Clubs: our most exportable retail concept - membership warehouse stores - Taking Stock - Column

Discount Store News, May 17, 1993 by Arthur Markowitz

The expansion of Sam's Club to Mexico, Costco Wholesale to the United Kingdom and the Price Club to Mexico, the U.K. and the Iberian Peninsula is strong proof that the membership warehouse concept, among merchandising ideas, is the most exportable, easily transferred to all countries and markets.

The various reasons why this is so can be summed up in three words: limited controlled costs.

The equation for building and operating any individual club--the cost for land, contruction of a spartan building, fixturing and even labor--can be controlled and limited. If they exceed a company's specific parameters, that club doesn't have to be built. The biggest ongoing operating expense, the one that consistantly calls for the greater expenditure, is the cost of merchandise.

But while inventories seem to require a major investment, in reality the real cost to a club is proportionally very limited. Vendors have to be thanked for that, for they, in the end, actually finance most of a club's merchandise investment.

This financial situation results from clubs' rapid turnover, much higher than any other merchandising format. The turnover figures for the last three years at the Price Club were 18.2, 18.2 and 18.5, while at Costco they were 12.2, 12 and 13.6. Simply put, the clubs sell most goods much faster than they have to pay for them, so that in the end their actual cost for merchandise is limited.

This is also evident from another balance sheet statistic: inventories as a percentage of accounts payable. This figure during the last three years at the Price Club was 101.4%, 88.8% and 82.9%; at Costco it was 83.8%, 93% and 84.4%. Clubs fund only a small portion of their inventories; vendors do the rest.

Bottom line: with such limited and controlled costs, it's easy to see why the major clubs are expanding internationally. The unanswered questions are how rapid will this expansion be, and which countries, if any, won't they go to?