Sam's Club juggles vendors and members - Wal-Mart Stores Inc

Discount Store News, Feb 19, 1996

The sun isn't shining yet on Sam's Club, but with two new executives at the helm, the long-range forecast is looking brighter.

With sales stalled under the weight of a mature industry, a precarious economy and a dated merchandising program, Sam's may be poised for a small turnaround in '96.

Comp store growth is expected to tally a 1% gain for 1995, ended Jan. 31, 1996, and will register double or triple that figure in 1996, said Peter Monash, a consultant, who noted that Sam's does expect to be a profitable operation this year.

Wal-Mart said Feb. 7 that sales for 1995 will total $19.1 billion, and DSN estimates that Sam's Club will hit $20.6 billion in the new fiscal year. The growth will be due to improvements in merchandising and operations, the maturing of existing clubs and the closing of underperforming clubs.

Many in the industry credit Sam's Club president Joe Hardin Jr. and senior vp of merchandising Rob Voss for putting the right spin on Sam's Club for the future. Hardin succeeded Dean Sanders, who retired in October. Hardin is the former chief operating officer of Wal-Mart Stores, and he previously was president of the company's McLane division. Voss rejoined Wal-Mart last August after five years outside the company, spending time at Staples, GrandPa's and Dollar General. He was part of the original team that created Sam's in 1981.

Since Voss returned, he has won over vendors and retail consultants with his open manner and commitment to reshaping Sam's into a more vital club operation. His turnaround efforts include making Sam's customer-friendly and a fun place to shop, and making it an easier company with which to do business. Previous criticisms of Sam's included difficult vendor relationships, a merchandise assortment featuring too much variety in a category, unexciting clubs and pricey basic merchandise.

Among the changes:

* Inaugurating a regional management structure that should help with local marketing and merchandising;

* Stepping up a renovation program that includes installing fresh meat and produce departments in units that don't have them;

* Upgrading beer, wine and liquor offerings;

* Consolidating vendors;

* Reviewing prices by category;

* Improving apparel offerings;

* Taking advantage of more opportunistic buys for club members.

For the past few years, Sam's has raised its commitment to the business customer with products and services that alienated its consumer base. While the company's aim of better serving the business customer is unwavering, Sam's executives apparently realize that the retail customer needs a little more.

"We're not changing our focus. We want both," said Voss. "I think we've done a superb job of endearing ourselves to the small business owner. In our quest to do that we had not alienated, but taken our focus off the group member, the advantage member."

That's changing.

According to Voss, the emphasis at Sam's Club is on value, for both types of memberships.

Voss told DSN that Sam's doesn't expect to meet every need of its wholesale members, but expects to provide them with good value on its carefully chosen assortments. With the group consumer, Sam's plan is to offer "a value with the right name at a price in a size that doesn't say 'ouch'," he said.

Sam's is also working to provide more pertinent services to shoppers of both interests (wholesale and group) while spiffing up the merchandise offerings with respect to variety, price and packaging.

Gone from the floor, for example, is children's apparel, a program briefly tried last year and pulled. "We need to do a better job in our basic apparel," Voss said.

Others feel Sam's needs to quickly do an overall better job if it is to keep up with PriceCostco, largely seen as a better, more focused club.

"I think there is a significant disaster sequence on the horizon for Sam's," said consultant James Degen. He noted that Sam's Club announced last month that it would close four clubs, but he feels that 50 to 100 units could wind up closing in the next 12 to 18 months, most of them -former Pace units acquired from Kmart. Many of those clubs still have not been brought up to Wal-Mart performance standards.

Degen has estimated that Sam's units produced $44 million per unit last year and will tally $46 million per unit in volume this year, the result of a much-reduced store expansion program and a maturing store base.

But Degen also said that Sam's must address the look and feel of its clubs, calling the warehouses "dull."

"There's no excitement in a Sam's," he said.

Others have voiced the same opinion, criticizing Sam's lack of merchandising and buying creativity. The merchandise mix is so predictable that customers are not encouraged to make as many unplanned purchases as they would in a Price-Costco club, experts said, while still applauding the retailer for its logistics and distribution savvy.

What went wrong?

Many have speculated that Sam's didn't react quickly enough to the changing marketplace and kept its target customer too far down on the food chain.