Competition among the North American Warehouse Clubs: Costco Wholesale versus Sam's Club versus BJ's Wholesale

The company competitive strategy are the specific moves that help the company please the customers, make offensive and defensive moves to beat the competition, and how it responds to changing market conditions. The five generic competitive strategies describe the five methods firms use to generate their strategic options. Firms use a low-cost provider strategy, a focused or market niche low cost strategy, a focused or market niche differentiation strategy, a best-cost provider strategy, or a strategic combination of all five. The North American warehouse clubs case show how Costco Wholesale, Sam’s Club, and BJ’s Wholesale are using strategy to try and win customers. The membership warehouse club began in 1976 and after a rocky start, has expanded to a global industry. Costco and Sam’s Club began in 1983 and BJ’s followed in 1984. These three companies have been in a competitive battle ever since.

Costco Wholesale’s strategy is based on being the low-cost leader. Successful low-cost leaders are exceptional at finding ways to drive costs out of their business and still provide a product or service that buyers find acceptable (Thompson, Strickland, & Gamble, 2012). Costco uses a focused or market niche low-cost strategy to keep their prices down and earn repeat customers. Costco would only stock items that could be priced at a bargain level. They capped margins on brand name merchandise at 14 percent and offered their own Kirkland Signature items capped at 15 percent markups. In fact, the prices were kept so low that Costco prices were just above the breakeven point. Every effort was made to keep operating costs at the minimum. Management would locate warehouses at high traffic areas and avoid prime real estate. Warehouses were metal pre-engineered designs with concrete floors and minimal interior design. The design was strategically planned to maximize efficiency in the use of selling space, handling of merchandise, and control of inventory.

Sam’s Club used the same low-cost strategy to earn customers but was not as successful as Costco. In 2010, Sam’s Club had to close 10 underperforming warehouses begin remodeling some 52 stores. The warehouses had the same concrete floor layout and a distribution network of 8 company owned and operated distribution facilities and 18 third-party-owned and operated facilities.

BJ’s Wholesale took a different strategic approach and offered a combination best-cost provider strategy. They offered the same high quality brand named merchandise at low prices but focused on customer friendly shopping experience. BJ’s offered a broad product assortment and some smaller package sizes. BJ’s also accepted manufacturer’s coupons and accepted more credit and debit payment then their competitors. The warehouses also encouraged more frequent customer visits by offering extra services like optical center, food court, home improvement, BJ Vacations, garden and storage sheds, and automobile services.

Firms have continued to find innovative ways to attract new and maintain current customers. As the industry evolved, the various strategies have continued to evolve alongside it. The wholesale industry will need to focus on developing the differentiation strategy in order to offer products that the competition cannot. The firms will use a best-cost provider strategy to continue to offer their customers high quality products at the lowest possible prices.

References

Thompson, A.A., Strickland, A.J. & J.E. Gamble (2012). Crafting and executing strategy: The quest for competitive advantage (18th Ed.). New York: McGraw-Hill.