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Are Warehouse Clubs Retail’s Big Post-Pandemic Winners?
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
Shoppers flocked to Costco and Sam’s Club during the pandemic for bulk buying and continue to do so amid high inflation in search of value.
Costco and Sam’s, FR Buyer’s “Co-Retailers of the Year”, finished second and fifth in dunnhumby’s sixth annual “Retailer Preference Index” (RPI), which ranks the largest food retailers based on a combination of financial results and customer perception. Pre-pandemic, no club store ranked higher than seventh.
“Club as a format has been on a winning streak for more than a decade,” gaining market share mostly from supermarkets and supercenters, according to dunnhumby.
According to consumers surveyed by dunnhumby, both chains scored particularly well in the area of operations (i.e., in-stock levels and accurate, consistent pricing), as well as on price, promotions and rewards.
Costco rates higher in quality versus Sam’s, according to dunnhumby. “They find out what products customers want and then surprise and delight them by offering those items at an excellent value. But the value equation is skewed more toward quality than low prices,” says Karen Kelso, VP at Kantar, citing Costco’s well-regarded Kirkland Signature private brand.
Costco is also known for its evolving assortment, creating a treasure hunt atmosphere. (The free samples help, too.)
Sam’s in-store experience “isn’t quite as fun, with less tasting and less of a treasure hunt atmosphere,” says Neil Saunders, managing director at GlobalData.
Sam’s has an edge in terms of overall technology and automation, as well as online, offering a more seamless, omnichannel experience than Costco as well as more opportunities for discovery. The digital connection is seen helping Sam’s attract younger members and a greater share of wallet from mid- and higher-income shoppers.
Sam’s is also working hard to improve its Members Mark private label’s positioning against Kirkland by soliciting customer feedback. Ms. Kelso says, “[Sam’s Club CEO Kathryn McLay] did something pretty cool by creating a team that actually surveys members about what they do and don’t like about Member’s Mark, what products they’d like to see added to the line, what’s missing, etc. I love the idea of engaging members more consistently in those decisions.”
Discussion Questions
DISCUSSION QUESTIONS: Has the warehouse club channel accelerated its momentum in recent years? How would you assess the strengths and weaknesses of Costco versus Sam’s Club?
Poll
Loading …BrainTrust
Jeff Sward
Founding Partner, Merchandising Metrics
Perry Kramer
Managing Partner, Retail Consulting Partners
Warehouse clubs have been strong for a long time–and they have only gotten stronger post-pandemic. The success of both Costco and Sam’s Club illustrates how you can achieve excellent outcomes, but get there taking different paths. As noted, Costco’s product mix leaning toward higher-quality, tested goods has been critical to their success. Shoppers have come to trust the Kirkland brand. Sam’s doesn’t have the same private-brand strength, but they have key strengths in logistics and efficiency. Given the success of these retailers, I only wonder why there haven’t been more competitors in the club space.
Inflation has greatly magnified the quest for value. Warehouse clubs are the perfect answer for increasingly squeezed budgets. And once you are a loyal club shopper, it feels a little silly overspending in other stores.
The club vertical will continue to see success for the foreseeable future. They do a great job managing customer expectations. This is driven by their ability to manage between 5,000 and 10,000 SKUs in their stores, and a much larger SKU count online. Additionally, their ability to use fuel as a destination driver and maintaining a treasure hunt mentality are winning approaches to retail that will not fade. Lastly, these brands are also delivering with innovation. As an example BJ’s mobile in-store shopping application is a success in the club footprint while it has not been a success in many other formats.
Overall, club stores are a way of making money stretch further which has become very important to consumers during this inflationary period. Buying in bulk is a hedge against future inflation, especially in food where prices are still rising rapidly. Buying in bulk also provides discounts and allows families to shop more cheaply than they could at regular supermarkets without sacrificing quality. Private label is another important point of differentiation and it also offers consumers great value for money. Costco in particular has developed a private label that is highly trusted and often seen as on par with national brands.
With a tough economic climate that isn’t going away anytime soon, it’s no surprise warehouse clubs have skyrocketed in popularity. I was in a Costco just this past weekend and it was packed with people looking for deals, sampling food and enjoying the bulk sales that deliver value. As inflation continues to tamp down consumer spending and excitement, consumers want value, they seek deals and are more mentally predisposed to spending money at a club store than at a local grocery store.
There’s two factors at play here — first, I think people enjoy the whole warehouse shopping experience whether it’s in a club or a place like Home Depot. There’s a vibe that says “these are great deals on things I need or have wanted” which encourages purchasing. Then layer in the club pricing model and you instantly boost loyalty above what a traditional retailer enjoys.
Buying food in bulk is what gets the headlines at the Warehouse Clubs but the real winners are the non-food products. Flooring, light fixtures, appliances, bedding, lawn care, etc…are substantially less expensive than any other store. Name brand clothing is often a fraction of the price at department stores. Warehouse Clubs are the winners since the rest of retail thinks they can charge whatever they want for products or making customers wait for a sale that they no longer have the patience to wait for. The world has change while most retailers are stuck in old-school retail.
The club scene keeps getting stronger. You have a winning combination when you can deliver quality, price, and a fun shopping experience. When comparing Costco to Sams, I will talk from personal experience. Costco is the winner, hands down, for several reasons.
1. Cleaner, brighter stores.
2. More employees on the floor are always looking to be helpful.
3. Higher quality products.
4. Faster checkout, whether self-checkout or going thru the checkout line.
5. Free samples
As a nearly 20-year wholesale club industry veteran, I have indeed seen the 40+-year-old channel find new and exciting energy and growth in recent years. Some of that growth stems from the value provided to members in needed savings during inflationary times. Clubs are also a very efficient path to market for consumer brands, with a laser focus on efficiency throughout the supply chain, and a high volume of revenue aligned with a relentless focus on inventory productivity.
Sam’s Club has trailed Costco in private brand development, as well as its Member Services program. However, Sam’s Club has leaned in on private brands in recent years, and the results are very encouraging. Costco remains more disciplined on SKU count, a critical element of profitability for the Club channel.
Sam’s Club leads in the development of its omnichannel business strategy, as well as its MAP Retail Media platform. Sam’s Club has indicated that omnichannel members that shop across categories are far more valuable, shop more often, buy more at each visit, and tend to renew their membership at a greater rate.
All said the channel seems to have a new life at 40, and growth is very encouraging.
Warehouse clubs do a good job at creating the perception of higher value/lower prices, whether they live up to it or not. And of course, value messaging appeals to consumers in the current economic environment. Costco has a well earned reputation for its Kirkland brand, which gives it an edge over Sam’s and BJs.
The Warehouse concept has been strong for many years. Like many retailers in this space, including large stores (note warehouse clubs) like Target, they offer variety, fair pricing, and in some cases, a one-stop-shopping experience some customers look for. The pandemic accelerated the use of some of these larger retailers. It was their opportunity to gain even more market share and wallet share, and they did a great job of retaining new customers and growing their “relationship” with old. The Sam’s and Costco comparison has been around for many years. Costco typically wins, but Sam’s has its loyal followers. Part of it has to do with location compared to competition. If there is a Sam’s in an area, and Costco is too far, Sam’s wins a big part of the time – and vice-versa.
Clubs are a place to turn to for shoppers in inflationary environments. In our research we found about one out of four shoppers was purchasing more bulk pack items to cope with inflation. Good quality brands, especially Kirkland at Costco, instill confidence quality as well.
In my opinion, it’s difficult to compare Costco & Sam’s Club because both chains serve different market segments.
However, Costco definitely has exciting assortments & they understand their customer’s needs very well. They are also able to rightfully use the insights and data from customers to provide enticing offers from time to time. The overall in-store feeling at Costco is really amazing with friendly and helpful store associates, along with a smooth checkout process. In that regard, Costco has an upper hand over Sam’s Club.