Costco vs. Walmart Business Model Comparison – The Retailers’ Marketing Strategy, Customer Segments & More

You might think that comparing these two retailers might not seem logical. Some of you might think that because Costco addresses a niche market. At the same time, Walmart is a powerful competitor to a broader range of businesses, including grocery stores and those that sell household products. Both companies provide a pretty diverse item selection and market themselves as affordable retailers

I’ve researched Costco and Walmart’s business strategies, customers, financial performance, and main competitors.

Key Takeaways

• Costco has low prices and doesn’t invest in advertising. However, they have a limited product selection;
• Walmart focuses on price convenience, a wider assortment of products, and experienced sales employees;
• Walmart has a more significant market presence and operates with technologically-advanced systems; on the other hand, its business model is too simple;
• Both retailers managed to lower their operational costs by eliminating the intermediaries.

Main Differences Between Costco and Walmart

• Costco collects fees from its clients who are required memberships, whereas Walmart functions traditionally, focusing on lower prices;
• Walmart features a more prominent market position, whereas Costco has a lower market position, focusing on selling products in bulk;
• Walmart has a higher operating profit margin, whereas Costco, although with a lower profit margin, is Walmart’s main competitor;
• Costco is the fifth largest retailer in the world, whereas Walmart is the world’s largest retailer;
• Walmart has more employees, but Costco offers its employees higher wages.

Costco vs. Walmart Business Model Comparison

Both Costco and Walmart are successful and popular among their clients. But which one has the most effective business model? You’re about to find out!

Costco’s Business Model at a Glance

Costco sells high-quality goods at competitive prices in bulk. They have large warehouses all over the United States and Canada. Their merchandise is sold at low-profit margins to keep price tags as affordable as possible for their customers. Regarding the company’s distribution strategy, Costco relies on a single-step approach.

Hence, their entire inventory gets sold before Costco’s suppliers must be paid. The retailer’s revenue has constantly increased over these last five years. Also, the number of its memberships has reached almost 66 million people in 2022.

Walmart’s Business Model at a Glance

Walmart functions with three primary units that are all dependent on the retailer’s Omni business model:

• Walmart US – serving the American market;
• Walmart International – comprised of its locations spread all over the globe;
• Sam’s Club – Walmart’s membership-only warehouse club.

Besides these channels, the company also operates a special subscription service that provides clients numerous benefits: plenty of discounts and unlimited free shipping, among others. This service is called Walmart+.

Costco vs. Walmart – Brief History

Costco

Costco was known at first as Price Club. The first Price Club store was opened in 1976 in San Diego. Costco, as we know it, was launched in 1983. After a couple of transformations and mergers, this retailer went international in 1990. They experienced impressive growth, which also explains part of Costco’s reputation and longevity.

Nowadays, Costco is a popular membership-based warehouse chain that functions internationally.

Walmart

Walmart has a long history. The first store was launched in 1962 in Arkansas. Its founder’s strategy was straightforward: offering clients the lowest prices on the market. From a small business with only 24 brick-and-mortar locations, Walmart has grown into the giant international retailer we all know today. In ’75, the company went public and started to sell its stocks.

For Walmart, the ’80s were all about innovation. Walmart became the largest and most profitable retailer sometimes in the ’90s.

Costco vs. Walmart – Strengths & Weaknesses

Let’s analyze these two retailers from the perspective of their weaknesses and strengths.

Costco

Regarding weaknesses, Costco is almost entirely dependent on the American market. On the other hand, their incredibly low prices represent a major competitive advantage. Still, their product range is quite limited. Compared to Walmart’s 150,000 product SKUs, Costco only has 80,000.

You could say the company makes up for those weaknesses by implementing strong distribution channels. As of 2019, Costco owns more than 700 warehouses in the US and other countries, including Spain, Japan, France, Mexico, China, etc. The retailer has happy employees and loyal customers. Their staff is satisfied with the company’s wages and additional perks.

At the same time, Costco has a smaller customer base, unlike Walmart. In my opinion, one issue that Costco needs to improve is its online presence. They should also do something regarding their aging customer base.

Walmart

Walmart is clearly the winner in terms of global expansion and brand recognition. Their popularity is due to the retailer’s strategies that focus on offering low prices every day. An experienced human resources staff supports their activity. Moreover, the management considers all employees as key assets to the business.

One thing I admire about Walmart is its effective eCommerce adoption. However, several employees have sued Walmart over the years, complaining about poor working conditions and low wages. Another weakness is Walmart’s low profit margin. I recommend they strengthen their simple business model, which can be easy to replicate.

Costco vs. Walmart – Business Strategies

Here’s how these two retailers compare regarding their business strategies.

Costco

Costco sells private-label products and US-branded goods. You’ll find items from categories such as groceries, beverages, snacks, baked goods, meat, cleaning supplies, fuel, pharmacy products, garden furniture, beauty items, electronics, and more.

The retailer wants to lead through low-cost operations, leading to low prices. All those who want to benefit from discounted products would be glad to shop at Costco. Still, unlike traditional retailers, Costco has created a membership-based customer portfolio. You pay a fee to become a member to buy goods in bulk.

The company also focuses on maintaining its strong reputation and constantly boosting its service quality. They’re all about agile supply chains. Hence, they invest a lot of money into research, development, and overall technology.

Walmart

Walmart is known for its highly convenient shopping experience and low prices. They might lead on price, but they compete on assortment. At Walmart, you’ll find anything you need or want. I appreciate their money-back guarantee policy. Besides catering to low-income customers, the retailer sells mass-market goods.

I would group Walmart’s products into three main categories: food and groceries, general merch, and health-related products. Their business strategy aims to help clients save money. Unlike Costco, Walmart invests some money into advertising. All their marketing and sales initiatives created a strong brand and a long-lasting business.

See also: How Does Yelp Make Money 

Costco vs. Walmart – Mission, Value Proposition, and Selling Channels

Costco has the mission to market decent-quality products which are also highly affordable. The company also wants to remain one of the leading international players in the retail industry. Their employees do all they can to meet their customers, business partners, and stakeholders’ needs and expectations. Costco’s distribution relies on single-step strategies. Hence, they make a profit even before covering the bills received from their suppliers.

According to Walmart’s statements, the retailer wants to help clients save money while enjoying a one-stop shopping experience. Their services are highly convenient, and they provide affordable goods. In terms of selling channels, Walmart has a wide range of opportunities for its customers: an online store, physical warehouses, and its mobile app.

Costco vs. Walmart – Strategy Pillars

Costco relies on several strategic pillars, including filtering its clients, building a loyal culture, featuring cheap designs, and working with independent suppliers. The retailer gains most of its profits from its subscriptions. Moreover, very low-income people don’t purchase from Costco because, most likely, they can’t afford the membership fee.

Hence, Costco benefits from higher shopping values per customer per shopping trip. Most Costco employees and customers are satisfied with their experience working or buying from this retailer. Also, the company can afford to be picky when it’s time to select its suppliers. Finally, all Costco physical locations are austere, with industrial designs. According to the management, they would instead invest in client retention, brand image, and company reputation.

Walmart leads on price, competes on assortment, differentiates on access, and provides excellent shopping experiences for its clients. Not to mention they have a money-back guarantee policy. Walmart’s goods are easily-accessible and highly affordable. They have one of the most complex distribution channels on the globe.

The company’s extensive customer database is undoubtedly a huge competitive advantage. There are numerous ways in which the population can gain access to all the retailer’s products, including warehouses, supermarkets, medical clinics, online platforms, and pharmacy stores. Due to all these elements, their clients experience fantastic shopping sessions.

Costco vs. Walmart – Operations

Costco gains its profit through membership fees, eCommerce offers, auto sales programs, merchandise sales volume, and home programs. Having membership packages isn’t conventional in the retail industry. However, Costco tried it, and they did it well. Store-keeping units bring Costco more than 90% of its revenues.

The retailer boosted its convenience through an online shopping platform. Moreover, they have diversified their services, offering home installation packages and collaborating with car dealerships.

Walmart covers three global market segments: the US, other countries, and catering to Sam’s Club subscribed customers. As you’ve probably guessed, Walmart’s most significant market segment is the United States. The US accounts for over 60% of their net sales. Globally, Walmart has warehouses, supermarkets, and other business ventures in almost 30 countries.

Finally, when it comes to membership initiatives, Walmart relies on its Sam’s Club. It’s only available for subscribers with access to groceries, fuel, toys, home products, and many other items. Last, but not least, there’s Walmart’s mobile app where you can create customized shopping lists.

Costco vs. Walmart – Financial Performance

From 2010 to 2020, Costco has known constant revenue growth. Compared to 2022, 2023 has brought the retailer a net sale increase of over 7%. Walmart’s financial performance is also impressive, with the company being featured as one of the Forbes 500 top businesses. The retailer’s revenue increased by over 6% in 2023 compared to the previous year.

Overall, Costco is doing well financially speaking. It also invests a lot of money back into its business initiatives, and it experiences more than satisfying returns on investments. Their earning growth is sizeable. Walmart dominates the global retail market with its consistent financial strategy. Moreover, Walmart is a formidable market player with earnings that exceed those of other major companies, such as Amazon.

Costco vs. Walmart – Their Customers

Costco’s frequent customers are small businesses, millennials, and baby boomers. Most customers are attracted by discounts and bulk purchases. But, there are also more affluent or middle-class customers who shop at Costco. As a client, you can choose between three membership options: Gold Star, Executive, and Business.

Individuals should opt for either the Gold Star or the Executive memberships. The second choice is for those who desire to accumulate loyalty points and receive rewards and discounts.

Walmart’s clients are mostly low-income individuals. But the retailer sells mass-market goods. Low and middle-class families from rural areas typically shop at Walmart. They’re looking for groceries, pharmaceutical products, home goods, and other items. They are grouped by geographical and demographic segmentation.

Costco vs. Walmart – Pros and Cons

Let’s see how these retailers compare in terms of their advantages and downsides.

Costco Pros

• Buying in bulk is great, especially for larger families;
• Clients save gas money if they have a membership;
• They have numerous additional services;
• Customers receive samples on several occasions;
• Highly affordable prices.

Costco Cons

• You might end up buying more than what you really need;
• Many Costco competitors don’t require clients to pay a membership fee;
• Not all offers represent a good deal at Costco;
• You won’t find off-brand goods;
• It’s always very crowded.

Walmart Pros

• Customers save a lot of money and time during one-stop shopping sessions;
• It offers good-quality products at affordable prices;
• Great customer service;
• Many of their items are environmentally friendly;
• They support the nation’s overall economy and its growth;
• Job opportunities;
• Excellent product variety.

Walmart Cons

• It might have a negative influence on small local businesses;
• Poor work culture and environment;
• Racism and sex-based discrimination claims;
• Micromanagement and not very practical management techniques.

See also: Stitch Fix Business Model 

Costco vs. Walmart – Their Main Competitors

Here are some of the most important competitors of both Costco and Walmart.

Target

Target has a business model based on multilateral sales systems. They market their products through online platforms and physical stores. Target uses leasing sales and credit card fees. There are almost 2000 Target locations all across the US. The thing I like most about this business is its retail format variety:

• Target – discount stores;
• Target Express – formerly known as City Target – small-format stores;
• Super Target – the company’s hypermarkets.

I was impressed to learn about Target’s long history on the market. It was established in 1902. Its mission is to offer value to its customers while also encouraging innovation. Their motto is “Expect more, pay less.”

Aldi

Aldi’s business model is a thrifty one. They keep their prices low due to the company’s limited SKUs, high margins, and low operational costs. Aldi employees fulfill multiple roles. Still, the retailer’s customers receive only an essential client experience. All these factors and smart design principles help Aldi maintain affordable prices.

The business relies on effective marketing strategies and private brands.

Tesco

The most important thing for Tesco’s employees and managers is to rely on little things. These details make a huge difference in their client’s perceptions. They have a wide range of selling channels, from small to large stores. Moreover, the company focuses a lot on developing its online business.

Tesco’s competitive advantage is achieved through excellent customer service. They also have high-quality goods and low retail prices. I love how dynamic Tesco’s business model is. This means it can be easily adjusted to meet the market’s ever-changing traits. It’s highly convenient. Customers can find almost anything they need in one shopping session.

Walgreens

Walgreens is a retail pharmacy chain with almost 9000 locations across the United States. It has gained a lot of popularity and loyal customers due to its high accessibility. Moreover, those communities where you can find a Walgreens pharmacy have known higher health standards and healthier lifestyles.

You may be wondering how Walgreens can be a competitor to Target, Costco, and Walmart. Besides selling meds and treatments, this company also operates as a convenience shop. At Walgreens, you’ll find groceries, pet products, cleaning supplies, electronics, and toys.

Walgreens praises itself for a healthy work environment. They’re dedicated to local communities. Also, their employees are encouraged to develop many useful skills. Among those, there are courage, trust, commitment, and care.

FAQs

Bottom Line

Costco has built a reputation based on value. Meanwhile, Walmart is the biggest global retailer. Costco’s stocks are more expensive than the ones offered by Walmart. However, these two businesses have different market segments, selling approaches, and revenue streams.

These two retailers have a few similarities and many things that set them apart. Choosing one or the other can be tricky. So, I suggest you research their prices and discounts before shopping at one of these sellers.

Related Read

• Target Competitors Analysis : 5 Major Competitors
• Aldi Competitors Analysis
• Home Depot SWOT Analysis
• Walmart Business Model Explained: The Tactics That Led to Its Success

Sources:

• https://www.nasdaq.com/articles/better-buy%3A-costco-wholesale-vs.-walmart-2020-08-19
• https://www.fool.com/investing/2022/07/01/better-buy-walmart-vs-costco/
• https://www.forbes.com/sites/greatspeculations/2020/08/14/costco-is-a-better-bet-than-walmart/
• https://financialpost.com/business-insider/costcos-simple-strategy-for-outperforming-wal-mart-and-target
• https://www.econlib.org/archives/2013/08/costco_vs_wal-m.html
• https://eu.usatoday.com/story/money/markets/2013/12/02/why-costco-is-beating-wal-mart/3691555/
• https://www.ipl.org/essay/Compare-And-Contrast-Costco-Vs-Walmart-FCEJDBGMDSB
• https://www.businessinsider.com/costco-first-walmart-last-in-customer-satisfaction-survey-results-2023-2
• chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.ou.edu/russell/UGcomp/Cascio.pdf
• https://bstrategyhub.com/swot-analysis-of-walmart-2019-walmart-swot-analysis/

• About
• Latest Posts

Alexandra Gavrilescu

Alexandra Gavrilescu knows how important success is, which is why she’s dedicated herself to helping other people find it. The single most important thing in her life is helping other people accomplish their dreams, which is why she spends all of her time learning about digital marketing. As she’s constantly refreshing her skills and the knowledge she understands, she’s here to help you learn new skills, grow, and succeed.

Whether you want to know more about marketing funnels or use eCommerce platforms in your company's best interest, Alexandra will unravel all those elements of the digital marketing industry. She's also an expert on topics such as social media, search engine optimization, and email marketing.

Latest posts by Alexandra Gavrilescu (see all)

• Tesco Business Model Explained – What Makes It Successful? - August 2, 2023
• Tesco SWOT Analysis – The Retailer’s Weaknesses and Threats - August 2, 2023
• Costco vs. Walmart Business Model Comparison – The Retailers’ Marketing Strategy, Customer Segments & More - August 2, 2023