Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Rise of the Value Shopper (and Costco)

Over the past few years the American retail landscape has changed dramatically. The mighty Walmart Stores Inc. (NYSE: WMT) has lost its momentum and is struggling to retain customer traffic. Upstarts like Costco Wholesale (NASDAQ: COST), Kroger (NYSE: KR), and Amazon (NASDAQ: AMZN) have grown into giants, while Target (NYSE: TGT) has struggled to stay relevant.

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So what is the cause of this dramatic shift, and more importantly, will it continue? Obviously there are several factors driving this sea change in retail, but one of the major reasons for this disruption is the rise of a new class of consumer I like to call the value shopper.

The value shopper is the consumer equivalent of the value investor. Like the value investor, the value shopper carefully weighs every purchase and engages in a constant search for value. Just as the value investor seeks value in stocks or real estate, the value shopper looks for value in every purchase.

The value shopper is different from the traditional discount buyer because price is only one of a number of criteria he or she looks for. Intriguingly, value shoppers often ignore traditional bargains and traditional discounters because they perceive that such items lack value.

How to Identify the Value Shopper

Some of the value shopper’s characteristics are as follows:

  • Looks for the best deal rather than the best price. Will pay extra for higher quality or greater quantities when making a purchase.

  • Was badly burned by the great economic meltdown of 2007–2008. They may have suffered losses in the stock market or lost a home or a job in that catastrophe or knows somebody who did. This makes the value shopper extremely conscious of money and unwilling to part with it.


  • Is financially savvy and skeptical of instruments like credit cards.


  • Is generally distrustful of big business but has a strong faith in capitalism.


  • Is tech savvy but distrustful of the technology industry.


  • Is distrustful of marketing and advertising.


  • Does not respond to sales and traditional marketing promotions.


  • Tends to be suspicious of the media and often ignores it.


  • Likes to research all purchases, sometimes extensively.


  • Is insecure in their social and economic position.


  • Is generally distrustful of traditional discounters and their methods.


  • Looks for a higher quality shopping experience at a low price.


  • Is not willing to put up with a poor shopping experience or lousy customer service even for the sake of a really good price.


  • Is concerned about health and will pay extra for healthy food.


  • Values time as much as money, and is willing to pay extra to save time.



  •  Has a good income but is worried about money and scared of economic losses.


  • Does not like to be bothered with gimmicks like coupons.


  • Considers herself middle class and tends to look down on institutions like dollar stores and fast food joints.


  • Takes ethical, philosophical, and ideological concerns into consideration when making a purchase. Is not willing to compromise ethical values or religious beliefs when making a purchase, even for a low price.


  • Seeks as much purity and quality in products as price will allow.


Where the Value Shopper Shops

A good way to think of the value shopper is as the typical Costco customer. Costco has become one of the fastest growing retailers in the United States and Canada by catering to this class of shopper. It did this by breaking all the retail rules; for example, it does not advertise, takes only one brand of credit card, and pays its associates a higher wage.

Naturally, investors will want to know what companies cater to this growing class of consumers. My answer would be those that offer the best deals or more bang for the buck. Besides Costco, some of the businesses selling to value shoppers include:

  •, which saves time with its delivery and offers low prices and a wide variety of goods and services for a low price. For example, its Kindle is a lower cost alternative to books.


  • Netflix (NASDAQ: NFLX), which offers large amounts of entertainment at a low cost. Is also a low-cost alternative to cable and satellite services.


  • Whole Foods Market (NASDAQ: WFM), which offers healthy organic food and precooked meals at a good price.


  • Sprouts Farmers Market (NASDAQ: SFM), which sells large quantities of organic foods at lower price than Whole Foods.


  • Apple Inc. (NASDAQ: AAPL), which sells high quality electronics at a reasonable price. Apple also provides access to large amounts of entertainment at a very low price.


  • Toyota Motor Company (NYSE: TM), which manufactures really good cars that offer low gas mileage and low maintenance. Also sells eco-friendly vehicles like the Prius and the Mirai.


  • Kroger; its supermarkets offer a high quality shopping experience and low prices.


  • Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW), which help customers save money with home improvement products.


  • Google Inc. (NASDAQ: GOOG). Its tools, like Google Compare, can help value shoppers locate the best deals on everything from credit cards to car insurance. Its advertising solutions can help advertisers connect with value shoppers that loathe the traditional media and tend to ignore it.


  • United Parcel Service (NYSE: UPS) and FedEx (NYSE: FDX). Value shoppers like to order online because it can save them time and help them get the best deal faster.


  • SolarCity (NASDAQ: SCTY), which helps value shoppers reduce their electric bills with solar panels while satisfying their desire to protect the environment.


  • Chipotle Mexican Grill (NYSE: CMG), which sells high-quality, handmade organic food at a reasonable price. Provides an affordable but quality alternative to traditional fast food peddlers like McDonald’s (NYSE: MCD).

The trick to cashing in on the value shopper is to identify those companies that appeal to the value investor. A classic example of this phenomenon is the situation in the fast food business where McDonald’s and its value menu is having a hard time competing with chains like Chipotle and Five Guys. In today’s America, the combination of quality and value trumps low prices.

The retail environment has changed dramatically because of the value shopper. Those investors that realize it and invest accordingly will profit.