April 28, 2008
Sam’s Club Turns 25
By Tom Ryan
Described as “strictly an experiment” by Sam Walton when it first opened in 1983, Sam’s Club has grown to 715 locations, including 122 in foreign territories. A host of owners of caterers, restaurants, motels, and other small and larger businesses recently gathered at Sam’s locations across the country to celebrate the 25th anniversary of the wholesale club concept of Wal-Mart.
One of those thankful small business owners attending was John Wells, owner of Catfish John in Rogers, AK. About 95 percent of what the restaurant buys comes from Sam’s.
“I’ve been using Sam’s Club for years, but they really stepped it up about six years ago when they really started bending over backward for small-business owners like myself,” Mr. Wells told the Arkansas Democratic Gazette. “I’ve come to them with supplies I’ve needed and figured there’s no way they’re going to be able to do it because I’m too small. But then they come through again and again. They really listen.”
Cathy Cronemiller for two decades has picked up everything from diapers and baby wipes to cleaning products and food for her six child care centers in Midwest City, OK. While she used to browse the aisles with a giant cart, Ms. Cronemiller now faxes in her twice-weekly orders and, when she arrives, the items have all been pulled off the shelves and readied for pick up.
Savings continue to keep Ms. Cronemiller coming to Sam’s.
“That has remained at from 25 percent and 35 percent cheaper over the years,” she says.
In more recent years, pharmacy, optical, photo services, fresh produce, and hundreds of items aimed more at the store’s personal customers have been added to the floor space. Yet business owners still account for a little more than half of its members.
“Our focus on business members has been strong over the years, but we also bring value to the individual member,” Greg Johnston, executive vice president for operations at Sam’s Club, told the Arkansas Democratic Gazzette.
The anniversary comes as the club channel is significantly outperforming other retail channels in the tough economy. In March, U.S. comps rose 3.5 percent at Sam’s, 5 percent at Costco, and 6 percent at BJ’s Wholesale Club.
George Whalin, president and chief executive officer of Retail Management Consultants and a member of the RetailWire BrainTrust, believers that as gasoline and food prices continue to rise, consumers should gravitate to clubs.
“I think warehouse clubs generally are positioned to do well in the recession,” he said.
Discussion Question: What do you think of Sam’s strategy for focusing on small business owners? Is Sam’s differentiated enough from its main competitor, Costco?
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Focusing on the small business owner is a stout strategy. Many use Sam’s exclusively for their buying power vs. wholesale distributors. Sam’s has positioned itself well. They are plentiful and have located themselves well in the U.S. and internationally.
Costco and Sam’s are viewed differently. Costco is noted for quality and high-end products, while Sam’s is more noted for the staples and small business owner buys. It appears they are targeting two different demographics.
Sam’s Club, under Doug McMillon, has found a winning formula. It is no secret that Sam’s struggled for a decade or more under a variety of leaders who kept Club members scratching their heads with each new merchandising philosophy.
Doug kept a laser focus on re-building the small business confidence in their ability to supply them consistently with high quality and low priced products. Once this discipline was second nature, Doug began to tweak the model to ensure that Sam’s captured business from the individual members and communities. The assortment and merchandising of product continues to improve, and areas such as Men’s apparel, previously a hodgepodge of private label “stuff” has begun to take on a more branded identity and quality.
I see Sam’s club continuing to make solid gains and to differentiate itself from Costco in its own unique offer.
Warehouse clubs are here to stay. Sam’s and Costco both offer value to small business owners and consumers that are willing to buy in larger quantities. Sam Walton filled a market niche and created a successful business. Costco took that one step further by going upscale and adding top of the line food items. When the grocery stores in Southern California went on strike a few years ago, sales soared at Costco. The grocery stores still have not recovered, which says something about the offerings at the club stores.
I would have said that Sam’s Club and Costco were pretty much the same, but I must admit, with apologies, that I have never been in a Sam’s Club. Therefore, I will rely on the demographic difference that Susan Rider observed in the first comments to this question. From there, I tried to consider how the two groups may respond to the current economic climate.
For Costco, with their quality pitch and low prices, they most certainly will continue to win favor with the end-user customer. Will the smaller or independent retailer be hurt by customers going to discounters or Costco, thereby reducing sales at Sam’s Club? It is a possibility.
Maybe it will be up to the smaller retailer to first convince the customer their independence makes them a better place to shop for service, value and convenience. If they do so, they may in turn have a positive effect on Sam’s next few quarters.
Sam’s is a good concept that is (amazingly) staying on track. Their focus on small business has been difficult in the glare of Costco’s focus on the mid high end consumer. As Costco sales double or triple Sam’s on a per unit basis, the pressure on Sam’s to alter course has to have been great.
Wal-Mart/Sam’s seems to know what it wants and is perfecting the channel. I guess they know that with their buying power they can go after the high end business anytime they want to.
Best things about warehouse clubs: location growth is minimal, and only 3 major competitors. So the clubs can make money. Manufacturers help by supplying special merchandise not available in other channels (giant sizes, different model numbers). The public gets bargain prices, and the limited competition = decent profits. If there were 19 other warehouse club chains, all in a race to build 20% more locations every year, the profit picture would be different. It might look similar to the rest of American retailing: too many competitors and too many locations.
Sam’s Club like Wal-Mart is going to face some difficult times ahead. To different degrees, they both employ the same retail “narrow, cheap and deep” business model. They are both very short on selection but generally have products in depth at low prices. This has worked well for the last twenty years as the mature Baby Boomer market with their defined very predictable tastes drove both stores. Now the Boomer generation has crested its peak buying/consuming years and the new huge emerging market is Generation Y–now 23 years old and under. “Narrow, cheap and deep” does not work well with kids. They want selection and are driven by fads and style. Sam’s and Wal-Mart cannot deliver this.
In case you were wondering, Generation X now 24 to 43 years old is too small numerically to fill the consumer shoes left behind by the Boomers. I know this is counter-intuitive but it is true.
It’s always interesting that independent business owners cry foul from the big box that is competing against their market, yet feel no compunction to do business with their independent supplier and instead shop at Costco or Sam’s Club.
You can’t expect to succeed when you don’t do what you tell others to do.
“When you come to the fork in the road, take it.” Sam’s Club took the road that serves small businesses. Costco also serves small businesses too but Costco is on a road that makes it more of a competitor to supercenters and larger supermarkets. While the assortments are rather similar (although Sam’s seems a little lower priced) the buying audiences are more varied, which leads me to the conclusion above.
We had memberships to both Sam’s and Costco for years and have recently dropped our Sam’s card. Costco’s quality and item choices seemed so much better than Sam’s that we couldn’t see keeping both. Costco does cater to a more upscale and health conscious consumer and that also factored into our decision.
I believe both are extremely well positioned for our present economy. The only clinker in this is how far people will drive with the high gas prices in order to save? The most likely answer I believe will be fewer trips and larger purchases to minimize the gas cost burden.
Warehouse clubs offer an excellent value proposition to small business nd consumers. Pricing is on par if not cheaper than dealers. And the convienience of shopping when you want with the ability to do your personal shopping at the same time is more of a lifesaver then a timesaver. Clubs have really expanded their assortment and allocations. This all adds up to a winning formula for small business owners. Sam’s seems to carry more upper end products especially in televisions and laptops so their pricing may seem higher than Costco’s but the quality is there. Costco’s return policy is still more liberal than Sam’s which business owners take into account when joining a club.
I would like to know how much of Sam’s sales is really to small businesses. At my local Sam’s Club, which I am no longer a member, I get the impression that Sam’s touts itself as catering to small business while mainly selling in bulk to the masses. Which I prefer not to support–as a small business owner.