Clubs end '95 with mixed results; Sam's slipped, PriceCostco perked - Sam's Club

Discount Store News, Jan 15, 1996

NATIONWIDE DSN REPORT -- As clubs enter 1996, PriceCostco appears to have pulled its merchandising strategy together, while Sam's Club, which closed '95 with a new president and a new gmm, is still groping.

Christmas was tough for a lot of retailers, but the slack season particularly underscored the seriousness of the situation at Sam's Club, Wal-Mart's problem child. Within the tightly consolidated club industry, Pricecostco emerged as December's big winner.

Sam's Club posted a 2.9% decline in total sales for December to $2.27 billion from $2.34 billion a year earlier. Comp club sale's for the month fell 3.8%, almost as bad as the 4.1% decline in December '94.

In sharp contrast, total sales rose 13% at Pricecostco during December to $2.38 billion from $2.11 billion in the same month of '94. Comp store sales posted a robust 8% gain.

In total sales, Pricecostco, with 250 warehouses in the U.S. and 13 in Mexico and one in Korea through joint ventures, for a total of 264 warehouses, outstripped Sam's Club, which operates 433 U.S. warehouses, two each in Puerto Rico and Argentina as well as additional joint venture clubs in Mexico (28), Brazil (three) and Hong Kong (three Value Clubs)

At press time, the corporate offices of BJ's Wholesale Club were closed because of a severe snow and ice storm and only partial information was available. Total sales of BJ's rose 11.4%, while comp warehouse sales gained 3.2%.

As the holiday returns came in, PriceCostco also announced some early success with its private label credit card that it began testing last October in nine Arizona warehouses. Pricecostco said that the average ticket is running at least 25% higher than the cash, check or Discover card average.

The club expects to decide within 60 days about rolling it out, starting with the 42 clubs in Southern California.

Although Sam's Club and BJ's also offer private credit cards, Pricecostco is underpricing both with a variable interest rate on unpaid balances of 16.65% for its most credit worthy members and 18-85% for others. There is no annual fee for business members. The club's two-tier interest rate structure will fluctuate with the prime rate.

PriceCostco also is offering business members another category of card based on their business credit ratings, rather than personal credit ratings. That means a line of credit of up to $10,000.

So far, interest revenues are exceeding costs, and Pricecostco will apply the surplus to hold down prices, rather than making credit cards into a profit center.

It rejected the idea of accepting Visa and Master-Card because processing fees would add costs to operations and raise prices.

But the market remains tight. PriceCostco plans to spend $450 million to $500 million on new clubs and remodelings in '96 in Canada and the United States. It originally planned to spend $500 million to $600 million, which about equals the amount spent in '95. The club originally had projected investing as much as $600 million in capital outlays.

Pricecostco opened 24 clubs in '95, down from original projections of 30 to 35 locations. Cfo Richard Galanti said that the lower number of openings represented "no conscious slowdown" in expansion, but rather reflects differences in the timing of normal expansion operations. Pricecostco normally opens about 20 clubs a year, he said.

Next year, Pricecostco will expend $50 million to $100 million. on international expansion.