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The Best Retailer Stock, by Far

24/7 Wall St

Key Points:

Douglas and Lee discuss the strategic differences between Costco (NASDAQ: COST) and Walmart (NYSE: WMT), particularly in terms of store count and customer reach. Costco has about 500-600 stores, while Walmart has expanded to over 4,600 stores, with 90% of the U.S. population living within 10 miles of a Walmart. This proximity allows Walmart to function as a convenient local shop, especially with its successful online order and pickup service. Costco, on the other hand, has a smaller footprint but sees a high average ticket size per customer due to bulk purchases. Both retailers are increasingly benefiting from e-commerce, with Costco showing strong growth in this area. The conversation also touches on the broader economic environment, where more consumers, including middle and upper-class individuals, are shopping at discount retailers like Walmart and Costco due to financial pressures. They conclude that Costco remains a strong long-term investment, particularly with its consistent value offerings, including the famous $1.50 hot dog.

Transcript:

The other thing is that Costco has decided to go with about 500 or 600 stores.

Walmart’s decided to go to 4,600, 4,700 stores now.

To go to a Costco, very often you’ve got to drive, and the assumption is that people are going to go in and the total ticket when you walk out the door is going to be very, very healthy.

It always was for me.

The Walmart shopper, because 90% of the population in the United States is within 10 miles of a Walmart.

I understand that that seems like it’s a number for Mars, but I’ve checked it a number of times.

90% of the U.S. population, that means 300 million people, basically, within 10 miles of a Walmart.

One of the things that that means is that I can use a Walmart as sort of my local shop.

If I need anything, I can get in the car, I can be in Walmart.

The next thing they’ve done, which is ingenious at Walmart, is that they’ve got pickup.

You can, you know, order online, drive by, pick it up, you don’t have to go into the store.

As does Sam’s.

Yeah, and Costco is moving more and more into this in that business.

I was impressed by the fact that their e-commerce revenue was good.

So was Walmart’s.

It was up 20% at Costco, a little bit more of that at Walmart.

And you and I remember 20 years ago when Amazon started to get big, that everybody said Walmart would go out of business.

Target would go out of business.

Right.

Costco would go out of business because everyone would order everything online.

Right.

Yeah.

The big box retail, every retailer was dead.

Every retailer in the United States was going to be put out of business by Amazon.

And it hasn’t turned out that way for a few of these places.

Target isn’t doing well, but, you know, some of the verticals like Abercrombie and some of the big box guys like these guys, they’re still doing remarkably well in the bricks and mortar business.

Yeah.

And for a lot of people, I think the shopping experience, whatever that is, at those big places, like you said, you have your giant cart filled with giant boxes, and it’s not like going to the local grocery store that everybody has shopped at with their family for years.

In New Orleans, it’s called Rouse’s, and there are different names around the country.

But in a cost-saving environment like we’re in now, because, you know, you would think that was the greatest economy in the world because of the way they gush about it on CNBC.

But the reality is that Americans are getting squeezed because the value of their dollar has dropped drastically because of the Fed and all the spending.

So they have to go to Walmart and they have to go to Costco and they have to save money because they got to feed their families.

Well, Walmart mentioned that they’re getting, you know, more middle class and upper class people coming.

Yeah.

I’m sure that Costco was always more upmarket than Walmart is.

Yeah, it really was.

Sure.

But I would say this, you know, if I’m an investor, I like Costco long term.

I really like the model.

It’s a tried and true model for a number of decades.

They are now benefiting from e-commerce the way Walmart is.

Yep.

Beginning to move into the store pickup thing, which appears to be very, very popular.

So I like Costco.

Yeah, I like it too long-term because we could be in this economic morass for some time now, regardless of how the election turns out.

I mean, it could be worse, and maybe that’s the case, but the spending keeps up.

But yeah, I think Costco is a very good long-term idea.

And remember, they kept the $1.50 hot dog.

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