Costco uses this winning 6-part formula that makes it the anti-Walmart (2024)

2016-12-06T20:21:51Z

But behind the scenes, the two retailers couldn't be more different.

In fact, Costco has thrived bybeing the"anti-Walmart,"a term first attributed to the retailer in 2005 bySteven Greenhouse at The New York Times.

Eleven years later, the retailer's strategy seems essentially unchanged, according to a new report from Fortune that takes a deep dive into Costco's business.

Costco uses this winning 6-part formula that makes it the anti-Walmart (3)

We pulled from the report the six major ways Costco sets itself apart from its competitors.

Advertisem*nt

Only offer a limited number of items.Costco sellsjust 3,700 products compared to 140,000 at Walmart or 500 million options at Amazon, according to Fortune.Fewer items increases sales volumes and helps Costco get better bargains with suppliers.
Keep mark-ups low.Fortune reported the average markup at Costco is 11%, compared to nearly 24% at Walmart, 30% at supermarkets, and 35% at Home Depot and Lowe's. Lower markups may mean lower profit margins in the short term, but they also help boost customer loyalty over time.
Make customers pay for membership.Costco's 81 million membershipsaccount for nearly 3% of itsprofits, according to Fortune. The membership model helps build customer loyaltyand provides a guaranteed source of revenue for the retailer.
Pay workers well.The average pay for Costco workers is $22 per hour, compared to $13.38 at Walmart, Fortune reported, which has helped the retailer keep itsemployees. The company has a 94% retention rate for employees who have been at the company for a year. Theaverage retention rate for hourly employees across the retail industry is 45%, according to advisory firm Korn Ferry.
Don't advertise.Thisallows Costco to save on marketing.
Aim for high-end customers.Costco's focus on quality and a handful of brand names means it attracts more upper-middle class customers who are cost-conscious, but can afford to spend a significant amountmoney on each shopping trip.

There are some areas where Walmart is beating Costco, most notably in e-commerce, whereCostco has been slow to invest. Walmart has invested a lot inonline shopping, shelling out more than $3 billion to acquire Jet.com in August.

Ultimately, analysts sayCostco's ongoing success is intrinsically linked to itsbusiness formula.

"Costco's model remains as relevant today as it was 20 years ago," UBS retail analyst Michael Lasser told Fortune, "and we don’t think that is really going to change."

Watch: 9 items to avoid buying at Costco

Retail Costco Amazon

More...

Advertisem*nt