By Shrinking, Can Sam's Club Keep Up With Costco?
January 28 2018 - 7:29AM
Dow Jones News
By Sarah Nassauer
Sam's Club hopes fewer stores help the warehouse retailer
attract more-affluent shoppers.
This month, the Wal-Mart Stores Inc. chain closed 63 U.S. Sam's
Club locations. The closures cut around 10,000 jobs and are the
largest since Wal-Mart founder Sam Walton opened the first Sam's
Club in 1983. Wal-Mart says some of those workers will get jobs in
other stores.
The closures aren't only a result of retail's rapid shift
online, but are part of a strategy pivot by new Sam's Club chief
executive John Furner to turn what has long been Wal-Mart's
underperforming sibling into a retailer that can rival its most
successful competitor, Costco Wholesale Corp.
"The strategy isn't to close clubs. The strategy is to transform
the business," said Mr. Furner, a Wal-Mart veteran who took over
the warehouse chain last February.
Sam's Club hopes that by strategically closing underperforming
stores, it can fine-tune its focus on stores that are driving
higher profits, especially those that serve a higher-income
clientele.
Under Mr. Furner Sam's Club plans to target a single
demographic: families with children and annual incomes between
$75,000 and $125,000. Those shoppers already contribute a large and
growing piece of sales, Mr. Furner said in an interview. But in the
past, Sam's Club spent too much "time and money and investment
chasing something else," from small-business owners to low-income
grocery shoppers, he said.
Sam's Club has long struggled to increase sales at the same pace
as Costco, acting more as a profit center for its parent company
than its growth engine. Geography has played a role, say
executives. Costco, headquartered in Seattle, Wash., naturally
opened more stores in affluent west coast areas, attracting those
shoppers. Sam's Clubs often opened near Wal-Mart stores, in
lower-income or less populated areas.
In the most recent fiscal year, Sam's Club's sales in existing
stores inched up 0.2%, while Costco's rose 3.8%. More recently
Sam's Club sales have accelerated, but at a slower pace than
Costco.
Higher-income shoppers have been on Sam's Club's wish list for
over a decade. In 2001, Sam's Club added expensive jewelry and said
it wanted to sell high-end art to better compete with Costco. Then
it added more fresh food and upgraded merchandise. Rosalind Brewer,
CEO for five years before Mr. Furner, also tried to mold Sam's Club
into a company that more-closely mirrored Costco.
Frequent leadership changes and targeting too many types of
customers hurt those efforts, Mr. Furner said. So did some store
locations. "We would try to say, 'work on a higher-income
customer,' but a number of locations we had pulled us in the
opposite direction."
Some of the recently closed stores were less profitable because
their remote location makes it hard to keep them stocked, like
those in Alaska, he said. Some siphoned too much business from
nearby Sam's Clubs or were in areas where the population has
declined, but competition is fierce, he said.
Sam's Club closed all its stores in Costco's home state of
Washington, and in a number of areas where it competes heavily with
Costco.
"We estimate Costco has at least one club within 10 miles of 52
of the 63 closing Sam's locations," said Peter Benedict, retail
analyst with Baird in a research note.
Other changes are afoot. Sam's Club is reviewing its store
assortment with the new shopper focus in mind, said Mr. Furner. The
review likely will lead to fewer products like bulk candy that are
resold by convenience stores and more household goods, he said.
Last year Mr. Furner added more staff to produce areas and
introduced training, knowing many shoppers choose their grocery
store based on the quality of produce. Some of the closed stores
will become e-commerce fulfilment centers, to speed online home
delivery.
After the Sam's Club In Linden, N.J., closed, Mayor Derek
Armstead organized a job fair last week for the 187 workers who
were employed at the store.
"I was in a state of shock," Mr. Armstead said, after receiving
a call from Wal-Mart one recent Thursday morning saying the local
branch of Sam's Club would close that day for good.
"I thought they were going to call me with good news, maybe
expand," said the mayor of the working-class town 20 miles south of
New York City. "Unfortunately it was quite the opposite."
Sam's Club assisted with attracting workers to the job fair,
said Pam Jones, executive director of Communities In Cooperation, a
local social-services organization. Around 30 local businesses came
to interview workers, including representatives from nearby
Wal-Mart and Sam's Club locations and other retailers. Around 15
workers received job offers, she said.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
January 28, 2018 07:14 ET (12:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Walmart (NYSE:WMT)
Historical Stock Chart
From Mar 2024 to Apr 2024
Walmart (NYSE:WMT)
Historical Stock Chart
From Apr 2023 to Apr 2024