Costco Has a Surprise Answer to Walmart's Sam's Club Plan

The two warehouse clubs have some really good news for members (and potential members) that you will want to hear.

Some retailers seem to have a rival that's the Coke to their Pepsi, the Burger King to their McDonald's or the Lowe's to their Home Depot. If it makes sense for one of these retailers to open in an area, then it probably also makes sense for its chief rival/

That's not always as smart move. Borders Books no longer exists because maybe most places can't support a Borders and a Barnes & Noble. The same might be said for a lot of big box sporting goods retailers that tried to open nearby a Dick's Sporting Goods.

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Call it the ride-share or food delivery paradox. A market can support Uber or Lyft, DoorDash or UberEats, but when you have both, neither one survives.

If one player isn't clearly superior to the other, the presence of both means that neither one succeeds. There are only so many customers and so many dollars to go around.

That would seem like a logical argument for warehouse clubs. Costco (COST) - Get Free Report and Walmart's (WMT) - Get Free Report Sam's Club. Both have giant footprints but in many cities, they open not all that far from each other.

You would think that the two companies would largely want to avoid competing directly as they're going after the same customer and very few people join two warehouse clubs, but that's not the case. Sam's Club has a plan to begin adding new warehouses, which it has not done for years and Costco CFO Richard Galanti is not concerned at all.

Costco Is Not Worried About Sam's Club

Galanti is not concerned that Walmart has a very aggressive plan to grow the Sam's Club brand. He talked about it during his chain's second-quarter earnings call.

"We're going to open when we want to open. Certainly, look, whether it's an existing open location or something that we're aware of based on what's going on in the real estate activity out there, which we all know what everybody is doing in advance in a way. And so does it impact us? It may impact us in some examples, whether it's Sam's or somebody else to push this one more soon," he said.

The CFO also took a shot at his chain's biggest rival.

"And look, I was going to say, when you asked about them announcing they're going to open more doors, I think they said they're going to announce -- opens up about 30 over the next five or so years -- five or six years. They apparently didn't get the memo that they should close them more. But I'm just kidding. Look, we respect them as a competitor and we don't see that changing what we do," he added.

Sam's Club actually did close 63 locations nationwide in 2018.

Galanti believes that Sam's Club's growth is actually a positive sign for his company.

"And there's plenty -- I think it bodes well though there's plenty of capacity still in this country is, of course, in other countries even more so," he said.

Costco Has Expansion Plans Too

Costco steadily opens new stores each year both in the United States and in the other markets it operates in.       

"In the second quarter, we opened three net new warehouses, two in the U.S. and one in Australia. Additionally, next week, we'll open our third warehouse in China, with our fourth and fifth China openings -- new openings scheduled to open in the fourth quarter of this fiscal year," Galanti shared. "In fiscal '23, we expect to open a total of 27 warehouses, including three relocations, so a net increase of 24 new warehouses. These 24 plan new openings are made up of 14 in the U.S. and 10 in Other International."

Costco has also been adding new markets around the world.

"The 10 in 'other' international includes the three in China, along with our first Costcos in each of New Zealand and Sweden, both of which were opened during the fiscal first quarter," he added.