'88 growth to come from top three clubs - membership warehouse clubs - Discount Industry Annual Report

Discount Store News, July 4, 1988

88 Growth to Come from Top Three Clubs

Nationwide DSN Report

Two diverse trends that reflect past growth patterns will drive the membership warehouse industry this year to a record $13.4 billion in sales.

The trends are: . Continued growth in sales and stores by the industry's Big Three more profitable chains, Price Club, Sam's Wholesale Club and Costco. Together, the trio, whose sales amounted to over $7.3 billion last year or 61.9 percent of the industry's $11.8 billion in volume, will unveil 31 new wholesale clubs or about half of the industry's total growth of about five dozen new units during 1988. . Limited growth by the remainder of the industry as chains strive to boost their fledging earning in the case of PACE, or overcome ink and become profitable, like The Wholesale Club and Warehouse Club.

Accompanying these trends will be two specific newsworthy notes.

Sam's Set to Pass Price Club

Sam's is set to become the top volume chain this year with over $4 billion in sales, passing Price Club, which has been the leader up until now. Sam's is already the No. 1 chain in stores with 84 units, almost double that of Costco's 43 and twice that of the Price Club's 37.

Makro Targeted for Growth

Makro, up to now a minor player, has been targeted for a major role in the industry as a result of its recent acquisition by K mart Corp. The four-store membership warehouse club's new parent envisions the chain growing to 20 units, predominantly in the Northeast, by 1990, and more than tripling its sales to $1 billion.

Makro, however, is an atypical membership warehouse in that its 25,000 sku's provide members with a full line of grocery and general merchandise, including fashion apparel and goods in consumer-size packs, not just institutional sizes. All the other warehouse clubs merchandise a highly selected mix of just 4,000 sku's, with institutional sizes and business-oriented goods as the predominant offerings.

On the operations side, most membership warehouses are focusing on boosting their services to business members, their key customer group that usually accounts for about 75 percent of sales. These efforts range from offering proprietary credit cards, the most common new service to the addition of new departments like optical, pharmacy, bakery, fresh meat and fish, and even gas stations and automobile buying services.

The approximately 300 warehouse clubs that dotted the nation last year left the industry plenty of room for growth. It also meant that wholesale clubs, unlike other merchandising businesses, weren't involved in extensive head-to-head competition.

The one major exception was Southern California, home to the industry's founding chain. Price Club, which is now battling five other membership warehouses with units in the area-Costco, PACE, Price Savers, Buyer's Club and Club Wholesale.

While only one or two wholesale clubs operate in most other markets, it doesn't mean that these chains have an easy time because of the lack of competition. In fact, stores in the Midwest have taken twice as long to become profitable as those on the East and West Coasts because of the lower population density in markets in the nation's mid-section.

In two Midwest markets warehouse clubs have actually shut stores. The Warehouse Club closed two in the Chicago area and these units were then taken over by American Wholesale, which then also shut the stores. In Minneapolis and Milwaukee, Costco closed three clubs, one of which was acquired by The Wholesale Club, which already had units in both markets.

PHOTO : Colorado-based Buyer's Club is one of the many membership warehouse clubs proliferating in

PHOTO : Southern California's fertile sales climate. The chain is projecting three new units by

PHOTO : year-end.

PHOTO : Cincinnati-based Makro, recently bought by K mart and targeted for growth, is an atypical

PHOTO : warehouse club--with larger units, more sku's, credit card sales, goods sold in consumer

PHOTO : packaging, no membership fees and no group members.