Costco challenges local Sam's Club for customers

Costco challenges local Sam's Club for customers

February 7th, 2010 by Andy Johns in Business Around the Region

Costco Wholesales would face an uphill battle moving into an area with an established Sam's Club but it's a battle it has won before.

Costco CFO Richard Galanti said he's confident in his company's strategy, which caters to a "higher end customer" than Sam's, but moving into a market such as Chattanooga where shoppers have been Sam's members for years presents a challenge.

"The difficulty is they've already signed up members," he said.

Costco and Fort Oglethorpe, Ga., have been in negotiations for nearly a year and a half to bring the retail giant to the Cloud Springs Road exit on Interstate 75. Neither side would confirm the talks, but the company's identity slipped out in a Catoosa County Water Board meeting late last year. Catoosa County leaders have said they could make an announcement as early as next week.

Staff members at Sam's Club did not respond to repeated messages.

Michael Clayman, editor of Warehouse Club Focus trade magazine, said Costco shouldn't have any problem getting customers in the door if it does come to Northwest Georgia. He said customers usually flock to a shiny new store when a warehouse club enters a market.

That could mean Sam's sales could be hurt at least initially if a rival were to open. "They'll take a hit but it will come back," he said.

In some places, Sam's Clubs have taken more of a hit than they would like, according to Mr. Clayman.

In January Sam's Club announced plans to close 10 stores from California to New York. There is a Costco in all but one of those markets. Mr. Clayman said there is a Costco located within 10 miles of eight of the closing stores.

"That indicates something," he said. "You can draw your own conclusions."

But Sam's is not going away. By the end of this fiscal year, the retailer plans to add six Clubs and complete 52 remodels, according to a news release. In fiscal year 2011, they plan to add between five and 10 new, expanded or relocated Clubs and remodel between 60 and 80.

In 2004, a USA Today article drew the battle lines with Costco is concentrated in urban areas along both coasts and Sam's club focused in the East, the nation's midsection and suburban areas. BJ's, another warehouse wholesame competitor, is Northeast-focused, but does have stores in Georgia. At the time of the article, there was a Sam's within 10 miles of 59 percent of Costcos.

Mr. Galanti said strategies only matter to a certain extent because in the end it's up to the shoppers.

"Ultimately it's for the customer to decide," he said.