Costco Works to Maintain a Pricing Edge

Although Sam's Club and BJ's Wholesale Club have improved their price positioning, Costco Wholesale Corp. sees itself as its own toughest competitor, Richard Galanti, executive vice president and chief financial officer, said last week. We've been our own hardest competitor in terms of pushing down prices, he told a conference call sponsored by Citigroup, New York. BJ's has gotten

ISSAQUAH, Wash. — Although Sam's Club and BJ's Wholesale Club have improved their price positioning, Costco Wholesale Corp. here sees itself as its own toughest competitor, Richard Galanti, executive vice president and chief financial officer, said last week.

“We've been our own hardest competitor in terms of pushing down prices,” he told a conference call sponsored by Citigroup, New York. “BJ's has gotten better in its performance of late, and Sam's got tougher three years ago and has remained that way. We see ourselves as fiercely competitive with Sam's on the basic brand items that constitute 50% to 60% of what we both sell, which means we must be more creative and find other ways to compete.”

He said the chain seeks to hold its profit margins to no more than 14% or 15%.

“So we move over 80% of merchandise on pallets and take the best advantage of that to improve margins without cheating [on holding margin levels down]. So there are a lot of ways to have the best savings out there.”

For years Costco did not do price comparisons at many BJ's locations, Galanti said, but “the gap with BJ's has narrowed.”

“With Sam's, we continue to [compare prices with] them everywhere. We're both pretty strong competitors, and there's little gap on commodity branded items. Where we see a discernible difference is in quality and value.”

To maintain a more competitive position, Costco seeks to frequently introduce new products, such as new bakery items, he noted.

In response to other questions, Galanti made the following remarks:

  • Pharmacy sales are up through the first three quarters of the fiscal year “in the mid- to high single digits, which is less of an increase than a year ago.”

  • Despite a drop in restaurant patronage, sales to small-business members are about even with a year ago. “The level of penetration is up slightly — less than 0.5% — so maybe the types of restaurants they operate have not been hit as much,” he noted.

  • In terms of target marketing, “we're babes in the woods,” Galanti said. “We've concentrated more on blocking and tackling, trying to come up with new items or going after manufacturers that won't sell to us. We have gotten smarter on our mailers, though, where we do some targeted marketing.”