Costco's Simple Strategy For Outperforming Wal-Mart And Target

The warehouse discounter has reported quarter after quarter of great financial results. Meanwhile, Wal-Mart and Target are grappling with a lull in business.

Costco has a simple strategy for winning - concentrating on driving sales.

The company believes that if sales are good "everything else will take care of itself," Goldman Sachs writes in a recent report.

The Motley FoolThe company is outperforming competitors.

While Wal-Mart and Target pour money into marketing, Costco has a no frills approach and doesn't advertise.

The company also sells a limited number of items.

Despite Costco's large store volume, it only sells four toothpaste brands. Walmart sells 60, according to The New York Times.

Selling fewer items increases sales volume and helps drive discounts.

Costco's focus on driving sales also helps explain why it offers better pay and benefits than competitors.

Many retailers drive profits by paying workers less, but Costco wants to retain good employees who will motivate customers to come back.

In a note earlier this year, Goldman Sachs predicted the slow decline of Wal-Mart and Target.

"Consumers appear more focused on some combination of value and convenience," the analysts wrote.

Huge Wal-Mart and Target stores lack the convenience of smaller dollar chains and drugstores. They also can't offer the deep discounting of warehouse clubs like Costco.