded by buying in bulk.

Costco did that, too, but that wasn’t the point;  not really.  The profits made by selling goods was secondary to something else:  Membership.  Costco makes 75% of its Operating Profit on Membership Fees.  They enjoy incredible customer loyalty, achieving a 90% renewal rate.  The chain has paid bonuses to managers who find ways to charge members LESS for goods.  No item is marked up more than 15%, which is remarkable when most retailers employ a ‘Keystoning’ strategy that starts with doubling an item’s cost.

Costco makes its money by growing happy, even enthusiastic customers.  They do it by:

  • Keeping prices low and NOT planning to make a lot of money on the items they sell
  • Creating their own ‘Kirkland’ branded items that, unlike most store brands, are usually of superior quality
  • Offering the best free progressive buffet lunch in town (wink)
  • Allowing anything they sell to be returned for any reason
  • Appealing to upscale consumers (Meanwhile Sam’s Club/Walmart openly acknowledges that cuts to public assistance could adversely affect its bottom line!)
  • Paying their employees generously (as a result, their employee retention is outstanding)

Put plainly:  Costco wins because it employs a better, more consumer focused business model.

Which is not at all unlike the Help-U-Sell Conejo Valley.

We make money selling real estate just like the other guys.  But our goal is to create such a great real estate experience that our customers return to us over and over again.  We accomplish this by:

  • Charging much less than our competitors.  We do make money when our listings sell, we just don’t make a killing
  • Staffing up with the most savvy and intelligent folks we can find and then rewarding them for their contributions
  • Offering a program to consumers that makes perfect sense and requires no smoke and mirrors to explain
  • Orchestrating the most effective marketing program in the industry

This is why we have dozens of testimonials from happy clients.  This is why the lion’s share of our business comes from former clients and the friends and neighbors they send to us.  Often, people tell me they came to us initially because of the savings they would achieve.  But they stay with us again and again because of the outstanding service we offer.

Which is not at all unlike Costco.

We join Costco because we like the idea of saving money.  But we shop Costco first because the shopping experience is so positive.

The better business model always wins.

For more information about our superior model, call today at 805-379-3300, or you can simply click here.

 

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