Warehouse Club to absorb membership of closing BJ's

Discount Store News, Nov 4, 1991 by Arthur Markowitz

Warehouse Club to Absorb Membership of Closing BJ's

SKOKIE, Ill. - The Warehouse Club, in an innovative marketing move, said it would pick up the remaining membership period of members of BJ's Wholesale Club's four Chicago units who join the Skokie-based membership warehouse chain.

The Warehouse Club's move is designed to pre-empt BJ's members from joining either of its two stronger rivals, Sam's Club and Pace Membership Warehouse, when BJ's closes later this year.

The Warehouse Club plans to strength its financial position through a pending common rights stock offer that is expected to raise $8.5 million. A substantial portion of the funds will be used to boost inventory levels and improve the chain's in-stock position to support higher sales. The club supports its sales with two-thirds of the inventory level of other membership warehouse, an executive said.

Sam's Club, the industry's leading chain, will have seven stores in the Windy City by the end of the year, while Pace will open its initial two units this year - one across from a BJ's - and another duo in 1992.

Waban Inc. plans to shut the BJ's in Chicago and convert three of them to Home-Club warehouse home centers (see DSN, Oct. 21, page 2). Paid-up BJ's business and group members who purchased a one-year $25 Warehouse Club membership will get full credit for the remaining time on their BJ's membership.

The 10-unit Warehouse Club, which has three units in Chicago, is a troubled company that reported a negative $4.9 million working capital at the end of its third quarter and has shut four clubs in the past few years. Walter H. Teninga, its founder, chairman and chief executive officer, resigned in July, with James V. Walsh, president and chief operating officer, assuming Teninga's day-to-day responsibilities.

Under the right offering, each stockholder will be able to purchase three units for each share owned. Each unit consists of a right to buy one share at 40 cents and a warrant to purchase another share at 60 cents. George Valassis, the company's principal shareholder who owns 54.4% of the outstanding stock, has committed to purchasing his pro rata share of the rights offering.

The Warehouse Club decided to do the rights offering as "the best way" to raise funds for inventory and also increase shareholders' equity, the executive said.

A stock offering was ruled out as the failure of a proposed agreement with A&P a year ago indicated there wasn't any investor interest in such a step, while the company didn't want to borrow because it didn't want to increase its debt.