Costco vs. Wal-Mart
By David Henderson
In other words, Trader Joe’s and Costco are the specialty grocer and warehouse club for an affluent, educated college demographic. They woo this crowd with a stripped-down array of high quality stock-keeping units, and high-quality customer service. The high wages produce the high levels of customer service, and the small number of products are what allow them to pay the high wages. Fewer products to handle (and restock) lowers the labor intensity of your operation. In the case of Trader Joe’s, it also dramatically decreases the amount of space you need for your supermarket … which in turn is why their revenue per square foot is so high. (Costco solves this problem by leaving the stuff on pallets, so that you can be your own stockboy).
Both these strategies work in part because very few people expect to do all their shopping at Trader Joe’s, and no one expects to do all their shopping at Costco. They don’t need to be comprehensive. Supermarkets, and Wal-Mart, have to devote a lot of shelf space, and labor, to products that don’t turn over that often.
This is from Megan McArdle, “Why Wal-Mart Will Never Pay Like Costco.” The whole thing is worth reading.
One comparison that caught my eye is revenue per employee:
Megan also links to an earlier piece she wrote on this. My favorite passage:
But Walmart is not just a poor man’s Costco. They’re very different businesses, with very different labor models, demographics, and revenue streams. And those things work together: the fact that Costco is doing great with a given labor model or profit margin does not therefore mean that Walmart could easily follow the same course. With depressing regularity, you see pundits and activists asking “Why can’t Walmart be more like Costco”, which is a little like asking why Malcolm Gladwell can’t be more like Michael Jordan. I mean . . . um . . . where do I even start?
She does start–and does a great job.