Sam's Club goes direct to big biz - new membership program for large businesses

Discount Store News, Nov 15, 1993 by Arthur Markowitz

Adds Credit to Boost Sales, Challenges Price/Costco

BENTOVILLE, Ark. -- Sam's Club has initiated a new membership program for large businesses and institutions that haven't been club customers in the past.

In launching the program, called Sam's Club Direct, Sam's Club also raised the stakes in what has become a two player membership warehouse industry by attempting to differentiate itself from its only major rival, Price/Costco.

The move has two other major implications:

* It heightens the club's challenge to traditional wholesalers, and even manufacturers, that have been the traditional suppliers to large businesses and institutions;

* It could boost Sam's Club sales which have been flat on a same-unit basis due to a combination of the weak economy, new club cannibalization of business from older units and the maturing of the overall membership warehouse industry.

The new program comes on the heels of Sam's Club buying 91 Pace Membership Warehouses along with virtually all the inventory and membership files in the clubs that aren't part of the deal.

That acquisition effectively consolidated the wholesale club field into a two-chain industry. Sam's Club and Price/Costco, the two dominating players, will have about $35 billioin in sales this year, or about 95% of the industry's $37 billion volume.

Dean L. Sanders, Sam's Club president and ceo, said the club was "tapping into a giant source of new business" by going after the multibillion dollar corporate procurement market. "We're not just going after a bigger slice of the pie ... we're creating a bigger pie."

Sam's Club will charge Sam's Club Direct members the same prices as it does its other members. But the program's members will be able to buy goods at "prices that are consistently lower than wholesale and even manufacturer direct," Sam's Club declared in its announcement of the program earlier this month. This is due to the greater overall purchasing power of Wal-Mart and Sam's Club, as the retailing conglomerate's total buying power is mightier than most companies, even in instances where a corporation or institution buys direct from a vendor, a spokesman said.

The corporate and institution groups that Sam's Club Direct is targeting haven't been major club customers. To solicit these groups, Sam's Club has set up a sales force for Sam's Club Direct and is now presenting the program to Fortune 1000 companies after sending them a direct mail package earlier in the month.

Sam's Club surveyed potential Sam's Club Direct members and found that corporate and institutional customers were concerned about purchase order billing, credit, terms and tracking of orders. Unlike small businesses that are club members, large corporations used these administrative services for their monthly purchases but didn't get them from clubs.

The program answers these issues its key feature -- providing Sam's Club Direct members with a private label credit card. The card--jointly developed with and service by G.E. Capital -- allows companies to buy on credit from Sam's Club for the first time. G.E. Capital provides the financial and administrative services for the program, including the billing and tracking of purchases that large businesses want.

While Sam's Club Direct is the first such program in the club industry, G.E. Capital previously developed a similar service for Office Depot, the office supply super-store chain. The financial/credit company is soliciting other retailers as customers.

The Price Club (now Price/Costco) has been providing credit and delivery services for the past three years in a growing number of markets, but only the club's traditional business customers have availed themselves of various administrative services. Price Club hasn't promoted these services to attract large corporate accounts.

The Price Club found that larger businesses were interested in the long-term contracted prices that they could obtain from traditional suppliers. However, there isn't any reason that Price/Costco couldn't emulate the Sam's Club Direct program. Sam's Club expects governmental customers to be schools and small communities that buy goods on short-term contracts.

While Sam's Club Direct is targeted to large companies, the program is also expected to be attractive to small businesses by enabling them to buy on credit.

Sam's Club said the program's administration and membership fees cover billing and credit costs. The charges are: $100 annual administration fee; $25 membership fee for primary purchaser, and $10 membership fee for each additional authorized buyer.

Sam's Club Direct offers only club goods. Except for rare situations, non-club merchandise wouldn't be available. The program only covers buying for a company or organization by specific authorized people. It doesn't confer group membership buying on other employees of a company. Such membership would accrue to a company should it be eligible for the usual Sam's Club membership.

The quantities of goods range from a club's available stock to any amount needed by a company, including truckload shipments. Each order will be handled by the club, with a company using its own vehicles or receiving goods direct from a manufacturer.