Value-added membership key to building club business

Discount Store News, Oct, 1999

In recent months, Sam's Club has taken membership retailing to new heights with a slew of added services and an upscale new look that caters to a higher-income demographic. Because it caters to business customers as well as individual members who like buying in bulk to get wholesale prices, the division has found a profitable niche not served by Wal-Mart's discount stores or supercenters.

At 454 clubs, the division last year saw sales rise 11% to $22.8 billion and operating profit increase 15% to $707 million. Same store sales rose 9%. Those figures don't take into account Sam's 46 clubs in other countries, which fall under the company's International division.

Wal-Mart launched the club format in 1983 after Sam Walton, ever a student of retailing, visited a Price Club. With its low-cost method of distribution, Sam's has evolved through the years from its initial focus on basic office and food supplies to offer rotating assortments as varied as high-end golf clubs, department store brand shirts and premium furniture collections.

"You have to make sure you are continually adding value to the membership card. Prices have to be absolutely correct, your quality has to be there along with name brand representation and service levels. Clubs need to be clean, well disciplined and execute well," said Sam's president and ceo Tom Grimm.

In the early 1990s, as the chain matured, stagnant sales prompted criticism that Sam's had become predictable--even outdated--in its merchandise offerings. Wal-Mart executives began looking into ways to bring fun and creativity to the chain. So over the past two years, Sam's has experimented with several new merchandise programs and services that appear to be paying off in higher membership rolls. The chain currently has 37 million cardholders in the United States.

"You can't have too many name brands in a club," said Grimm. The former Pace Membership Club chief came aboard in October 1998 and has staunchly predicted strong continued growth for the concept. "We will do everything we can to have every name brand that anybody has ever wanted."

Perhaps the most talked-about news from Sam's as the decade draws to a close was the opening in April 1999 of a club in Chandler, Ariz., unofficially dubbed the "millennium club." Located in an affluent Phoenix suburb, the unit showed off several new features for Sam's, including upscale merchandise such as fine wines, bronze statues and even a $14,999 flat-screen television with DVD player.

New fixtures, signage and lighting gave the store a fresher, updated look, while test programs of added membership services were all available under one roof--pharmacy, optical department, copy center, one-hour photo lab and a self-checkout system. Regional merchandise was emphasized, and a new layout doubled the size of a typical Sam's fresh food department.

"There is no doubt that one of the major pushes currently is to get all our clubs into the fresh business," Grimm said. "From a frequency of shop basis it is vital and it also appeals very much to the shopper that we are after, that upscale shopper. The fresh area is very important to them and the value we can present there is very significant."

New clubs have opened in Long Beach, Calif., Franklin, Tenn., and Auburn, Wash., that feature the majority of the Chandler club's attributes, including the emphasis on upscale and regional merchandise.

"The goal for the entire company for a few years has revolved around the name-brand merchandise and the added services," said Elda Scott, spokesman. "Each club will be tailored to meet the particular needs of that community."

The branding effort at Sam's also encompasses the development of its own Members Mark private label program. Launched 1998 largely in food, the program continues to expand to products ranging from anodized cookware to laundry detergent. In addition to providing members with lower-cost alternatives to national brands, Members Mark will continue to contribute to the drive to increase per-club productivity. It's a strategy that has worked successfully for rival Costco, whose private label Kirkland Signature in 1998 accounted for roughly 8% of sales, or nearly $1.7 billion.

Adding value to the membership has been a primary motivation for the division, which has rallied behind a campaign launched in early 1998 called "the secret to living well." The marketing strategy, which touts "better card, better prices, better service," is tied to the chain's efforts to lower prices and expand service.

Among the tests that have shown promise are service stations at which members can use their cards to buy gas. Sam's is in the process of opening 20 to 25 gas stations in 1999 on top of its existing seven. "Gas is a large focus, and we are going back into markets and adding gas and including it as part of new clubs," Grimm said. "We are definitely going forward with gas as part of our prototype when and where possible."

Sam's will be revisiting its fine jewelry, watch and gift department when its contract with operator Jan Bell Marketing expires in early 2001. Sam's has announced it will begin running that department in house.