Which one is better, Walmart or Costco?

Following my post on WMT, I was asked to comment which one is better, Walmart or Costco (COST). First of all, I have to say as a business, I like both. WMT is of course a big brother of over 40 years old. Costco is much younger, only about 20 years in business. They target very different retail population: WMT for poor people and COST for more affluent people, relatively speaking.  So if we have to compare these 2 businesses, we first need to understand how these 2 populations are different in their shopping behaviors. Here is what I'm thinking. The fundamental difference between the poor and the rich is the freedom of choice. For the rich people, they have a lot of flexibility in deciding buying or not buying. Many people judge whether someone is rich based on what he/she owns. This is often not right. People can own a lot of things but are quite poor. This is especially true in the US as American love to borrow for sake of owning things. Actually real rich people do not necessarily own a lot of things but they can certainly afford to buy if they choose to do so. This difference may not be so clear during the good economic period but becomes strikingly clear when the economy is struggling.  If we can understand this fundamental difference, it will be much easier to understand how the economic cycles will impact on WMT vs COST. WMT will have much less negative impact by the bad economic situations and its business is generally more stable throughout good or bad economies. Why so? Well, this is because WMT targets poorer people for whom they have much less choices. They need to buy the basic living stuff regardless it is in good or bad economic situations. This is not necessarily true for COST. Affluent people tend to buy more when they are economically doing well but will cut down their expenditure during the poor economic conditions. Further more, many of them may choose to go to Walmart to save money when their incomes decline. So we can obviously expect WMT should be doing much better than COST when the economy turns down to the hill. Since we have just gone through the financial crisis not long ago, we can simply verify this by comparing how WMT vs COST did during 2008/2009. As you can see below, WMT indeed did much better than COST during that devastating period!

In addition to the general comparison, I also feel more secured by the rather strong track record of the 4 decades of dividend increases for WMT but for COST we only have got about 11 years of history. Finally, the valuation is the most critical factor to determine whether I want to buy a stock for long term. At the current price, COST is definitely not cheap but WMT is quite reasonably priced at the moment. Regardless how great a business is, if you buy at a rich price, you may still lose money in the long run. By now, I guess you may guess which one I'm more in favor of right now. Yes, Walmart!