Why Does A Mighty WAL-MART Fail To Do Costco?

Yesterday, I saw a very enlightening data: according to the world clothing and shoe net, by the end of 2016,

The market value exceeds $355 billion 900 million.

This figure is not only bigger than WAL-MART, but also bigger than WAL-MART +Target+Nordstrom+Kohl's+JCPenny+Sears+ best buy! Over the past ten years.

Eating the cake of physical retail constantly.

Ten years ago, Amazon's market capitalization was only $17 billion 500 million, and its market value has increased by more than 20 times today.

From the data of market value changes below, we can see that the growth of Amazon's market value comes from the huge reduction in the market value of traditional large department stores.

In fact, the market value of Sears declined by 96% in the ten years, JCPenny fell 86%, Nordstrom dropped 33%, Messi's department store fell 55%, and WAL-MART fell 1%.

In the past, the so-called Big Box Department Stores fell the most, and it was a double kill of valuation and performance.

According to American clothing and

Sales Union data show that sales of us department stores fell by 35% between 2001 and 2013.

More and more people are abandoning big department stores and moving to specialty stores.

At the same time, the rise of the Amazon business model has also profoundly changed the American consumption habits.

Illustration: retail companies's stock price growth in the past 10 years

Electricity supplier dancing and counter trend growth of Costco

In the above list, we can see that in the past ten years, WAL-MART has performed fairly well in traditional retailing.

In ten years, the market value remained almost unchanged.

Of course, this achievement is not to be proud of. If inflation is considered and the bull market of US stocks and other factors, the relative return and absolute return of WAL-MART holding ten years will be very poor.

But there is a company that has increased 5 times between 2006 and 2016.

This is Costco good market.

Although the 5 fold rise is not surprising in Daniel, it is done under the background of Amazon's electricity supplier attack.

Let's take a look at the chart below. Between 2011 and 2015, Costco's TTM revenue grew by 51%.

In the same period, WAL-MART was only 16%, and Target was only 9%.

Today we will talk about Costco's business model and its moat, and inspire us.

Business model of Costco: membership fee instead of commodity price difference.

The business model of Costco looks very simple, that is, the main profit comes from membership fees.

Costco has launched a two rate membership service in North America, $55 a year for ordinary members and $110 for a year's elite membership.

The elite card members can enjoy 2% of the cash consumption feedback, and the others have no difference.

If a person (family) consumes more than 200 dollars a month in Costco, then his application for the elite card is more cost-effective, and the cash return can cover the cost of the elite card.

Compared with traditional retailers, this is the biggest difference between Costco.

Traditional retailers sell their products to earn the difference. The difference is the company's income, and then covers labor, rent, water and electricity, coal and so on, and the rest is profit.

Over the past few decades, the trend is to scale up retailers, and the representative is WAL-MART.

When I was in high school, I read SamWalton's autobiography, saying that his profit was thin to the price of only one plastic bag.

So WAL-MART relied on a very low price to kill K-mart, who was earlier than him, and became the largest retailer in the United States.

However, even if the price difference is lower, WAL-MART still needs to make money.

And Costco said, "I rely on membership fees to make money. The difference between the sale of goods can be very low, and even some commodities are sold in a loss mentality.

That's why Costco's gross margin is only 12.5%, far below WAL-MART's 25% and Target's 30%.

From the initial business model, Costco has done a dimensionality reduction attack in a way that is far superior to traditional retailers.

This is what I feel most in the study of the big bull stock, and the rise and fall of any company have a business model of innovation and subversion.

When everyone is thinking about how to make a price difference, the internal Costco stipulates that the gross interest rate of any commodity is not more than 15%.

By actively reducing prices, we firmly grasp the loyalty of users, and then earn money through the volume and price of membership fees.

Because of low gross margin, Costco gives people the impression that the price is good.

This also causes users to increase the purchase amount in Costco.

My parents are also Costco members, and they buy a lot of things every time they go.

And I have observed that the white Americans in front of us buy much more than we do.

They even have their own shops to buy a lot of mineral water directly in Costco.

This also led to a high single store income of Costco, around $170 million.

His competitor WAL-MART's single store revenue is 43 million, and Target's single store revenue is 37 million.

In the same way, the low gross profit + membership fee mode can make Costco even make a profit even if it is sold cheap.

Costco the profit of a single store is 3 million dollars.

WAL-MART is 1 million 500 thousand dollars, Target is 1 million dollars.

This is why the market value of Costco with a smaller number of stores is far greater than that of Target.

At the same time, it is also because of good price performance, user renewal loyalty is particularly high.

My parents have always said that the membership fees for several times Costco, $55 have all been saved.

Less SKU and higher turnover rate.

I have experienced the difference between Costco and WAL-MART myself.

Costco is big, but it doesn't make you feel dizzy.

The WAL-MART is too big and too big. The quality of things is uneven.

For consumers, big and inevitable is the most important, but too many choices are not necessarily good.

Let's take toothpaste for example. There are only 4 kinds of toothpaste sold by Costco, and there are 60 kinds of WAL-MART.

The total SKU of Costco is only about 4000, and WAL-MART exceeds 20000 SKU.

As we can see before, the income of Costco single store is very high, and at the same time, because of SKU, the amount of Costco SKU is very large.

This leads to Costco's high pricing power for suppliers, which can lower prices.

Moreover, Costco will provide suppliers with separate packaging dimensions.

When we go to Costco, we often see bigger packages.

As a dessert, I bought 100 ice-cream packages.

This also led to the fact that when Costco was selling products alone, it was already a single wholesale thinking.

The exclusive Kirkland brand launched by Coscto in 2002 has also become their star product.

Good quality, low price has become the label of Kirkland, and is a unique brand of Costco.

Today, the entire Kirkland brand accounts for 20% of Costco sales.

The most I bought was Kirkland nuts.

Therefore, Costco is actually a "strict selection" mode. High quality and low SKU provide a large and complete supply of goods. At the same time, it has helped users make a choice.

This leads to a very good user experience.

Buying things at Costco will not be as tired as WAL-MART. It will take a long time to buy a toothpaste.

But here you can buy what you want.

And because many of them are based on goods packaged in large packages, the price of customers is not low.

Every time I go to Costco, I pay $more than 200.

Behind the "strict election" is a kind of service. As a retailer, I not only list goods on the shelf, but help users make product filtering.

For any retailer, product shelves are limited and can not be compared with an unlimited shelf business.

Costco can still maintain high growth in the context of the rise of Amazon, which provides a low price + product strict selection mode.

On the other hand, a smaller number of SKU also significantly reduces the operating cost of Costco and improves the turnover rate of products.

Costco's operating expenses (SG&A) account for 9% of revenue, while rival WAL-MART is 19% and Target is 21%.

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CosctoVsSamClub

In fact, WAL-MART launched Sam'sClub early, and it is the same as Costco.

Today, SamClub has more stores than Costco, but its revenue is far less than that of Costco.

Why do powerful WAL-MART fail to do Costco? I think there are several reasons:

1) Sam'sClub has not really stripped WAL-MART from its brand.

Even many places have WAL-MART and Sam'sClub at the same time.

WAL-MART is really big and full, covering the low end and long tail users.

Costco is actually covering the middle class and has a certain threshold.

Sam'sClub did not differentiate WAL-MART from its brand.

2) the annual cost of Sam'sClub is cheaper than Costco, as long as 45 dollars.

But it did not get rid of the gene that WAL-MART made the difference.

This led to the birth of Sam'sClub, not WAL-MART's real core business line.

Judging from the commodity gap, Costco is still cheaper and better quality than Sam'sClub.

Moreover, Costco has Kirkland's own brand, and if the supplier fails to provide the quality of the product they require, Sam'sClub has no at all.

3) one covers the long tail, one covers the middle class.

There is a great difference in user layering between them.

There was a joke that many users of Sam'sClub were relieved by the food circle, but it also reflected the user level of Sam'sClub.

Costco is the standard American middle class.

From the perspective of consumption power and even the users, the middle class in the US is the biggest, and it also provides vast space for Costco growth.

Below is the distribution of Coscto stores. We see the largest number of stores in California, which is the largest number of middle class in the United States.

4) lower employee turnover rate and stronger corporate culture.

No matter how busy the platform is, the employees still need to contact with customers, which will become part of the service.

Basically, WAL-MART pays wages according to the lowest standard in the United States, and the average wage of Costco reaches 20 dollars / hour.

WAL-MART has a turnover rate of more than 44%, and Costco has a staff turnover rate of less than 10%, with a turnover rate of less than 6% in the first year.

Costco also provides generous benefits - even part-time employees can enjoy adequate health and dental insurance.

One year after taking office, the new employee's retirement savings account can be rewarded with stock options.

The traditional benefits such as free vacation and family visit are also self-evident.

This eventually leads to differences in the two services.

Reflection on the success of Costco

The success of Costco is simply attributable to a better price for goods, high turnover and strict selection of goods, and better service.

Through paying membership mode as the main source of revenue, the company has greatly reduced the demand for product price differentials.

Unlike traditional retailers, Costco constantly pondered how to reduce the price difference voluntarily, give profits to users, and regard user loyalty as the most important index.

Through membership fees, we can generate more revenue, expand the scale, buy at lower cost, and reduce the price difference, thus forming a positive feedback that can be self circulatory.

That is to say, the better price performance of Costco products, the better user experience, paying users will continue to increase, and at the same time bring up the product experience.

This is why the Costco can still sustain growth under the impact of the Internet.

Costco sells goods on the surface. In fact, it is service and experience.

Even in the United States, where "good mountains and good water are boring", it is also a kind of entertainment to go shopping at Tai Shang supermarket on weekends.

But Costco product line SKU less, shopping relaxed and happy, unlike WAL-MART went confused.

Behind the investment case of Costco, there are actually many things that can be learned from other industries:

The strict selection model must be valuable.

Whether in the Internet or non internet era, the greatest demand of people is to increase efficiency and save time.

Large and complete models also help consumers improve efficiency.

Why should I go to other shops to buy things that can be bought in a shop? But too many commodities are not necessarily beneficial. Big and strict is the best way.

The annual fee model is the most effective way to maintain quality experience.

The best way to pay the annual fee is to solve the problem of cash in any industry.

If a company can not make money, it must be a subversion of every company that wants to make money every day.

At the same time, because the company can not make money, it won on the starting line.

For consumers, the most painful thing is to earn two dollars.

To pay annual fees, businesses also want to exploit consumers.

The success of Costco is that its interests are consistent with those of consumers.

What is the Internet can not subvert? Offline experience.

The success of Costco is that its target customers are family, not individuals.

Families spend their weekends shopping, eating, and exchanging time that the Internet can't subvert.

Today, I can buy clothes, pants and shoes online.

No need to go to JCPenny, Macy's, these big department stores.

But as a family, we prefer to go shopping with Costco.

Costco's products are mainly for families, not for one person, but actually integrate this experience into it.

Last thoughts: content dividends and strict selection

For the second half of mobile Internet, I am still optimistic about content dividends.

Similar to the logic of thinking, the strict selection of content dividends has been made.

When you go online, the biggest demand is consumption information.

Today's information is not too small, but too much, how to help users to do the screening is the key.

This mode of thinking tells you that I have done a good job of screening.

People will be more willing to buy books and buy things, because this is the quality assurance after filtering, though the price may be higher.

In the long run, the annual fee model for high quality content or content platform is feasible.

But the core is to make a Costco, not a small shop.

When the user pays, the product end is the same interest chain as the merchant.

I know that the content is true and reliable, not soft language to consume users, not advertising.

At present, most of the entrepreneurs are still holding the idea of "earning difference".

How to make profits, fans become the priority.

In the future, I believe that there will be several Costco enterprises in the content creation industry. Users will stand in a chain with themselves and think about how to give users the best experience.

Ultimately, users can still have a lot of influence through long-term cumulative payment.

More interesting reports, please pay attention to the world clothing shoes and hats net.