Bud's Outlets attract downscale shoppers with big-ticket items at low payments - Company Profile

Discount Store News, June 20, 1994 by Richard Halverson

Despite the outlet name, only about 20% of Bud's merchandise is surplus Wal-Mart products.

Bud's Warehouse Outlet has introduced two new merchandising strategies to foster its major purposes of attracting lower-income customers who can't afford Wal-Mart prices and of recycling older, smaller stores that Wal-Mart is closing.

Last month, Bud's tested a furniture specialty store called Bud's Furniture & Appliance Center in Farragut, Tenn., in a Wal-Mart that was closed after the discounter opened a new and larger unit in the Knoxville suburb.

And last November, Bud's launched a private-label credit card program through Great Western Bank, Tampa, Fla., that permits a cash-strapped customer to buy, for example, a factory refurbished Emerson color TV for $179 with nothing down and $5 a month, payable over 52 months. At 18% interest, the buyer would pay almost $80 in interest. The credit program applies only to big-ticket, hard lines items such as consumer electronics, furniture, appliances and lawn mowers. Great Western sets a minimum credit line of $200 for approved credit card applicants.

The credit program allows Bud's to tap the purchases of low-income customers for big-ticket items, as well as for commodity supplies and low-cost apparel they typically might purchase at Family Dollar or Dollar General.

In preparation for the furniture specialty store test, Bud's Outlets, now numbering 83, greatly increased its furniture and appliance offerings over the past year and developed its own furniture and appliance buyers. If a 30-day test meets expectations, Bud's plans to open 15 furniture specialty stores over the next 12 to 18 months.

The Farragut store offers a complete line of appliances and upholstered groupings that range up to $1,900, including leather goods and case goods. All furniture is open stock, so customers can match initial purchasers. All consumer electronics are factory refurbished items.

The Bud's Outlet in Festus, Mo., opened a year ago when Wal-Mart unveiled a supercenter in the town of 8,000, featuring furniture such as recliners for $99, a Queen Anne chair at $139 and a three-piece upholstered group, sofa, love seat and chair, for $586.86, or $17.51 a month on credit.

Bud's will never lack for suitable real estate, even though it opens only in closed Wal-Mart stores, or in a couple of cases, former Sam's Clubs. Wal-Mart presently has 75 empty stores that it is unable to sell or lease to others. This year Wal-Mart will close an undetermined portion of 65 stores that will either be relocated or enlarged into supercenters.

Wal-Mart prefers to sell the real estate lease as a first option, but when unable to find buyes, Wal-Mart has converted 83 closed stores into Bud's units. They come and go, however, when Wal-Mart can find a tenant, and the chain closed six Bud's units in 1993 and sub-leased the stores to other tenants.

On estimated sales in 1993 of $500 million from 81 units, Bud's is profitable. "We should have done it a long time ago," a Wal-Mart spokesman said. To its surprise, though, Wal-Mart finds that several Bud's are competing with its normal discount stores, an undesired development.

The initial Bud's started as small as 40,000 sq. ft., but the normal size of newer units averages 60,000 sq. ft. now that Wal-Mart has worked through its stock of the earliest, smallest stores. In the case of a Dallas Bud's, the store is using 70,000 sq. ft. of a former Sam's Club for selling space and the balance of 50,000 sq. ft. for storage.

Despite the outlet name, only about 20% of its merchandise is surplus Wal-Mart merchandise. The balance is fresh merchandise bought expressly for Bud's.

That includes factory refurbished TVs, microwaves and VCRs from Sanyo, Daewoo and Emerson that customers have returned because of defects covered under warranty and then have been worked over. The merchandise comes in plain, factory-sealed cartons and carries a one-year warranty, compared to a normal 30 days to 60 days for refurbished goods and equivalent to warranties on fresh CE equipment.

The entire CE program at Bud's consists of factory refurbished goods, such as a 25-inch Sanyo color TV for $229, compared to $279.96 at Wal-Mart for a new one.

Bud's has also expanded to several hundred skus the Great Value private-label line of groceries once exclusive to the Wal-Mart supercenters. The Bud's in Festus, for example, stocks an extensive selection of Great Value canned fruits and vegetables, vinegar, cooking oil, sealing wax for home canning, coffee, tea and hot chocolate mix, rice, beans, instant mashed potatoes, cookies, crackers, and jams and jellies. Examples included: peanut butter, 18 oz., $1.37; hot chocolate mix, 10-envelope package, 97 cents; and potato chips, 16 oz., $1.50. On an end cap, the store featured generic corn flakes, in a white and black box, 18 oz., $1.00.

One Bud's feature is a Dollar Corner, a section of about 1,000 sq. ft. that stocks items that cost a dollar, such as playing cards, books and small toys.