Costco really is a store where affluent, high-socioeconomic status households occasionally buy huge quantities of goods on the cheap: That’s Costco’s business strategy (which is why its stores are pretty much found in affluent near-in suburbs). Wal-Mart, however, is mostly a store where low-income people do their everyday shopping.
I went to Costco for the first time a couple of months ago. My first reaction was that I did not understand the business model. I thought that in the grocery business, you wanted to have lean inventories, and they seem to have the opposite. McArdle explains,
Costco has a tiny number of SKUs in a huge store — and consequently, has half as many employees per square foot of store. Their model is less labor intensive, which is to say, it has higher labor productivity. Which makes it unsurprising that they pay their employees more.
My local grocery store, Giant, is filled with employees, who are constantly restocking shelves. Giant keeps on hand relatively low inventories of a much larger number of products.
Eventually, I could imagine an equilibrium in which a store like Giant pares back on the number of items it sells in the store, keeping only the most popular items available. You would have to order less-popular items on line. That way, they could cut back on those restocking costs.
Of course, for all I know, Giant’s business model is to charge a big markup on stuff, and they figure once they get you into the store they make a profit. And if stocking a great variety of items gets you into the store, then that is the right strategy.