With Sam's Club, Wal-Mart powers up warehouse arena - Wal-Mart

Discount Store News, June 7, 1993

Sam's Club is Wal-Mart's application of its power merchandising program in the membership warehouse arena.

The wholesale club concept of low margins, rapid turn-over and tight control of costs fits right into Wal-Mart's approach to merchandising. Launching Sam's Club was a natural marketing move for Wal-Mart, as was the discounter's explosive growth of this venture into the leading membership warehouse.

And this growth shows no sign of abating.

In merchandising, Walk-Mart is deploying some of the same techniques in Sams Club that it used to drive sales in the discount stores. These efforts include automated replenishment, using new technology and merchandising endcaps to boost turns. In the latter instance, items that haven't met turnover goals are featured on ends for greater exposure that often generates higher turns, even when products are moved back to the regular warehouse display.

Sam's Club has also strengthened its relationship with members. it has dropped free membership for group members, weeding out the occasional consumer customer and thereby increasing its focus on catering to business and group members committed to shopping the club. The additional membership income falls to the bottom line, enabling Sam's Club to reduce its merchandise margins even further while remaining profitable.

Wal-Mart has unveiled larger and larger Sam's Clubs to be able to offer augmented departments and membership benefits. The average Sam's Club has grown from 105,000 sq. ft. in 1990 to 110,000 sq. ft. the next year. It hit 113,000 sq. ft. in 1992 and will reach 115,000 sq. ft. this year. Some clubs as large as 140,000 sq. ft. will contain larger fresh produce departments, new services such as optical and pharmacy departments and augmented bulk goods sections such as bedding and major appliances.

On the operational side, Wal-Mart has followed the same rapid-growth program for Sam's Club as for the discount stores. The sheer weight of clubs has propelled Sam's Club to the top spot in number of stores and sales.

Wal-Mart opened 48 Sam's Clubs last year; another 65 are on tap for 1993, which will give the chain 321 clubs by the end of the year, double that of the next largest wholesale club. In fact, the 113 Sam's Clubs added during the two years equals the total opened by the rest of the industry during the same period.

Sam's Club's $12.3 billion in sales last year was a 30.9% jump from the $9.4 billion recorded in 1991. A 26% boost in volume to $15.6 billion is expected this year. These sales figures are over 50% higher than the next highest club's figures.

The discounter has clustered Sam's Clubs in many markets - about 45% of the clubs overlap - resulting in cannibalization of sales and lower same club sales gains. But more important from Sam's Club's viewpoint, this overlapping provides better service to members who have shorter distances to travel to a club.

The importance of location for Sam's Club's business and group members was evident m a Babson College research report on the membership warehouse industry. The study found that greater percentages of both types of members listed location as the third most important reason they shopped a Sam's Club as compared with other membership warehouses. Twenty percent of Sam's Club business membership cited location, compared to 21% at Pace, 17% at Costco Wholesale, 9% at the Price Club and 7% at BJ's Wholesale Club. For group members, the figures were Sam's Club, 15%; Pace, 15%; BJ's, 13%; Costco, 12%; and the Price Club, 9%.

At the same time, a growing number of Sam's Clubs are being paired with Wal-Mart discount stores and supercenters, with the resulting combination dominating a market and overwhelming competition by the array of merchandise offered to customers and the range of people and business shoppers. These Wal-Mart duos average $75 million in sales, with volume reaching $100 million to $125 million in some markets, trade observers estimate.

But this pairing could also be a defensive move by Wal-Mart. The Babson College report found that 25% of Sam's Club's shoppers were spending less in discount stores. Shoppers at other clubs reported smaller cutbacks in discount store buying. Spotting Wal-Mart and Sam's Club together could counteract this negative trend.

Sam's Club's importance to Wal-Mart extends beyond its sales and earnings in the United States. In a joint venture with Cifra S.A. de C.V., a leading Mexican retailer, the discounter has opened three Club Aurrera units in Mexico modeled on Sam's Club and another six clubs are planned for this year. Sam's Clubs are also expected to be opened in Canada and eventually Europe when Wal-Mart expands into these areas.