Kicking Sam's Butt
Sam's Club has a different feel. In January, it opened a store in Renton, on the same street, South Grady Way, as a regular Wal-Mart. The Renton store is the newest of three Sam's Clubs in the Seattle area, all on the not-so-tony fringes. There are certainly bargains to be found. An Oscar de la Renta pullover, with the manufacturer's price tag of $50 still attached, sells for $15.86. A 3-pound, 7-ounce pumpkin pie goes for $5.86. And gas, at $1.86 a gallon, is cheaper than it was at Costco's Issaquah store a couple days earlier.
Judith Eve Lipton
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There are fewer upper-end items, though. There are no coats over $100, no jewelry over $3,000. Gourmet cheeses and other staples of la dolce vita are hard to find. There appears to be simply less stuff in general, and it's amazing how much you can overhear snippets about Costco in the aisles of Sam's. "I'm going to Costco on Saturday," a woman in the cheese aisle says into her cell phone, apparently not finding what she wants. Nearby, a freelance baker, preparing a big order for Boeing employees, voices his disappointment at not finding the right cheesecake crusts and toppings.
"That's what Costco's got on you," he jests to a couple of bakery clerks.
"The only thing!" one replies. But the truth is the parking lot is half full.
After switching CEOs and strategies for years, Sam's Club presents more of a threat to Costco than it ever has. Current CEO Kevin Turner has zoomed in on a strategy of attracting small-business owners—a large part of Costco's base. Last year, he ignited speculation of a price war with Costco, one that never materialized as it turned out, by announcing that Sam's would not be undercut. Sam's is also encroaching on Costco terrain by opening new stores in areas like the Puget Sound region. Costco is returning the favor in places like Texas.
Still, at least for the time being, Costco is whipping Sam's in the marketplace. For a recent comparable 52-week period, Costco's net sales were 28 percent higher even though it has one-third fewer stores. Says Phil Bonanno, a retail analyst for the Massachusetts research firm Management Ventures, "Costco outperforms Sam's Club on almost every product measure you can think of: sales per building, sales per item, inventory turns [how quickly merchandise moves], sales per square foot."
Last week, Costco announced an impressive 21 percent earnings increase for the first quarter of its 2005 fiscal year—about the same level the company achieved for the entire previous fiscal year. Despite a slight dip in the past few days because the company didn't beat analysts' expectations, as usual of late, its stock price has rebounded from last year's slump and climbed far above where it stood before Wall Street started griping.
One person well aware of Costco's stock price is D.J. Brooks, the customer who bought the cashmere coat. As it happens, he's a financial guy who traded equity derivatives in London and Japan before moving here to start his own hedge fund. Brooks admires the way Costco treats its employees and feels it pays off when he interacts with clerks who appear to have a brain. As for the criticism from his financial brethren, Brooks notes the stock trajectory and breaks into a sly smile. "So maybe Wall Street was wrong."
nshapiro@seattleweekly.com
