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Sam’s Club is stepping up its battle with Costco as it looks to fight back against its biggest rival.
Costco is the largest of the membership-based warehouse chains, with twice as many sales as its rival, even though both have the same number of clubs.
Last year, retailers clashed over a food court staple: Sam’s Club marked down Costco’s popular hot dog and soda combo to $1.50 for 12 cents.
Now Sam’s Club — Costco’s version of Walmart — is finding new ways to win new customers, either by poaching them from its rival or by attracting Americans who don’t belong to either club.
For example, it offers lower membership fees, invests in its own brands and incorporates the latest technology into its cash registers. Many of these initiatives appeal to young customers from Generation Z and millennials, experts say.
Costco’s $1.50 hot dog and soda are a big hit with members and have been priced the same for decades. Sam’s Club sells its version for $1.38.
Discounted Memberships
In an attempt to compete with Costco, Sam’s Club is offering lower membership costs.
Currently, Costco’s standard membership is $60 a year and its executive level is $120.
Sam’s Club, on the other hand, typically offers a club-level membership for $50 a year and $110 for its Plus option.
However, it has recently started offering them for as little as $20, a third of the price at Costco.
Auto-renewal pricing is only open to new Sam’s Club members or those whose membership expired more than six months ago.
Investment in own brand
Sam’s Club’s own brand, Member’s Mark, remains significantly behind Costco’s Kirkland brand in terms of sales.
It’s a fact that Sam’s Club CEO Cris Nicholas knows and is willing to close the gap.
“The club model survives because there are brilliant merchants who focus on creating or buying exceptional items,” Nicholas told CNBC.
‘Costco did a great job of that over the years with Kirkland, and we saw it succeed.’
Member’s Mark accounts for about 30 percent of Sam’s Club sales, while Kirkland Signature accounts for about 28 percent at Costco.
But Costco’s sales are twice those of Sam’s Club, so it generally sells many more private-label products.
Sam’s Club is investing in its private label products to ensure they are “exclusive designs that use top-of-the-line materials and the highest quality ingredients to ensure they are the best quality and value at member-only prices,” Nicholas explained.
Technology drags Generation Z
Sam’s Club has made a concerted effort to outpace rivals with new technology, which has paid off by attracting younger customers.
The club launched new scan-and-exit technology earlier this year with an app and AI-powered exit gates.
Sam’s Club steps up price war against biggest rival
Costco, Sam’s Club’s biggest rival, still generates twice as much revenue
The update allows customers to scan and pay for their purchases on their phone and simply walk straight out of the store.
According to Nicolas, the app has received good reviews and customers have responded positively to the doors.
In fact, the high-tech approach appears to be paying off, as Sam’s Club has increased its Gen Z membership by 68 percent in just two years.
“That’s not something that’s typical of the club model, but it’s something we offer,” Nicholas said recently.
“That generation believes it’s okay to save money and we agree with them,” he added.
