COVID-19 has been an economic disaster in which small businesses go bankrupt, large companies go bankrupt, and unemployment reaches at least 14%. However, some companies have seen skyrocketing sales as a result of current circumstances, and large retailers are close to the top of that list.
While customers stock up on essences from their favorite stores with large boxes, Costco Wholesale (NASDAQ: COST) en Walmart (NYSE: WMT) are some of the winners. Let’s take a look at what makes them different and which is a better investment today.
Image Source: Walmart.
A case of two leading companies
Costco and Walmart are both discount retailers that sell grocery items, as well as general market products, such as clothing and furniture. They both also have specialized units, such as Costco’s travel and optical units and Walmart’s medical and healthcare facilities.
The main difference between the business models of the two companies is that Costco sells items in bulk and requires a membership, while the distinguishing factor of Walmart is its sheer size and the number of products it offers. The superstores are an all-in-one shopping experience that offers benefits for convenience and price, with many shopping and delivery options. While many retailers are transitioning to a feel of small size as a boutique, Walmart is still king of the giant store.
Walmart is a ubiquitous presence in the US, operating in all 50 states with nearly 5,000 stores. It also makes its mark on the global landscape, with a total of 11,500 stores worldwide, and is the largest retailer in the world. Costco, on the other hand, has only 547 stores, including warehouses, in the US and Puerto Rico for a total of 787 worldwide.
Costco raised $ 149 billion in 2019 sales, while Walmart made $ 524 billion. Let’s see how their sales grow. (One note: The fiscal years of the two companies differ slightly. For comparison, Costco’s spring quality covers February 17 to May 10; Walmart’s covers February 1 to April 30. Walmart just reported results for its summer quarter, but Costco has not however.)
| Business / Metric | Summer 2020 | Spring 2020 | Winter 2020 | Fall 2019 | Summer 2019 |
|---|---|---|---|---|---|
| Costco sales growth | N / A | 7.3% | 10.5% | 5.6% | 7% |
| Walmart sales growth | 5.7% | 8.6% | 2.1% | 2.5% | 1.8% |
Data source: Company reports.
Overall, Costco’s sales outperform Walmart in terms of growth, but Walmart has seen tremendous success since the pandemic, and since then it has focused on expanding its digital options. However, Costco accounts for nearly a third of its sales, even though it accounts for just under a tenth of Walmart’s stores.
What the future holds
Both of these companies have made strong inroads into digital, which they positively impacted during the pandemic. Walmart, as the largest American retailer, certainly had the opportunity to take over Amazon.com (NASDAQ: AMZN) at the beginning of Amazon’s branch to any sales category under the sun and missed it. However, it has come on board and has aggressively grown its e-commerce program. Digital sales grew 97% in the third quarter, even greater than the 74% increase in the first quarter.
Image Source: Getty Images.
Costco membership grew to $ 55.8 million in the quarter ended May 10, from $ 55.3 million 12 weeks earlier. Board memberships, which cost $ 120 instead of the basic fee of $ 60, are also growing. The membership renewal rate was 91%, which is typical for the company. Costco’s markup is only about 13%, well below the retail average, and customers love these savings when buying in bulk cases. The company gets part of that back through its trusted memberships. Costco has also seen digital success, and despite its bulk, has proven that it can become an agile company in the digital world. It opened 16 new U.S. warehouses in 2019 and one each in the United Kingdom, Australia, South Korea, and China. The Chinese store, in Shanghai, had 139,000 applications on opening day, and there is enormous potential in that region.
Where the stock market is going
Costco is quite expensive, trading at 36 times estimates ahead of revenue, while Walmart’s share price is a moderate 26, but there’s a reason for that. Costco shares are up 16% on Wednesday morning to date and have an impressive 18.6% annual return of five years, while Walmart’s shares are up 11% year to year and have an annual return of 14%. Those numbers are all pretty remarkable, and both of these companies have been solid investments. They will both continue to be, and I highly recommend them both. But if I had to choose one over the other, I would choose Costco, for its recession-proof model, strong customer loyalty and a great potential for further growth.
