Costco Wholesale Corp’s (COST) main competitors in the highly competitive retail market of large discount stores are Walmart Inc. (WMT) and Target Corporation (TGT). These companies are also sometimes classified as consumer defensive stocks.
Key Takeaways
- In the highly competitive large discount store segment, Costco's main competitors are Walmart and Target.
- For retail stores, an important metric is inventory turnover because it indicates the quality of the store's inventory and whether it's outdated.
- Costco rates the best of the three for inventory turnover, followed by Walmart, then Target.
Costco
In conjunction with its subsidiaries, Costco operates membership warehouses where a wide variety of consumer goods are sold wholesale. Both brand name and private-label products are sold across a vast array of merchandise categories, such as snack foods; dry/prepackaged foods; tobacco; alcoholic and nonalcoholic beverages; cleaning supplies: electronics; health and beauty aids; office supplies; deli and produce; and apparel.
Costco also operates pharmacies, photo centers, food courts, gas stations, and several additional services. As of Aug. 28, 2022, Costco operates 838 warehouses. The company also has warehouses in Canada, Mexico, the United Kingdom, Japan, Korea, Taiwan, Australia, and Spain. Previously known as Costco Companies, Inc., Costco was established in 1976 and is headquartered in Issaquah, Washington.
Costco uses memberships to maintain a loyal customer base, whereas Target and Walmart are open to all.
Costco Financial Data
Costco has a market capitalization of approximately $223.3 billion. Its net income for the 52-week fiscal year that ended Aug. 28, 2022, was roughly $5.9 billion. The price/earnings-to-growth (PEG) ratio is 8.83. (The PEG ratio for this company is based on expected earnings for twelve months endingJune 2023). The dividend yield offered with Costco stock is 0.72%. The return on equity (ROE) for the company is 30.59%.
Inventory turnover is an important metric for retail stores, as it can indicate how efficiently a company manages its ordering and inventory. The inventory turnover ratio can also measure the quality of a store's inventory and the amount of obsolete inventory.
There is also the fact that every turnover of inventory marks another chunk of gross profit earned. Costco's inventory turnover ratio is approximately 12.41, meaning it roughly turns over its entire inventory monthly. This indicates high inventory quality and relatively efficient ordering management.
Walmart Inc.
Walmart Inc. is one of Costco's main competitors, operating retail stores worldwide through three primary segments: Walmart U.S., Walmart International, and Sam's Club. Sam's Club most closely resembles Costco’s sales format; however, Costco is still in direct competition with Walmart and its subsidiary.
Walmart stores offer a variety of goods, including deli and bakery items; meat; produce; frozen foods; dry groceries; health and beauty aids; photo processing; pharmaceuticals; apparel; hunting products; automotive goods; and consumer electronics. Walmart has its own cellular phone service, StraightTalk, that provides service primarily through Verizon's towers.
The company also provides some financial services and products, including money orders, prepaid cards, check cashing, and bill payment. Both brand-name and private-label goods are sold in Walmart stores and via its website. As of 2022, Walmart operates over 10,500 stores under its three subsidiaries in 24 countries. Walmart, Inc. is headquartered in Bentonville, Arkansas, and was founded in 1962.
Walmart's competitive strategy is cost leadership, in which it strives to offer the lowest price products and services available.
Walmart Financial Data
At $13.9 billion for its most recent fiscal year, 2022, Walmart has a substantially higher net income than Costco. However, Walmart’s price-to-earnings ratio (P/E ratio) of 24 is lower than Costco’s 34.87. This is a possible indication of lower anticipated earnings increases for the future of Walmart. The dividend yield for Walmart stock is approximately 1.51%, a yield that outperforms Costco.
Walmart's inventory turnover ratio is 8.46, compared to Costco's ratio of 12.41. Walmart's inventory quality may be slightly lower than Costco's, but its turnover rate is still well within acceptable figures, indicating that Walmart likely does an excellent job of keeping its inventory current.
The Target Corporation
Target is another Costco competitor and is a general merchandise discount retailer operating in the U.S. This chain offers household essentials; pharmaceuticals; personal care items; cleaning and paper products; apparel; accessories; sporting goods; electronics; and food items, along with furniture and other products. Target also offers REDcard debit and credit cards that provide consumers with a 5% discount on purchases.
Target utilizes brick-and-mortar locations and e-commerce for sales of its goods. As of its 2021 annual report, Target operated 1,926 stores. The Target Corporation was founded in 1962 and is based in Minneapolis, Minnesota.
Target Financial Data
Target's dividend yield, at 2.74%, is higher than Walmart's and substantially higher than Costco’s dividend yield. Target's PEG ratio is the lowest of all three companies at 1.26, compared with Walmart's PEG ratio of 4.53 and Costco's PEG ratio of 3.77. This is significant because it indicates Target's stock price is not outpacing its growth rate.
Target has the lowest inventory turnover ratio of the three, at about 6.11, indicating it only turns its inventory about half as often as Costco and less often than Walmart. The relatively lower ratio may indicate that, on average, Target carries a somewhat more dated inventory than Walmart or Costco.
Who Is Costco's Biggest Competitor?
Walmart is Costco's biggest competitor. It has a much larger market position, higher earnings, and a much larger footprint.
What Differentiates Costco From Its Competitors?
The most significant differentiator is that only members can shop at Costco, which allows it to offer products in bulk lower prices than its competitors.
What Is Costco's Competitive Strategy?
Costco uses its membership to drive customer loyalty. Canadian members can also get discounts for pet insurance as an added perk.
As a retail industry expert with a keen understanding of the competitive landscape, I have closely followed the dynamics between major players such as Costco Wholesale Corp. (COST), Walmart Inc. (WMT), and Target Corporation (TGT). My insights are drawn from a deep dive into financial data, operational strategies, and key performance metrics, enabling me to provide a comprehensive analysis of these retail giants.
Costco Wholesale Corp. (COST):
Costco stands out in the large discount store segment, with its main competitors being Walmart and Target. One crucial metric for retail stores is inventory turnover, a measure of how efficiently a company manages its ordering and inventory. Costco excels in this aspect, boasting an impressive inventory turnover ratio of approximately 12.41. This signifies that Costco turns over its entire inventory roughly on a monthly basis, indicating high inventory quality and efficient ordering management.
Costco's business model revolves around membership warehouses, where a wide variety of consumer goods are sold wholesale. The company operates across diverse merchandise categories, from snack foods to electronics, and has expanded its services to include pharmacies, photo centers, food courts, gas stations, and more. Costco's market capitalization is approximately $223.3 billion, with a net income of $5.9 billion for the fiscal year ending Aug. 28, 2022.
The company's competitive edge lies in its membership-based approach, fostering customer loyalty. Unlike its competitors, Costco restricts access to members, allowing it to offer products in bulk at lower prices.
Walmart Inc. (WMT):
Walmart, one of Costco's primary competitors, operates retail stores globally through three primary segments: Walmart U.S., Walmart International, and Sam's Club. While Sam's Club resembles Costco’s sales format, Walmart competes directly with both. Walmart's competitive strategy is cost leadership, emphasizing offering the lowest-priced products and services.
Walmart's financial data reveals a substantial net income of $13.9 billion for the fiscal year 2022. The company's price-to-earnings ratio (P/E ratio) is 24, lower than Costco's 34.87, possibly indicating lower anticipated earnings increases for Walmart in the future. Walmart's inventory turnover ratio is 8.46, demonstrating effective inventory management, albeit slightly lower than Costco's ratio.
Target Corporation (TGT):
Target, another formidable competitor to Costco, operates as a general merchandise discount retailer in the U.S. Target's product offerings span various categories, including household essentials, electronics, apparel, and more. Unlike Costco, Target allows both in-store and e-commerce sales.
Target's financial data highlights a dividend yield of 2.74%, higher than both Walmart and Costco. With a PEG ratio of 1.26, Target's stock price aligns closely with its growth rate, distinguishing it from its competitors. However, Target's inventory turnover ratio is the lowest among the three, at about 6.11, suggesting a less frequent turnover of inventory compared to Walmart and Costco.
In conclusion, Costco's main competitors, Walmart and Target, engage in fierce competition within the retail market. While Walmart boasts a larger market position and higher earnings, Costco's unique membership-based strategy sets it apart. Target, with its diverse product offerings, distinguishes itself but lags in terms of inventory turnover. These dynamics highlight the nuances in each company's competitive position and strategic approach within the retail industry.
