Gen Z is growing up and opening their wallets—to the tune of $360 billion in spending power in the U.S. alone—and members-only big-box retailers are ready to devour their dollars. Sam’s Club, the Walmart-owned membership-only warehouse store, believes it has cracked the code to winning over the young generation and hold the advantage over competitors like cult favorite Costco.
Sam’s Club CEO Chris Nicholas told CNBC in an interview last week that company membership has been transformed by young shoppers. In the past two years, Sam’s Club saw a 68% growth in Gen Z members.
“The quickest growth in our business over the last two years has been the Gen Z and millennial members,” Nicholas said. “That generation believes it’s cool to save money, and we agree with them.”
Gen Z’s bitter attitude toward the economy and strong desire to save have made them perfect candidates for discount retailers. The generation approaching their late twenties are leading the trend in preferring private-brand products, with 64% of young shoppers saying they buy private brands “always/frequently,” according to a November 2023 Private Label Manufacturers Association survey of 934 respondents. Amid steep inflation, retailers like Target and Walmart are responding by increasing their selection of own-brand items, including Walmart’s relaunched fashion brand and its new grocery line favoring plant-based items in colorful packaging.
But while everyone is focused on value, Nicholas argued, Sam’s Club has been able to differentiate itself through digital innovation that’s refreshing to the tech-savvy youth. The retailer ramped up its e-commerce operations last year by expanding its warehouse facilities and supply-chain networks. It doubled down on technology by announcing in January the use of AI in its Scan & Go app, allowing customers to cut exit lines by confirming they’ve paid for all items in their shopping carts with a computerized scanning tool. The app is being used by 30% of Sam’s Club members, Nicholas said.
“We’re going on a journey of saying, ‘You can have great items, great prices like the rest of the club channel, but you can also have convenience,’” Nicholas said. “And that’s something that really is resonating.”
The big-box brawl for Gen Z’s attention
While Sam’s Club has been able to curry Gen Z’s favor with technology that simplifies the shopping process, Costco still relies on its idiosyncratic organization that can be intimidating for new shoppers, Zak Stambor, senior analyst of retail and e-commerce at Emarketer, told Fortune.
“The people I know who shop at Costco frequently, they have the Costco experience down pat, but there’s a learning curve to that,” he said.
Costco customers not only have to familiarize themselves with the store’s haphazard shelving categories (though it’s a strategy proven partially beneficial because it tricks shoppers into buying more), they must also figure out the best hours to visit to avoid crowds. That’s not to mention its largely analog checkout operations, which require workers to manually look over customers’ purchases, which often requires shoppers towait in lines to leave the store. Those are problems Sam’s Club customers don’t really have.
“It’s more about making it easy to shop, and that’s the advantage that [Sam’s Club] found,” Stambor said. “If you shop at Costco, it can be a frustrating experience.”
But Costco has been masterful at creating a near-pristine reputation for its Kirkland Signature private brand, Stambor argued. That, along with its mainstay strategies like good service and products with strong value, prompted UBS analyst Michael Lasser to call Costco shoppers the most loyal customers among retailers. Sam’s Club has mimicked Costco’s strategy in its own expansion of own-brand Member’s Mark. The company enlisted 50,000 of its customers this month to generate ideas for and evaluate new items under the brand.
“The private label piece is the critical ingredient here in the formula for success,” Stambor said. “Consumers, over the past few years in the wake of rising prices, have been far more willing to trade down to store brands.”
Everyone’s a winner
This is a big moment for these two members-only retailers, Stambor argued. Both had recent blockbuster earnings, with Costco reporting 9.1% net sales increase to $57.39 billion in its first quarter, and Sam’s Club seeing a 4.6% first-quarter net sales increase from the year before, helping Walmart achieve 6% revenue growth. And because consumers have been particularly sensitive to prices, they are willing to shake up old loyalties in search of new ones, creating more opportunities for new membership.
“When consumers are focused on value, their habits change, and that’s when these types of members-only clubs can move in and help consumers establish new habits and new behaviors,” he said.
While Sam’s Club may have an advantage in Gen Z customers right now, Costco, with a long-trusted private brand and buzzy products like its newly launched Kirkland Signature apparel, still has the chance to usher in waves of new shoppers.
“Both members’ clubs have an opportunity to wave their arms and say, ‘Hey, younger consumers, if you want value, we offer value,’” Stambor said.
FAQs
Better quality
Both stores offer quality goods, but Costco has the edge over Sam's Club in this category. Nothing exemplifies Costco's superior quality more than its bakery and produce sections. The quality of Costco's fresh produce is often heralded, as is the taste of its baked goods, such as cakes and cookies.
Are Costco and Sams Club rivals? ›
In numerous ways, Costco and Walmart-owned Sam's Club are more similar than they are unique. Both rival warehouse clubs offer free samples to hungry customers and sell bulk goods at temptingly low prices.
Does Walmart own Sam's Club? ›
Walmart-owned Sam's Club is trying to raise the quality of its private brand, Member's Mark. Chief rival Costco has a strong fan following of its own brand, Kirkland Signature.
Does Costco or Sam's Club have more organic food? ›
Costco's membership fees are more expensive than Sam's Club—$10 a year more for each tier. Meanwhile, product-wise, Sam's Club offers more name brands, while Costco stocks more private brands and organic goods.
Do you really save money at Sam's Club? ›
Sam's Club wins for bulk purchases
You'll find a world of discounts at Sam's Club compared to big-box retailers like Walmart. But the true savings tend to arise in the context of bulk purchases. The quantity discounts you can get at Sam's Club are really hard to beat.
Why do people like Sam's Club? ›
Sam's Club's affordable membership fees are impossible to resist. Scoring a discounted membership at Sam's Club is pretty easy — the store often offers promotions throughout the year.
Who is Costco biggest rival? ›
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.
Who is Sam's Club biggest competitor? ›
In terms of net sales, Costco ranked number one generating more than double than its counterpart Sam's Club, and twelve times more than BJ's Wholesale Club. Concerning locations in the United States, Sam's Club operated slightly more warehouses than Costco, while BJ's had a little over 200 stores across the territory.
Which is older Sams Club or Costco? ›
Sam's Club was started by Walmart founder Sam Walton in 1983. In addition to more than 600 locations in the U.S. and Puerto Rico, Sam's Club has international locations in Brazil, China, and Mexico. Costco began as Price Club in 1976, and today has more than 800 locations worldwide.
Is Sam's Club owned by Target? ›
Sam's Club Company Facts
A division of Walmart Inc., we are the membership warehouse club solution for everyday living. Our President and CEO is Chris Nicholas and our headquarters is in Bentonville, AR. For the fiscal year ending January 31, 2023, Sam's Club's total revenue was $84.3 billion.
Shopping cart images will be captured by cameras which will then use artificial intelligence technology to verify payments, eliminating the wait to exit and ending the process of manual receipt checks.
Does Walmart own Costco? ›
Ownership. Costco is mainly owned by institutional investors, who own over 70% of shares. The largest shareholders in December 2023 are: The Vanguard Group (9.10%)
Which gas is better Costco or Sam's Club? ›
While both Costco and Sam's Club offer unleaded, premium, and diesel fuels (here's how to know which you should be getting), only Costco offers Top Tier fuel. If you don't have a Costco membership, you can still find Top Tier gas at other stations. “Yes, Top Tier gas is worth the extra money,” CarFax reported.
Is Member's Mark better than Kirkland? ›
As for brand differences, my family found the quality to be fairly consistent across the products. In a direct side by side, however, we found the Member's Mark 2-ply was a bit sturdier than the Kirkland 2-ply. We also thought the Kirkland 3-ply tissues were a bit softer than the Member's Mark 3-ply.
Does Costco or Sam's have better fruit? ›
Verdict: Sam's Club Is The Better Produce Pick
If you already have a Costco membership, you'll still be able to find fantastic produce at prices that beat standard grocery stores on a regular basis. Nevertheless, Sam's Club proves to be a much better deal all around.
Why is Costco so much better? ›
When compared to other similar retailers, Costco's competitive advantage lies in its own private label, its discount prices, and its membership dues. This has provided customers with a product that they can rely on at low prices.
How does Sam's Club membership compare to Costco membership? ›
Each of Sam's club's memberships is $10 cheaper than its Costco counterpart. At the basic level, a Costco Gold Star membership is 20% more expensive than a Sam's Club Club membership, while at the premium level, a Costco Executive membership is 9.09% more expensive than a Sam's Club Plus membership.
Is it worth it to get a Costco membership? ›
If you buy your home or auto insurance through Costco, the Executive membership will get you some exclusive benefits such as roadside and lockout assistance. If you're on the cusp of a $3,000 annual spend but also use those services, it might make the membership worthwhile.
Is having a Sam's Club membership worth it? ›
Everyone knows that becoming a Sam's Club member can save them money. But there's a way to take your savings to the next level: An upgraded Sam's Club Plus membership offers you a 2% reward on your Sam's Club purchases, plus free shipping, select free prescriptions and more great perks.
