Clubs impact supermarket, discount store business - warehouse stores

Discount Store News, Oct 19, 1992

A large number of discount store managers feel that membership warehouses haven't affected their business and don't expect clubs to effect their stores in the future.

An exclusive DSN survey found that seven out of 10 store manager who had membership warehouses in their area believe that these stores hadn't affected their business. However, 11% asserted that, clubs had increased their stores' sales while 14% reported that clubs had slowed down their sales.

Looking ahead, 68% didn't forsee clubs' affecting their sales, while 18% thought they would help increase their business and 13% said they would slow down sales.

Only store managers that had at least one membership warehouse in their market were queried on the clubs' impact. But these stores are becoming ubiquituous, with 52% of the 300 store managers surveyed reporting clubs in their area.

Discount store managers' optimistic view of warehouse club competition receives limited support from a Babson College Retailing Research Reports study on membership warehouses. The report, Warehouse/Membership Clubs in North America: "Are They Retailers Or Wholesalers?" and "Who Is At Risk?," stated that "supermarkets are clearly the most at risk. Two-thirds (66%) of all WMC [Warehouse/Membership Club] shoppers indicated they are spending less money at supermarkets."

But the study, based on interviews with about 2,150 warehouse membership club cardholders in eight U.S states and three Canadian cities, warned:

"After supermarkets, discount department stores are the next most at risk, particularly in Atlanta, Boston, Dallas/Fort Worth, Denver and Dettroit. About one-quarter of the WMC shoppers in these markets said they were spending less money at discount department stores."

The study noted 19% of the respondents said they were buying less at discount stores due to their purchases stores The percentages ranged from a low of 10% among club customers in Montreal to a high of 26% among club shoppers in Atlanta. Club shopping resulted in a 66% decline in supermarket purchases, the study reported.

Membership warehouses are clearly retailers impacting supermarkets, the study asserted, noting that "the customer flow for food at a WMC is running 10-to-1 in favor of household buying vs. business buying. The dollar flow is about 8-to-1 in favor of household purchases." In analysing warehouse clubs' impact on discounters and other general merchandise retailers, the study noted that the "average expenditures for non-food categories, for the home, are $75 per trip, about $15 lower than food expenditures."

The goods being purchased "are highly concentrated in papper products, laundry/cleaning supplies, health and beauty aids, clothing, office supplies/stationery, audio/visual supplies and books." Warehouse clubs "are capturing a significant market share in major appliances and electronics, small appliances, cigarettes, tires, electrical supplies, auto accessories and toys. Many of these products are purchased infrequently. Therefore the fact that 5% to 10% of all WMC shoppers purchase these products on their last trip is highly significant," the study noted.

While discount store managers overall didn't see or expect clubs to impact their business, the outlook varied greatly among the Big Three--WalMart, Kmart and Target--between conventional and upscale discounters and regionally.

Wal-Mart is the parent of Sam's Club. Wal-Mart managers could be expected to view clubs more favorably, particularly since the diversified retailer is spotting Wal-Mart and Sam's Club stores as neighbors in many markets.

Almost all the Target managers asserted that the clubs had no effect on their stores. They were followed by Wal-Mart managers, 77% and then Kmart, 70%. Upscale discount managers saw less impact than conventional discount managers, 77% against 72%.

Regionally, 82% of north central area managers claimed clubs had no impact, followed by managers in the East and South, 70% each, and thenthe West, 64%. These views have to be weighed against the fact that clubs are firmly entrenched in the West and South and are relatively new in the north central area and East.

Wal-Mart managers reported the greatest positive impact from membership warehouses, with 17% asserting clubs increased their sales and only 3% noting a slowdown. Only 13% of the Kmart managers noted increased volume, while 17% said sales had slowed down. Overall, 13% of conventional discount managers saw a sales increase and 14% said volume had slowed down.

Managers in the South, 16%, and West, 14%, cited sales increases, followed by the north central area, 9% with no increase noted in the East. The West had the greatest number of managers, 23%, reporting a sales slowdown, followed by the East, 21%, South, 11% and the north central area, 8%.

The regional statistics would indicate that discounters in markets like the West, with long-established club competition, both gained and lost sales to these stores, but in an area like the East, in which clubs are just developing an impact, discounters first loose sales before any recovery and equilibrium is established.