As a longtime retail industry executive and an avid shopper myself, I‘m often asked about the biggest players in the business. Two companies that invariably come up are Target and Costco. While both are giants in the world of retail, they operate with distinctly different business models and cater to largely different customer bases. A common question I hear is: Does Target own Costco? The short answer is no, but the longer answer reveals a much more fascinating story about two of America‘s most successful and influential retailers.
Target and Costco: By the Numbers
Let‘s start with some basic facts and figures to set the stage. Target is a general merchandise retailer that was founded in 1902 in Minneapolis, Minnesota as Goodfellow Dry Goods. The company changed its name to Target in 1962 and has since grown into a nationwide chain with over 1,800 stores across the United States. Target employs roughly 350,000 people and generated revenue of $106 billion in 2021.
Costco, on the other hand, is a membership-based wholesale club that was founded much more recently in 1983 in Seattle, Washington. Today, Costco operates 834 warehouses worldwide, including 574 in the United States and Puerto Rico. The company employs over 300,000 people and generated a whopping $226 billion in revenue in its latest fiscal year.
Here‘s a side-by-side comparison of some key financial metrics for Target and Costco:
| Metric | Target | Costco |
|---|---|---|
| Annual Revenue | $106 billion | $226 billion |
| Net Income | $6.9 billion | $5.0 billion |
| Profit Margin | 6.5% | 2.2% |
| Sales per Square Foot | $320 | $1,200 |
| Average Purchase Size | $50 | $100 |
As you can see, while Target is an absolute retail behemoth in its own right, Costco operates on an entirely different level of scale. Costco generates more than double the annual revenue of Target, but with a much leaner physical footprint – Costco has fewer than half as many stores as Target. This is reflected in Costco‘s industry-leading sales per square foot metric of $1,200, which is nearly 4x higher than Target‘s.
However, Costco‘s ultra-low prices and bulk selling approach mean it captures a much lower profit margin than Target. For every dollar in sales, Costco keeps just 2.2 cents in profit compared to 6.5 cents for Target. Costco‘s membership model is key to its profitability, as the company generates most of its earnings from the annual fees paid by its 114+ million cardholders.
Serving Different Shoppers in Different Ways
The variance in these financial metrics underscores the fundamental differences between Target and Costco‘s business models and target customers. Target is all about providing a convenient, one-stop shop for a curated assortment of everyday products. Its stores are bright, colorful and inviting, with an emphasis on style and fashion. Target‘s average shopper is younger, more affluent and more likely to live in urban areas compared to the overall population.
Target has invested heavily in creating an enjoyable, almost luxurious in-store experience, despite its discount positioning. Many Target stores have spacious aisles, polished concrete floors, wood accents, Starbucks cafes, and even full-blown beauty salons. Target‘s owned brands are trend-forward and high quality, often developed in partnership with famous designers. Browsing the aisles at Target feels like a treat, with delightful surprises around every corner.
Costco, in contrast, is laser-focused on delivering the absolute lowest possible prices on a limited selection of items bought in bulk. There are no frills or fashionable flourishes to be found inside a Costco warehouse club. Products are displayed right on the pallets they arrived on in towering steel racks that soar to the ceilings. Costco often stocks just one or two varieties of a given item, compared to dozens at Target. And of course, everything is supersized, from jugs of mayonnaise to boxes of cereal to packages of toilet paper.
Costco mainly appeals to large families looking to save money by stocking up on household essentials in bulk. Whereas Target attracts shoppers with an eye for design, Costco attracts those with an eye for value. Costco is also popular with small business owners, who leverage the low wholesale prices to get better margins. Costco‘s average shopper is a bit older, has a larger household, and lives in the suburbs, which makes sense given that you need plenty of pantry and garage space to accommodate a Costco haul.
The Future of Retail
Both Target and Costco have been incredibly successful in serving their respective customer bases over the past several decades. But the retail industry never sits still, and there are plenty of threats and challenges on the horizon for these two giants. Perhaps the biggest disruptive force in retail is the relentless rise of e-commerce, led by the juggernaut of Amazon. Online shopping has grown exponentially in recent years, forcing traditional brick-and-mortar retailers like Target and Costco to invest heavily in digital capabilities like websites, mobile apps, and delivery infrastructure to keep up.
Target has responded by turning its stores into hubs for same-day online fulfillment, with services like in-store pickup, curbside pickup, and same-day delivery through Shipt. Roughly 95% of Target‘s sales now involve its stores in some way, even if the purchase ultimately happens online. Target is also opening smaller format stores in urban areas to reach younger shoppers who may not have easy access to its traditional suburban big box locations.
Costco has been more resistant to e-commerce historically, as its business model is predicated on shoppers coming into the store to browse and make impulse purchases. However, Costco has recently begun investing more in online shopping and delivery, particularly for bulky items like furniture and appliances that are difficult to transport home. Costco has also expanded its physical footprint internationally, with particularly strong results in Asia.
Another challenge facing Target and Costco is the potential for market saturation, particularly in the United States. Both retailers already have a significant presence across the country, and finding attractive new locations is getting harder. This is particularly true for Costco with its massive warehouse stores that can span up to 200,000 square feet. Target has more flexibility to open small format stores in dense urban areas, but it still faces stiff competition from the likes of Dollar General and Aldi which specialize in even smaller discount stores.
Finally, Target and Costco must both grapple with the macroeconomic realities of inflation, rising labor costs, and supply chain disruptions. As the prices of raw materials, transportation, and wages increase, it becomes harder for retailers to maintain their margins without passing costs on to consumers. This is a delicate balancing act, as shoppers are highly attuned to prices and will quickly defect to cheaper competitors.
Despite these headwinds, I remain optimistic about the long-term prospects for both Target and Costco. These companies have survived and thrived through numerous economic cycles and challenges over the years, and they have the scale, resources, and customer loyalty to weather whatever comes next. As an industry insider and avid shopper, I can attest to the enduring appeal of both brands.
When I walk into a Target store, I‘m immediately struck by the bright, cheery ambiance and the treasure hunt aspect of discovering trendy new products. I can easily spend an hour browsing the home decor section, trying on clothes, and picking up all the random items on my list, from toothpaste to throw pillows. The store layout and merchandising make it a fun, engaging shopping experience that keeps me coming back over and over.
Costco, on the other hand, is where I go when I want to stock up and save money. I know I can find unbeatable deals on all the essentials my family needs, from bulk packs of nuts and dried fruit for healthy snacking to giant bottles of olive oil and spices for cooking. The limited selection means I can get in and out quickly without being overwhelmed by choices. And of course, no trip to Costco is complete without hitting the food court for a $1.50 hot dog and soda.
At the end of the day, both Target and Costco are phenomenal retailers that have earned their huge customer followings. While there are plenty of differences between the two, they share a common commitment to delivering outstanding value and selection to shoppers. So no, Target does not own Costco, but in my book, both companies are winners in the fiercely competitive world of retail.
