Inflations Cardle American consumers have been paying cash in long lines for the privilege of shopping at members-only stores, which have gained a constant share of the US retail sector.
Costco, Sam’s Club and BJ’s wholesale clubs have invited more customers by promising lower prices for carefully curated items sold in large quantities.
In many cases, visiting a store means a wandering passageway formed by towers of goods stacked on pallets, with the help of rare navigation from salespeople. Parking can back up and stuff the vehicle to 10 depths for Costco petrol.
But to varying degrees, chains are investing in streamlining their experiences, putting pressure on traditional retailers who rely on higher markups.
The warehouse club boom is one of the effects of inflation, which has increased consumer prices by 26% higher than 2019 before the Covid-19 pandemic. Consumer surveys show continued fears over inflation as the US imposes tariffs on trading partners.
“We do well through good times, and that’s why we do better through difficult times,” said Chris Nicholas, CEO of Sam’s Club US.
Sam’s Club, a unit of retail group Walmart, reported sales at the same store increased by 6.7% in the first quarter, and 6.7% with the exception of fuel, surpassing growth at the company’s parents’ US stores of the same name.
Costco revealed annual revenue of $254.5 billion, with 7.9% of U.S. sales on Thursday showing a sales increase of 7.9% excluding fuel. BJ reported a 3.9% increase in comparable sales, with revenues of $20.5 billion last week, except for the volatile impact of gasoline prices.
In comparison, according to Visible Alpha, reporting the following results is expected to increase by 2% when US top supermarket chains Kroger and Albertsons report results. Sales fell at Big-Box and Department Store chains Target and Macy’s.
“These companies are expanding at a good pace now, and over time they’re just making their proposals with consumers very sticky,” said Robert Altun, an analyst at Retailstat.
Three large chains add millions of square feet to US retail space. Costco is aiming to bring 15 online this year. BJ plans to open 25 to 30 over the next two years. Sam’s Club, which closed 63 locations in 2018, is currently set to open 15 new clubs each year “for a foreseeable future.”
Last month, during the grand opening of the new BJ on Staten Island in New York, shoppers thrust through balloon arches and arrived at the member service counter, urging them to “come to the club.”
Dennis Karaskiro and her husband Ray said they had already done so as they were pushing their cart with groceries such as milk, cooking oil and pastrami.
“When there’s a place like BJ or Costco or Sam’s Club, that helps,” said Dennis, the mother of three. “Overall, if you’re a little more unruly, breaking everything will make your savings much higher.”
The membership club store model was pioneered by a retailer called Sol Price, which launched the Price Club chain in Southern California in the 1970s. In 1993, Price Club merged with Costco. Walmart founder Sam Walton admitted stealing the Price concept when he founded Sam’s Club in 1983. Massachusetts-based BJ emerged a year later.
All three billing meetings – Basic tiers cost $50 a year at Sam’s Club, $60 for BJ and $65 for Costco. The latter two have increased fees over the past year, but the number of members continues to increase, with nine out of ten choosing to renew.
At Sam’s Club, 80-90% of its profit comes from membership income, Chief Financial Officer Todd Sears told investors last month.
In return, customers get a stripped-up assortment of thousands of items they trust. These range from 36 rolls of toilet paper to Bordeaux wine cases, slightly more wealthy than average customers.
“They basically take the bargain hunting process, pay Costco or Sam and outsource it to them,” said Brian Gildenberg, managing director of the retail city for the consulting company.
The club has put pressure on vendors such as Procter & Gamble and Nestlé to keep prices low by selling competing house brands. Costco’s Kirkland signature and Sam’s Club member Mark private label brands are each worth billions of dollars.
Customers may make the club’s stomach charges a stomach, but they also face less convenient shopping experiences. The store is far away. The total US locations for Costco, Sam’s Club and BJ are less than a third of Walmart’s 4,600 US stores.
“It’s a bit of a grenade shop. I don’t want to spend Saturday afternoons roaming around a 100,000-square-foot box,” BJ CEO Bob Eddie said in an April webcast.
At Costco, customers show receipts to employees when they leave the store, and are surrounded to slow down their shopping trips. BJ and Costco did not respond to requests for comment.
Walking traffic data compiled by Advan Research shows shoppers spent about 13% more time inside Costco, Sam’s Club and BJ US stores in the first quarter than they did in traditional supermarkets.
Additionally, all three large warehouse clubs have invaded Amazon’s grass and, in some cases, filling online orders through stores or delivery, through third parties such as Instacart.
And the store is about to attack what Nicholas calls “friction.” Sam’s Club allows customers to scan and pay with their mobile phone, but the camera is equipped with computer vision to check the content of their shopping cart against digital receipts. Todd Garner, chief industrial officer of Sam’s Club, said the technology increased exit time by 23% on a store tour held in Grapevine, Texas.
“They aren’t waiting. They’re not queueing. They’re just literally walking,” Garner said.
