Costcp vs Sams Club

colloidal solution harms Price alliance emerged as the unchallenged leader in ingredient store retailing, with stores operating primarily on the West Coast. Although he originally conceived Price smart set as a place where small local aires could obtain needed swap at economical prices, Sol Price soon concluded that his fledgling operation could achieve far largeer gross sales volumes and gain buy clout with suppliers by too granting membership to individualsa conclusion that launched the deep displace storage w atomic number 18house golf club industry on a steep growth curve. Price golf-club was eventually merged with Costco in 1984.The same year, Walmart adopted the Wargonhouse alliance concept and launched its first surface-to-air missiles Club stores. The Club w arehouses typically have concrete tarradiddles, sparse decor, and goods displayed on pallets or simple wooden shelves. The Warehouse floor plans are designed for economy and efficiency in the use of sel ling space, in the handling of merchandise, and in the control of inventory. Warehouse transmission line Model Warehouse Clubs are big(p) box stores that sell groceries as well as general merchandise at humbleer costs The basic model is to reserve very(prenominal) low gear prices, sell high volumes, and maintain very high Operating efficiencies.The business foundation garment is that low prices on a limited selection of national brand merchandise and selected occult-label products in a wide range of merchandise categories produce high sales volume and rapid inventory turnover. on the whole latest warehouse Clubs operate down the stairs the following model (Refer realize 1) * low Profit margins. * minor prices * Limited selection (around 4000 items) * Wide range of merchandise categories (tires to baby wipes) acquires the rapid inventory turnover. * Volume get * efficient dispersion * reduced handling of merchandise * no-frills warehousesWarehouse Clubs comprise a ve ry big business opportunity and a menstruation market of 500B+ (including Costco $71B, surface-to-air missiles Club $54B, BJs $11B and Walmart SuperCenters $390B. ) There is a combined Membership base of more than 130 million paying members crossways the existing warehouse clubs who pay membership fees in exchange for the privilege of shopping at the warehouse clubs. The typical sales for each SKU is $12M per SKU at Costco and $10M per SKU. This allots them to order massive amounts from producers. Bulk packages sell larger quantities to consumers. The huge warehouse clubs go along the need for actual warehouses.At the same time, they reduce the need for handling. This greatly enhances distribution efficiency. Their large-scale membership base makes them strong. Figure 1 Warehouse Clubs are very popular with households with higher incomes(Refer Appendix C). Costco Background Costco was founded by Jim Sinegal and Seattle entrepreneur Jeff Brotman. The first Costco store began operations in Seattle in 1983. Costco Wholesale Corporation (Costco), with its subsidiaries operates membership warehouses that stretch forth its members low prices on a limited selection of mark and selected private-label products in a range of merchandise categories.By offering quality merchandise at a low price, they attract mostly affluent shoppers. Its typical membership profile is a relatively well heeled customer with an average yearly income of $75K. Costcos scheme is to sell quality items at low prices and to puddle a treasure hunt like zephyr with a set of variable famous brand items available at low prices each workweek that Its buyers had been able to procure. Costcos warehouse format averages round 141,000 square feet. Its warehouses operate on a seven-day, 69-hour week.It carries an average of approximately 3,600 active stock memory units (SKUs) per warehouse in its core warehouse business. Many consumable products are offered for sale only in case, carton, or multiple-pack quantities only. It operates warehouses existencewide including countries such as Mexico, UK, Japan, Taiwan, Korea and Australia. Costco and surface-to-air missiles Club are more corresponding than different. They have the same model. Costco is known as an Upscale Sams Club. Figure 2 Costco and Sams Club Comparison Memberships Offered Costco offers memberships in the following formats. Gold friend Member = $ 55 Business Member = $ 55 Exe pull downive Member = $ 110Membership fees combined with its high member count (64M), allow Costco to maintain low prices. Sams Club Background Sams Club is stop of the 3700 stores Walmart drawing string. Walmart followed Costco into the warehouse club business and the first Sams Club store was opened in 1984. Sams Club has more products than Costco, but is smaller than Costco in total revenues. Wal-Mart blood lines, Inc. (Walmart) operates retail stores in various formats around globally. Everyday low prices (EDLP) is the Compan ys pricing philosophy under, which it price items at a low price everyday. The Companys operates in three business segments the Walmart U.S. segment, the Walmart International segment, and the Sams Club segment. Its Sams Club segment consists of membership warehouse clubs operated in the United States as well as countries such as Africa, Brazil, China and Mexico. Sams Club primary focus was Small Businesses until 2006. Currently, it targets all consumers, including small business. Many Sams Club placements are adjacent to Wal-Mart Supercenters. The concept of the Sams Club format is to sell merchandise at very low improvement margins, resulting in low prices to members. Membership Offered Advantage Member = $35 Business Member = $ 40 Plus Member = $ 100Membership cost slight than Costco. Sams in like manner has less(prenominal) members (48M versus 64M) Competition and Market Position of Rivals Sams Club has slightly more locations than Costco, but has boilers suit lower revenue s. This is due to Costcos larger number of members and higher sales per customer per location. Costco maintains low margins of less than 15% on each item as a strategy, to offer low prices to its members. In the discount warehouse retail segment, there are three main competitorsCostco Wholesale, Sams Club and BJs Wholesale Club. At the end of 2012, there were just over 1,200 warehouse locations across the United States and Canada.Figure 3 Market Positions of rival Warehouse Clubs Key Ratios stock turnover is an important metric in the sweeping club industry. Costco has the highest inventory turnover, but Sams Club and BJs, both are close. Costco has the lowest profit margin, due a junto of factors, including the high pay and benefits, it offers its employees. Figure 4 Key Ratios Comparison across Functional Areas We believe bring out Chain can non be looked in isolation and it involves human capital, use of instruction technology and Marketing. We compared Costco and Sams Club a cross 5 broad functional heavenss. We did not go deeply into the Finance area.Broadly, we found that warehouse clubs including Costco and Sams Club preferred to buy the real(a) estate and buildings rather than lease it. 1) Human Capital two warehouse clubs chose to * Promote from within * ap tip Warehouse Manager. 2) culture engineering science. Both warehouse clubs leverage technology to drive efficiencies and lower cost 3) scattering and publish Chain Both clubs broadly try to optimize and drive efficiencies in their distribution and tot up chain processes. * Cross-dock, Planning and Forecasting, VMI. 4) Marketing Both do not spend as much on marketing. * Little to No marketing 5) Finance Own versus Lease of real-estate and buildings Even though the warehouse clubs are more similar than they different, differences do exist We will go by means of each functional area in more detail. 1) Human Capital Costco Employees are the highest paid in the industry with good benefits. They are well treated and are highly motivated. Costco covers 82% of its employers for health insurance compared to only 47% by Sams Club Human Capital Advantage Costco Costco is able to derive more benefits from keeping its employees happy. Costco has a higher sales per employee, Higher sales per store as well as a higher sales per SKU than Sams Club.This is clearly due to its highly motivated workforce. 2) Information Technology Both the warehouse Clubs are able to derive benefits of tracking membership information and sales associated with members through the use of their IT systems. This allows them to effectively track and predict/forecast seasonal demand information. Since all customers must snare card when checking out, clubs know exactly who is buying what. Costco uses information technology to connect all its warehouse locations to corporeal HQ. It yields real time information and the effective use of its inventory and control systems.It has outsourced 75% of its IT dep artment to an India location and built effective interfaces from Costco. com to UPS and Fedex to facilitate shipping. Costco has also tried to reduce operating costs through step-down in energy consumption. It has incorporated skylights in all warehouses and solar panel in 40 of the warehouses. It has also incorporated an extensive Recycling Program. Sams Club uses information technology more effectively due to Walmarts support. It is able to leverage Walmarts size and scale to its advantage. It uses a satellite system to collect info and observer merchandize flow.Wal Marts satellite network sends point of sale (POS) data directly to 4,000 vendors. It also has very strong system that support the CPFR process and allow for collaborative planning, forecasting and replenishment with its suppliers. Information Technology Advantage Walmart Sams Club Figure 5. CPFR process(Collaborative Planning, Forecasting and Replenishment 3) Distribution and Supply Chain Costco and Sams Club both us e Cross docking (Refer figure 6 below) to derive efficiencies. Merchandise is shipped directly from manufacturing businesss to Warehouse. This allows them to eliminate multi-step distribution channels and thus lower costs.Goods in destination are distributed within 24 hours. Merchandise is placed right on the sales floor, typically above. Both leverage their large scale operations to get lowest prices from Manufacturers / Suppliers. Warehouse Manager has decision do to run each individual warehouse as a Investment Center. No one manufacturer supplied a significant percentage of the merchandise that warehouses stocked and management believed that if one or more of its current sources of supply became unavailable, the company could switch its purchases to alternative manufacturers without experiencing a substantial disruption of its business.Costco Supply Chain Costco has 9 cross-docking distribution centers and has direct buying relationships with many producers of national brand-n ame merchandise (including Canon, Casio, Coca-Cola, Colgate-Palmolive, Dell, Fuji, Hewlett-Packard, Kimberly-Clark, Kodak, Levi Strauss, Michelin, Nestle, Panasonic, Procter amp Gamble, Samsung, Sony, KitchenAid, and Jones of New York) and with manufacturers that supplied its Kirkland Signature products. Sams Club Supply ChainApproximately two- trinitys of the merchandise at Sams Club was shipped from the divisions own distribution facilities and, in the case of perishable items, from some of Wal-Marts grocery distribution centers the commensurateness was shipped by suppliers direct to Sams Club locations. Like Costco, Sams Club distribution centers employed cross-docking techniques whereby submission shipments were transferred immediately to outgoing trailers destined for Sams Club locations.The Sams Club distribution center network consisted of 7 company owned and operated distribution facilities, 13 third party owned and operated facilities(3PLs), and 2 third party owned and op erated import distribution centers. A combination of company owned trucks and independent trucking companies were used to transport merchandise from distribution centers to club locations. Sams Club has vendor Managed Inventory(VMI) relationships with many of its large suppliers such as PampG, GE and Wrangler. Sams Club due to its relationship with Walmart is very strong in the Distribution and Supply Chain and is very efficient.It also has a practice of dealing with only Manufacturers. * Costco Strengths * Buyers scour the business world to find overstock brand items that can be sold at a discount to create a Treasure Hunt atmosphere. * Sams Club Strengths * leverages large Walmart Hub and Spoke Distribution Network. * Vendor Managed Inventory(VMI) relationships with many suppliers such as Wrangler, PampG and GE. * Deals only with Direct Manufacturers. Supply Chain systems Advantage Walmart Sams Club. What is cross docking?Cross-docking is a practice in logistics of unloading mate rials from an incoming semi-trailer truck or railroad car and loading these materials directly into outbound trucks, trailers, or rail cars, with slim or no storage in between. This may be done to change type of conveyance, to manner material intended for different destinations, or to combine material from different origins into transport vehicles (or containers) with the same, or similar destination. Hub and spoke are arrangements, where materials are brought in to one central location and then sorted for address to a variety of destinations.Figure 6 Cross-docking What is Vendor Managed Inventory(VMI) Vendor Managed Inventory(VMI) is a means of optimizing Supply Chain work in which the manufacturer is responsible for maintaining the distributors inventory levels. The manufacturer has access to the distributors inventory data and is responsible for generating purchase orders. Please refer Figure 7 To further stipulate it, lets look at 2 business models (Refer Figure 8) Under th e typical business model (Purchase Order driven) When a distributor needs product, they place an order against a manufacturer.The distributor is in total control of the timing and size of the order being placed. The distributor maintains the inventory plan. Vendor Managed Inventory model (Demand driven) The manufacturer receives electronic data (usually via EDI or the internet) that tells him the distributors sales and stock levels. The manufacturer can view every item that the distributor carries as well as true point of sale data. The manufacturer is responsible for creating and maintaining the inventory plan. Under VMI, the manufacturer generates the order*, not the distributor. Note VMI does not change the ownership of inventory. It remains as it did prior to VMI. Figure 7 Vendor Managed Inventory Figure 8 Demand driven (Vendor Managed Inventory) versus Purchase Order driven system. 4) Marketing Advertising Costco limits its advertising to cut marketing cost. Both warehouse clu bs are engaged in direct mailing to potential and current consumers But Costco does not have a PR department and believes the most effective advertisement is line. Sams Club does advertise and through television and Cable media.Marketing Advantage Costco Known for its great customer satisfaction and service. High Customer Loyalty(87% renewal rate. ) Vertical Integration and Alternative Sales bring Both the warehouse have created their own private labels and rely on other manufacturers and suppliers to manufacturer their products and provide top quality at a low price. Costcos private label is branded under the Kirkland Signature brand which is considered as a quality brand. Sams Clubs have several private labels such as Members Mark, Artisan Fresh, Daily Chef and Simply Right.Costco and Sams Club , both have websites, which allow them to sell products that are typical not in the warehouse. It also allow them to sell services such as insurance and travel which leverages the compani es information technology rather than the physical supply chain. Alternative services offered * Consumer Services * Travel * Optical * Automotive * Financial Services * 401(K) * Loans * amends * Pharmacy * Recycle electronics Conclusion Costco Wins Round One , but the Battle Continues. Costco has 64 million very loyal members and is known as a provider of top quality merchandise at low prices.Its buyers are able to scour the world to get acquire overstocked premium goods at low prices to create a treasure hunt atmosphere in its warehouses. It private label is considered a premium branded product that has top quality. Its employees are exceptional and Costco has a high performance workforce. * Best-Cost Provider * 64 million very loyal members * Top-quality merchandise * Low price * Treasure-hunt items * Kirkland Signature * Top-quality in-house brand * surpassing employees * Economies of Scale Appendix A Savings for Members Warehouse Clubs offered low prices in analogy to super markets.A sample comparison of frequent buys at Costco versus a local grocery store is attached. Costco price for the list is $171. Grocery Store price is $538, a savings of $367. Appendix B Porters Five forces (Warehouse Clubs) Appendix C Warehouses Popular with families with higher income Appendix D Costco derives value from paying its employees more Appendix E Costco and Sams Club Websites Appendix F References WAL MART STORES INC (Form 10-K). WAL MART STORES INC (Form 10-K, true 03-27-2012) COSTCO WHOLESALE CORP -NEW (Form 10-K, Received 10-14-2011) Costco Deploys EnFlexA? EWebConnect for Enterprise Facility Information Management EnergyVortex. Costco Deploys EnFlexA? s EWebConnect for Enterprise Facility Information Management. N. p. , n. d. Web. 15 Oct. 2012. <http//www. energyvortex. com/pages/headlinedetails. cfm? id=1003>. measuring stick&Poor(S&P) Report on Costco and Walmart Corporation. Reuters Report on Costco and Walmart Corporation Distribution br ing and Logistics. Distribution Channels and Logistics. N. p. , n. d. Web. 15 Oct. 2012. <http//www. consumerpsychologist. com/intro_Distribution. html>. Consumer Reports Costco and Sams Club. Received 10-27-2011