The Key Difference Between Costco And Walmart
Costco (NASDAQ:COST) is one of the most efficient retailers in the U.S., generating significantly high revenues per square foot of space, compared to most of its peers. This metric is a key indicator of how effectively a retailer is utilizing its space to drive revenues. According to our estimates, Costco’s revenue per square foot is likely to increase from $1,540 in 2017 to nearly $1,640 by the end of our forecast period.
Walmart, on the other hand generates less than half of these revenues per square foot, although we expect these to rise at a faster pace.
While Walmart’s gross margins are more than double those of Costco’s, an efficient model with significantly higher revenues per square foot ensure that Costco’s gross earnings for the same size of a store are higher than Walmart
The below illustration shows how Costco earns higher gross income for a 100 square foot store compared to Walmart.
While Walmart is taking several initiatives to boost its e commerce sales, Costco is lagging behind in its online initiatives. The above table shows that Walmart is inefficient compared to Costco in using its retail space and could benefit from a higher volume of online sales. Costco on the other hand targets individuals with higher disposable incomes and is able to generate much higher revenues per square foot of space. Hence, it does not need a significant online business to increase efficiency.
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