Has COVID-19 transformed BJ’s warehouse club business for good?

Discussion
Photo: BJ's Wholesale Club
Aug 21, 2020
George Anderson

BJ’s Wholesale Club management is feeling pretty good about the chain’s prospects after reporting a record-setting quarter where it drove better-than-expected numbers for memberships, sales and profits.

New memberships jumped 28 percent higher in the second quarter compared to the same period last year, pushing BJ’s total northward of six million members. The chain, whose clubs are concentrated on the East Coast, has brought in as many new members in the past six months as it would typically do over an 18-month period. Lee Delaney, BJ’s president and CEO, told analysts on an earnings call yesterday that his company could very well pick up the equivalent of three years’ worth of memberships before 2020 is over. He was particularly encouraged that recently attracted members tend to skew younger and more “digitally-engaged” than the chain’s average.

Mr. Delaney said BJ’s has increased its member outreach marketing with the chain’s focus on engaging all members, but new ones in particular. “We are closely monitoring their behavior and utilizing a targeted, personalized approach to keep them engaged in shopping,” he said.

Same-store sales rose 24.2 percent over the three months, well above the 15.5 percent gain expected by Wall Street. Digital, an underdeveloped portion of BJ’s business, rose 300 percent during the quarter adding six points to the chain’s comparable sales number.

Mr. Delaney said that three-quarters of the chain’s digital business growth was connected to its same-day delivery and buy online, pickup in-club (BOPIC) services.

“BOPIC sales tend to skew towards higher ticket items and same day delivery sales have the same margins as traditional sales in our clubs,” he said.

On the bottom line, the retailer reported adjusted earnings per share of 77 cents, also pushing pass the 60 cents consensus among analysts.

While saying that forecasting future results is difficult considering the “challenging and unpredictable” business environment BJ’s finds itself in, Mr. Delaney said he is bullish on his company’s prospects. He called 2020 a truly transformational year for the chain with the company having paid down nearly $500 million in debt and having accumulated nearly $170 million in cash.

What we do know is that our business has strengthened significantly,” he said. “We are not the company we were six months ago, six quarters ago or six years ago. We have added more members and are accelerating investments to improve all facets of our business.”

DISCUSSION QUESTIONS: Do trends that have arisen this year – stay-at-home, online shopping, one-stop shops, stock-up purchasing, et al – seem likely to work in BJ’s favor even after the pandemic ends? Where do you see the biggest opportunities and challenges for BJ’s at present and going forward?

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Braintrust
"The challenge will be to retain the loyalty of the new members with outstanding services and personalized communications."
"The future is bright (not 28 percent bright). People have discovered new experiences and many will stick after COVID-19."
"BJ’s must develop new processes to make online orders profitable and MFCs leveraging advanced robotics like an Amazon DC is the way to go."

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9 Comments on "Has COVID-19 transformed BJ’s warehouse club business for good?"


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Stephen Rector
BrainTrust

Retailers that give the customer the opportunity to buy in bulk to reduce trips to the store are winners now and in the future – BJ’s included.

Art Suriano
Guest
There is no doubt BJ’s has had tremendous growth due to the pandemic. With so many retailers forced to close their stores, it’s no wonder the few retailers allowed to stay open due to being deemed essential had incredible growth opportunities. The pandemic will end, there will be a new normal, and by that I don’t mean everyone wearing face masks but a new normal that will come from the many businesses who have quickly figured out how much money they can save on office space having employees work from home. Fewer stores and fewer everything will also be part of the new normal because, unfortunately, many businesses will not have been able to survive the financial hardship of being closed. BJ’s has come out ahead but now it’s up to them to keep these new customers, and that is where they need to focus. It’s not just prices and products but service, convenience and, most importantly, making the customers feel wanted and special. Now we as observers will have to wait and see if… Read more »
David Naumann
BrainTrust

BJ’s accelerated growth is primarily attributed to the pandemic which drove consumers to significantly increase online shopping and in-store purchases at essential stores like BJ’s, Walmart, Target and Costco. Their same-store sales increase is on par with their retail category. The challenge will be to retain the loyalty of the new members with outstanding services and personalized communications.

Bindu Gupta
BrainTrust

I agree with David. This trend is not unique to just BJ’s but how they can sustain it depends upon how they treat their new as well as existing members. Are they focusing on personalization at a 1:1 level? Are they making the online and BOPIC experience as seamless as possible? How effective is their tech stack to manage future growth? These are some of the key questions they need to address.

Gene Detroyer
BrainTrust

Of course the trends are working in BJ’s favor just as they are for Costco, Walmart, Amazon, Target, et. al. This is not unique to BJ’s, rather they are the right type of retailer at the right time.

The future is bright (not 28 percent bright). People have discovered new experiences and many will stick after COVID-19.

Ken Morris
BrainTrust

The biggest opportunity I see is for BJ’s to capitalize on the growth of e-commerce and begin the process of converting some locations to micro-fulfillment centers. I am currently engaged with a leading grocery chain to select a micro-fulfillment solution to support their burgeoning online grocery operations. The existing online order fulfillment paradigm of walking stores with shopping carts to fulfill customer orders must change. Much of the massive increase in online ordering caused by COVID-19 will remain even after the pandemic and BJ’s must develop new processes to make online orders profitable and MFCs leveraging advanced robotics like an Amazon DC is the way to go.

Ananda Chakravarty
BrainTrust
After the pandemic: Stay-at-home: Not likely. Though there will be more working from home and supplies will be needed, the trend won’t skew to clubs specifically- this would be more of a high tide lifting all boats; Online shopping: Yes. definitely a post pandemic trend that will continue. We’ll see continued growth, but it will drop down from the current online focus with perhaps a slight lift- guessing 3-5%. Browsing customers alone will prefer the store environment to shop post pandemic; One-stop shops: Doubtful. Shopping is still conducted across the board and even with groceries, customers visit up to seven different stores. The variety for many is important and I don’t see one stop shopping as critical again. Consumers will explore again. Stock-up purchasing: Yes. BJ’s is good at this and sets the stage for common products. Expect they will continue to succeed here. BOPIC: Yes. Adoption of the BOPIC will make shopping easier for existing loyal members who are trying to get their shopping done vs find new stuff to buy. Having it ready… Read more »
Matthew Pavich
Guest

BJ’s offers consumers an exceptional club experience and has done a great job navigating the new realities of COVID. As with other “essential” businesses and clubs, BJ’s has benefited more than most retailers from changing consumer behavior. How successful they will remain depends on how much they use this unique opportunity to re-invest in their future. Evolving demand requires the right analytics, solutions, processes and governance to ensure that all elements of their strategies are consumer focused, adaptable and able to meet the needs of the post-COVID club market. The decisions and investments made today by BJ’s and other “essential” businesses will determine the winners of tomorrow.

Craig Sundstrom
Guest

Repeat after me: it’s pointless to extrapolate the results during a national emergency into the (let’s all hope) “normal” future. (The exception to this of course is retailers that went out of business.)

Hopefully the crisis gave BJ’s an extra opportunity to impress people, and this will result in increased business in the years ahead; but the question for them is going to be much like Kohl’s … are they uniquely positioned to do better? All we know for sure is they’ll still be a — distant — third in the wholesale club sector.

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Braintrust
"The challenge will be to retain the loyalty of the new members with outstanding services and personalized communications."
"The future is bright (not 28 percent bright). People have discovered new experiences and many will stick after COVID-19."
"BJ’s must develop new processes to make online orders profitable and MFCs leveraging advanced robotics like an Amazon DC is the way to go."

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