Walmart vs Costco A look into the execu on of compe ve business models Triumphs Failures Jasreen Johal Vielka Fajardo Paloma Tsihlas Mallory Mar n Aikan Graham Dylan Brown Opposite Business Approach q Gummy Bear Exercise o Which approach would you choose q Principle Agent Problem q Collec vism vs Individualism Which approach do you think is more successful Why Lets nd out Discre onary Income Walmart Costco q That low end consumer is just not willing to step out buy those discre onary items Edward Jones analyst Brian Yarbrough q Shoppers have more discre onary income Costco is capitalizing on addi onal free spending q Walmart employees are given lower wages how might this hurt the economy q Increased wages allow Costco employees to have higher discre onary income how might this help the economy Healthcare and Other Bene ts Walmart o O ers compe ve pay bene ts including health care plans educa on assistance re rement plans etc o 401k plan with a company match Costco o Medical plans cover employees in many areas o O er an Employee Assistance Program to deal with personal problems that may a ect your ability to perform your job Healthcare and Other Bene ts Walmart o 10 discount on merchandise o Possible upward mobility Costco o 401K plan employee stock op ons money management assistance o Mul ple reimbursement accounts healthcare Commuter bene ts Economics v We understand how supply and demand works As we demand items companies compete to provide those items to us for a price of course v So if we can get iden cal products at di erent places with near iden cal prices what makes someone go to Costco and not Walmart Economics cont v On a survey of 26 000 people about their shopping experiences retailer q Costco pleased shoppers more than any other major q Wal Mart may be associated with lower prices but respondents said the product value was beber at Costco Economics cont Which do you think is the beber investment 200 150 100 50 0 Costco Wal Mart Economics cont Into the Future v Going forward we believe that Costco s growth will remain on track as its membership base con nues to grow Its strong e commerce channel and rapid interna onal expansion will provide strong support Also the improving housing industry in the U S will complement the growth of Costco s hardline business which accounts for about 16 of its revenues Forbes Ar cle Costco s Growth Engine Keeps Purring Fueled By New Membership States Di erences in Pay Individuals working 4 years Overall Costco Walmart 15 97 11 52 82 47 91 46 Avg Hourly Rate Covered by Health Plans Covered by Retirement Plans We see that Costco pays their employees a lot more than Walmart however this ends up SAVING Costco a lot of money Why do you think this is so By Paying Employees More Costco is able to Cut Down on Costs Costco Walmart Costco Walmart Turn Over Rate 6 per year 31 per year General Adm Cost 9 8 of income 17 of income Costco Allows For v Less Turnover Rate of Employees costs about 2500 employee v Cheaper General Administra on Cost Helps save money on interviewing hiring training etc which usually v Loyal Employees Lowest employee thel v Gemng more money out of their employees Costco Gets More from it s Employees v Higher growth in income from opera ons in the last year v Higher average pro t per employee v 102 000 Sam s employees sold 35 billion while Costco with 1 3 as many employees sold 34 billion Costco Walmart Economic Growth 16 year 4 year Costco Walmart 989 425 13 647 10 139 Employee Sales per square foot Profit per Employee Employees Wages A ect the Abrac veness of the Company v Last month Walmart placed last among department stores in the American Customer Sa sfac on Index The sixth year in a row the company has either ed or taken the last spot v One lesson that emerges from this is that pumng workers in crummy low wage jobs tends to yield crummy service as well The Numbers Say it All v Costco pays their workers far more than many of their compe tors o er their employees opportuni es for promo on v Through this they can enjoy lower worker turnover rates and far higher sales per employee than their counterparts How do we explain their success Walmart Interna onal Loca ons q 6 337 loca ons outside of the US q Employing more than 80 000 people q Located in 26 di erent countries Mexico 2 088 Canada 333 Brazil 512 Argen na 88 China 370 United Kingdom 541 Japan 419 Costa Rica 200 El Salvador 79 Guatemala 200 Honduras 70 Nicaragua 73 Chile 316 India 15 Africa 347 Costco Interna onal Loca ons q 181 loca ons outside of the US q Located in 8 di erent countries United Kingdom 25 Australia 5 Canada 87 Mexico 33 Taiwan 9 South Korea 9 Japan 15 Spain 1 Globaliza on and Low Prices v One of the biggest di erences between Costco and Walmart is the number of products they have available in store q Walmart o ers over 100 000 products q Costco o ers only about 10 000 products q Most large supermarkets ex Kroger o er about 40 000 products How can the number of products you o er a ect your ability to sell goods at low prices Costco Suppliers and Strategy q The worldwide market creates high compe on amongst suppliers q Because Costco buys in bulk units of at least 50 000 100 000 or 300 000 there is high incen ve for suppliers to meet the buyers prices q Costco s retailing strategy of o ering a limited number of products makes them inclined to have a higher standard of quality Wine and Toys v For example Costco is the largest wine retailer in the United States q They make global wines more a ordable and popular improving the quality of wine people drink v Currently Costco s toy department is rela vely small at 200 million year q 5 days 1200 toys to 150 q Teddy Bear sold for 29 99 in stores vendors lowered the price by 40 Walmart Suppliers and Strategy Keep costs as low as possible buy cheap at high volume with fast turnover Walmart has 6 000 global suppliers 80 of those are in China Vital to eye popping low opening price point strategy Rubbermaid q Walmart provided Rubbermaid with the opportunity for high volume sales and became Rubbermaid s most important customer q Raw material price increases Rubbermaid products increase Wal Mart drops products More Global Strategy v Walmart brings in tons of inventory 100 000 products to crank up sales and pro ts q China is like a super market for manufacturing q Walmart can make 60 80 more o of products made in low wage countries compared to making 20 o an American company Do you think Costco can compete with Wal