August 12, 2025 • 35 mins
The wholesale club industry stands as one of retail's most fascinating success stories. Despite economic fluctuations and retail disruption, Costco, Sam's Club, and BJ's Wholesale Club continue to thrive through their unique business models and evolving strategies.
Michael Clayman, publisher of Warehouse Club Focus, who has spent nearly three decades analyzing and documenting the wholesale club industry, reveals the four pillars that have sustained wholesale clubs: consistently low prices that justify membership fees, superior product quality, membership revenue that flows directly to the bottom line, and the "treasure hunt" merchandising strategy that keeps members coming back regularly. These elements existed before COVID-19, but the pandemic accelerated growth as clubs remained open during lockdowns and became trusted resources for essential items.
Each operator has carved out a distinctive competitive position. BJ's operates at higher margins (16.5%) compared to Costco and Sam's Club (both around 11%), positioning itself between traditional warehouse clubs and grocery stores. This allows BJ's to remain price-competitive on branded items while generating higher margins elsewhere, particularly through private label products. Sam's Club differentiates through technology and convenience with Scan & Go shopping, pizza delivery, curbside pickup, and home delivery handled by their own employees rather than third parties. Meanwhile, Costco maintains unwavering margin discipline, proving that low prices drive massive sales volume – their average annual sales per location have doubled over 15 years to approximately $260 million.
The analysis also explores how all three chains have decreased their focus on business members over time, finding consumer items generate higher sales volumes. We examine PriceSmart's successful international expansion across Central America, Latin America, and the Caribbean, achieving remarkable productivity despite smaller store footprints by following the same low-price, high-quality formula.
For suppliers aiming to succeed in this channel, Clayman offers crucial advice: visit the clubs frequently to observe merchandising innovations across all departments and never underestimate their relentless focus on maintaining low prices, which remains the foundation of their business model regardless of other strategic initiatives.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:06):
Well, hello everyone and welcome to the Digital Front
Door.
I'm Scott Benedict, and todaywe're diving into the state of
the wholesale club industry, oneof the most fascinating and
rapidly changing or evolvingformats within retail, and One
that I have an emotionalattachment to, since I spent
(00:26):
more of my retailing career inthe wholesale club business than
in any other channel I've beeninvolved in.
So I'm excited to have thisconversation today.
Also excited because, while theclub industry continues to
evolve and change to servemembers in exciting new ways,
both in terms of the commitmentto Omnichannel and the use and
(00:49):
leverage of technology into thebusiness, the format has really
had some remarkable success bothduring and since the COVID-19
pandemic, and it remains aremarkable growth story right
now.
Joining me today is someone whohas documented and analyzed this
(01:09):
space for nearly three decadesMichael Klayman.
Michael is the publisher ofWarehouse Club Focus and if you
work with or sell into CostcoSam's Club or BJ's Wholesale
here in the US, chances areyou've come across Michael's
deep dive data, competitiveanalysis and really robust
(01:31):
club-level insights, and hispublication is really the go-to
source for understanding theWholesale Club formats, how they
operate and how they competewith each other.
And, michael, we're excited tohave you join us on the show
today.
Speaker 2 (01:47):
Thank you very much, Scott.
That was very generous.
Speaker 1 (01:50):
Well, it is so nice to have a chance to talk to you,
since I've been an avid readerof Warehouse Club Focus for
years, and I want to start theconversation today, maybe at a
high level, at a kind of a macrolevel.
And, as I mentioned in myopening, all three of the major
US club operators have reallyseen a lot of strong revenue and
(02:13):
membership growth since duringthe pandemic and even through to
the most recent quarterlyearnings reports that we've seen
.
From your perspective, assomeone who's really watched the
industry for years and years,what do you think is driving
this?
Speaker 2 (02:27):
I'll talk about the pandemic in a couple minutes.
But the most important item inthe Club channel has always been
low prices.
Members pay a membership fee toshop there and they expect one
thing they expect to save moneyby shopping at BJ's, costco,
sam's Club and we also coverPriceSmart and we'll get to them
(02:49):
a little later in the interviewbut those low prices have to
exist simply because if membersare not saving money by shopping
at the clubs versus a grocerystore or Walmart super center,
they're not going to pay and thewhole model won't exist.
I don't think the second mostimportant factor is product
quality.
(03:09):
So when the business wasstarted a long time ago, this
wasn't the most important or thesecond most important thing.
But it has developed over theyears, especially since Costco
got involved in the industry,and their belief and BJ's and
(03:31):
Sam's Club follow it to someextent is that we're going to
sell the highest qualityproducts at the lowest possible
prices and no one can disputethe fact that we're providing a
value to that member.
And the combination of thosetwo is really what enables
Costco and BJ's and Sam's Clubto differentiate themselves from
just about any other retailerin the country.
The two other factors are.
(03:52):
The membership fee, which I'vediscussed, is a result of the
low prices, but it provides theclubs with the ability to
operate at those low margins andhave some of that membership
fee.
It's reduced, but about 60% to70% of that membership fee at
BJ's and Costco a little bithigher maybe 80% to 90% at Sam's
(04:13):
Club flowing down the operatingincome.
And the last aspect, before Italk about the pandemic, is
treasure hunt and what the clubsdo with about 25, maybe 30, 35%
of their products is theyrotate them every six to eight
weeks and it gives theperception that they're stocking
(04:33):
a wider variety of merchandisewhen in fact they are not.
So those four factors existedbefore the pandemic, still exist
today, but the pandemic waskind of an accelerant to their
success.
One reason was they weremandated in some areas but they
were able to stay open duringthe pandemic.
(04:55):
Number two, they were able tosupply key items that people
wanted during the pandemic andtheir membership grew during
this time because people beganto trust them in a different way
.
I think that their lives werebeing pressured and we could
rely on BJ's and Costco andSam's Club to supply us with the
(05:17):
products that we needed.
So the combination of thosefactors pricing, quality,
membership and treasure huntbefore and the feeling that
members got because they helpedthem during this very stressful
time has propelled them, I think.
And then you factor in the realestate aspect, where some
(05:38):
companies failed and then theywere able to open up in markets
or expand in markets that theyweren't able to expand in before
.
But that's basically why theyare doing so well today.
Speaker 1 (05:52):
Neat and it's been really remarkable to see that
there's been a degree of stayingpower as the effects of the
pandemic on the retail marketoverall have waned a bit.
On the retail market overallhave waned a bit, although
inflationary pressures just madethe value equation, it feels
like, of the Club channel thatmuch more obvious to members or
(06:16):
potential members.
Speaker 2 (06:18):
Sure, I don't want to keep you on this one question,
but that aspect with Sam's Cluband Costco especially and
they've talked about it is thattheir limited SKU count gives
them the ability to not have todeal with the tariffs, for
example, or rising prices,because they can just get it out
of items or they can deleteitems that are not providing a
(06:38):
value and bring in other itemsthat are, and that limited SKU
count enables them to do that.
Speaker 1 (06:45):
Yeah, and I want to focus in a second on BJ's
specifically.
You've really tracked theirstrategy over the years and in
one of your recent issues yououtlined how BJ's is really
leaning in to private brands,private label and to digital
convenience, and I'm curious, onyour perspective, what stands
(07:08):
out to you about how BJ's ispositioning themselves against
Costco and Sam's Club from yourview?
Speaker 2 (07:17):
It's even more nuanced than that and I want to
take a step back.
In 2011, bj's went private.
They were bought by a companyand I think in 2018, they came
public.
In that seven-year time period,they took on a lot of debt.
The company that bought thempaid themselves dividends and
they used debt to do it.
(07:37):
So while they were doing that,bj's had to operate well and
they had to operate financiallywell, so they raised their
margins.
I don't think it wasintentional, but I think that
fact enabled them to see maybe anuanced approach to competing
with Costco and Sam's Club onone side and Walmart and grocery
stores on the other.
And they said we don'tnecessarily have to be at 11%
(08:01):
margins, which is where Costcoand Sam's Club are we can be at,
and where they are and you cansee in this chart they're at
16.5% margins.
They're 500 basis points higherthan their club competitors,
but still significantly lowerthan Walmart and grocery stores,
so they still offer a valuenumber one compared to what they
(08:24):
consider to be their truecompetitors.
At the same time, they're stillcompetitive with Costco and
Sam's Club on branded items, andthe reason we know this is
every October or September,october, we go to a market where
BJ's, costco and Sam's Club agrocery store in Walmart operate
(08:46):
within about five miles and wefind all the branded items and
there's actually not too manythat all five stock.
It doesn't have to be the samepackage, but it has to be the
same brand.
And we compare the pricing.
So this past year there wasabout 150, 160 items we found
and BJ's was historically andthis past year two to 4% higher
(09:09):
on those branded items.
So they're more competitive onitems that Costco and Sam stock
but they make more margin onitems they don't.
So that's why I say it's alittle nuanced, it's a little
high-low, and this is wheretheir private label comes in.
Is that they're able togenerate higher margins?
Most likely.
You don't know exactly becausethey don't report it Right.
Speaker 1 (09:33):
And that makes sense.
It's been interesting to seethat, to your point, some cases
they compete by not competing,at least not with their club
competitors.
They're more focused on groceryand mass than some others, and
that's been their approach.
Speaker 2 (09:47):
Their advertising comes through.
They do do advertising and theytalk about that specifically.
They don't talk about Costcoand Sam's.
Speaker 1 (09:55):
Interesting.
So I want to talk a little bitabout Sam's Club, and in full
disclosure obviously, of thethree major chains, that's the
one I've actually worked for, soI'm I'm gonna ask this question
in a way that hopefully doesnot appear uh self-serving, but
I'm really interested in yourthoughts on sam's club's
(10:15):
commitment to omni-channelstrategy, broadly talking about,
uh, blending physical anddigital experiences and some of
the other ways that they are, itappears, using technology more
aggressively than the two clubcompetitors.
I'm curious, from your view, assomeone who's tracked the
(10:36):
development of the club channelfor years and years, what's your
take in how serious Sam's Clubis about refining or continuing
to kind of transform the clubmodel?
Speaker 2 (10:46):
I just want to put a little perspective on Sam's Club
because and you know this overthe years they've changed their
core philosophy in differentdirections several different
times, and I'm not saying thatthis is going to be the same,
but they've always tried tocompete with Costco.
Just to give you just abroad-based overview in 2024,
(11:09):
sam's ended the year with 600buildings in the US, did 90
billion.
Costco ended with 617 units inthe US, 188 billion.
So two times as many, I meanthe same number of locations,
two times as much sales.
So you know, sam's is focusedon Costco and they always have
said how can we differentiateourselves?
(11:30):
And this omni-channel approachis the latest iteration, but it
might be the final iteration,you know, you don't know.
So, given that they're focusedon convenience, they want their
members to not only save on theproducts that they purchase,
their margins I think there's achart through here that shows
(11:54):
that their margins are basicallythe same as Costco.
They just started reporting itat 11%, but they're layering in
the convenience factor.
So Scan and Go is a tremendousproduct that enables members to
easily scan their items whilethey're shopping and not have to
interact with any Sam's Clubemployees Don't have to go
(12:14):
through the register, they don'thave to get, they don't have to
have their item basket, theirbasket checked as they walk out
because Sam's instituted orintroduced this new technology
that scans the items as theywalk through these huge arches.
They just introduce pizzadelivery through their own
delivery service.
They pick your orders for youand will deliver it curbside.
(12:37):
And they pick your orders foryou and, with their own
employees, deliver it to you atyour house.
So there's all these thingsthat they're doing as part of
the convenience factor.
The only hiccup that they couldface is there's a cost to that,
and what is Walmart as anoverall company willing to allow
Sam's to generate on theoperating income percentage side
(13:00):
?
That, because they're incurringthese costs, instacart is not
coming into their buildings anddoor dashes and I think it's
Sam's Club employees who aredoing all these deliveries.
So that's the only hiccup.
Is the convenience factorenough to compete against Costco
head on?
It may not matter, because Ithink they're going to be
(13:21):
selective as they expand and trynot to head right into where
Costco operates at its strength.
They might try to findlocations where there's a market
that doesn't have a BJ's or aCostco.
So I imagine that's going to besomething that will play out
over time, but generallyspeaking, if the operating
(13:45):
margin is acceptable because ofthe added cost, then it's
probably something that they canstick.
If it's not, then it's up forgrabs.
But it is very interesting andit's very convenient.
I don't have a Sam's Club nearme personally, but when I do go
I always use Scan and Go andit's a tremendous technology.
Speaker 1 (14:04):
It is, and I've really started to use it more
proactively, not only there butat Walmart as well, and I'm
starting to embrace theconvenience of it, particularly
when you're not making too largeof a purchase.
Speaker 2 (14:20):
One know one of the things.
Oh, and there's one other thingthat Sam's Club does with it.
They actually offer additionaldiscounts on select items that
members use Scan Go for.
So if you buy Tide detergent,they might offer an extra dollar
or two discount if you use ScanGo to purchase this item.
Speaker 1 (14:39):
Yeah, I've noticed that and I've noticed Walmart
and I'm a Walmart Plus member Inaddition to being a Sam's Club
member I've noticed Walmart dothat as well, and I assume that
that's an incentive to getmembers to try this or to be
more comfortable with using itright.
Yes, using it right, yes, yeah,one of the things that what I
(15:05):
would read that with a lot ofinterest in your most recent
issue was you did a verydetailed analysis of the
business member focus of allthree us chains and I think one
of the key takeaways in youryour article was that, of the
three chains, sam's club was themost focused on business
members, but all three wereplacing less emphasis on
(15:29):
business members than they hadin the early founding days of
the of the club channel, and itwas a really interesting article
and I'm just curious uh, whatprompted you to to do that
analysis?
Is that something that you'vedone over the course of years in
Warehouse Club Focus?
Speaker 2 (15:48):
We update it every two years and so it was just
time to update it.
And I think the interesting partis from Sam's Club's point of
view.
The last iteration of theirfocus strategy was this
wholesale consumer, and for awhile, and they're reducing the
assortments in some areas, butthere were some very significant
(16:11):
additions in key categoriesthat food service members would
want wholesale products,janitorial, automotive there was
a whole set of business membersthat they were trying to reach.
This was several, several yearsago that they added wholesale
items for Some categories stillhave it the kitchen category,
(16:33):
janitorial to some food serviceSKUs, certainly some vending
SKUs, but it's not as deep as itwas, and I think what they
found is that it was a challengeto have those items generate
the sales volume that theywanted.
And what all three clubs havefound over the years simply is
that consumer items aregenerating higher sales volumes
(16:55):
and as each club has reduced itsSKU assortment over the years
and we'll talk about that, Ithink, later the items that have
fallen away are generally thewholesale focused items that
just don't generate those salesvolumes Interesting.
Speaker 1 (17:12):
I want to also talk about profit margins in the club
format.
In a prior issue I believe itwas the April issue you did
analysis and it showed that ofthe three chains, costco is
running the leanest gross marginrate among the three operators
here in the US.
I'm curious what does thatstate about their operating
(17:35):
philosophy and is that asustainable approach for them,
given how competitive retailingis broadly and obviously the
Club Channel is specificallyhere in the US?
Speaker 2 (17:48):
So Costco believes in one simple fact low prices
drive sales, and there's a chartthat we can look at now that
really exemplifies this, andthis chart shows Costco's gross
margin since 2009,.
Every five years, and you cansee they haven't changed, and on
the right side of the chart orthe left side, depending on how
(18:10):
you're looking at it.
It shows the average annualsales per location, which, over
that same 15-year time period,has doubled per location.
And what has happened is, if youlook at the SG&A as a percent
of merchandise sales is asthey've reduced their SKU counts
in the buildings and we'll talkabout it, but Costco stocks
(18:30):
around 3,300 items and we countthem every year.
They are much more efficient inthose locations, so they don't
have to add the number, theamount of people and payroll
dollars that you normally thinkto operate a $260 million a year
location.
So, as their SG&A percent ofmerchandise sales has dropped,
(18:53):
their operating incomepercentage has increased and it
trails just slightly behind BJ's.
And so what Costco is doing istheir low prices are driving
sales, which is enabling them tobecome simply more profitable.
So, to answer your question,this is ingrained in them and if
you ever see their margins tickabove 11.5% to 12% on a
(19:17):
consistent basis, as an investor, you would be concerned.
I guess in a limited way,Although you think they're
making more money.
It's just not the philosophyand I don't expect that ever to
change.
It's just part of who they are.
Speaker 1 (19:31):
Yeah, and it has been a pretty consistent aspect of
the strategy and their approachsince the days of Price Club and
certainly Apple.
Price Club and Costco mergedback in the 90s and, to your
point, the analysis shows,there's just been a rock-solid
insistence in believing thatthat approach is the right
approach.
Yeah, that is correct.
(19:51):
Yeah, one of the other thingsthat I think you have tracked a
lot over the course of years isthe difference in value
perception in the club model, inother words, the difference
between cost, or what Walmartwould be called opening price
point, versus value.
And I'm curious, from your viewas someone who's tracked and
(20:15):
analyzed the industry, can youexplain the distinction and how
it affects how suppliers shouldapproach perhaps clubs broadly,
or any one of the operators,versus other retail formats in
terms of the types of items andthe types of proposals that they
bring to buyers in the clubchannel?
Speaker 2 (20:36):
Sure Cost to the club buyer means what's the lowest
possible net landed price at alocation not a distribution
center, but at a location.
Can I work with a vendor to get?
That's the cost Value meansfrom the member's perspective.
How much are they going to save?
(20:57):
What are they going to get bypurchasing this item in
comparison to purchasing thisitem elsewhere?
How much are they going to getby purchasing this item in
comparison to purchasing thisitem elsewhere?
How much are they going to save?
How much when I say get interms of a product, you could
have extra batteries in aproduct that needs batteries.
The battery cost is notincluded.
So there's different ways toachieve that value.
(21:17):
Generally speaking, we believeBGA's is a little bit more
focused on the cost factor, notbecause they're trying to drive
down their costs and lower theirprices, but they're trying to
drive down their costs and givethemselves the ability to make a
little bit more money Notexcessive.
But they do have those marginsthat are 500, 600 basis points
higher than Costco and Sam'sClub.
(21:38):
Costco and Sam's want to beable to provide their member
with value and that could be lowprices.
As I mentioned, that could beadded items in the product
package that could be.
For example, sam's Club justannounced or not just announced.
They've been working on it for acouple of years, taking out 40
(22:00):
bad ingredients in products andI forget what they call it, but
they've accomplished maybe 90,.
You know they've worked withvendors to get out, you know,
90% of these items in productsthat they're selling.
So they're focused on higherquality.
Organic plays into this valueaspect.
You know, instead of buying a apenny pasta, buy an organic
(22:24):
penny pasta and sell it for thesame price as a regular penny
pasta.
So there's different ways toachieve it, but Sam's and Costco
, I think, are more focused onthe value side and BJ's a little
bit more focused on the costside to expand their margins.
Gotcha.
Speaker 1 (22:42):
And it makes sense.
And certainly I've seen youtrack it as well as I, obviously
as a former buyer, tracked itin the categories I was involved
in and it's interesting that ithas remained relatively
consistent over the years.
One of the things I've alsoseen you track and report on,
michael, over the years is thesize of the assortment in the
(23:04):
three major operators, the sheernumber of used in a building,
and you referenced the fact thatCostco traditionally has the
fewest, bj's typically has themost.
I'm just curious about thebroader assortment being a
winning play in the club format.
Does it risk confusing kind ofthe treasure hunt experience?
(23:29):
Does it risk other parts of themodel?
What's your take on SKU capbroadly and maybe the way that
all three operators operatehistorically over time in terms
of the breadth of the assortmentthat they offer?
Speaker 2 (23:45):
So this chart that we have shows the skew counts over
time over the last 20 years foreach club.
And it's the third line that Iwant you to look at, because
we're not going to include booksand crafts and jewelry and
fragrances.
But BJ's assortment in food andnon-food has gone from 5,800
around to 5,200 currentlyroughly Costco 3,400 to.
(24:12):
You know we counted 3,100 inlast year but I think recently
it's ticked up.
There's different ways you getdifferent counts based on
different locations and maybe alarger location has more items.
But it's roughly around $3,200,$3,300 now.
Sam's Club on the food andnon-food side has gone from
$3,800 to $3,500.
(24:34):
So they've all reduced.
There's more full-palettedisplays.
It's easier to manage a buildingthat's like that, to answer
your question and as it relatesto BJ's, is it, do they have the
ability to stock more items?
Operate efficiently?
And I think they do.
I think they can rotate just aswell on the treasure hunt side.
(24:59):
But the problem they run intois the size of their buildings.
They're only 110,000 squarefeet on average.
Costco's average building is145,000 square feet.
The current new size is 162,000to 165,000 square feet and
Sam's is still.
I think as they open newbuildings, I think they're going
(25:20):
to still be around 150,000.
I didn't get the impression thatthe new building is going to be
any larger than that, but I maybe wrong on that.
In any case, rotating through110,000 square foot buildings
for BJ's and stocking 5,500items is definitely more
challenging, but I believe it'swhat BJ's has as a competitive
(25:43):
advantage versus the other twoand, just strategically thinking
, even if they reduce theirprivate label assortment and
went more on the treasure huntside, I think they would be
better served, because I thinkthey would.
You know, there's tons and tonsof items out there, 5,500
compared to Walmart.
At what?
100,000?
I don't even yeah.
Speaker 1 (26:03):
A super center is generally around 100,000, I've
been told Sure.
Speaker 2 (26:06):
There's tons of items and you know, focusing on a
rotation of, with more spaces tobe able to rotate more branded
items through, I think is awinning strategy.
Now they have taken a differentapproach.
Private label represents 18% oftheir current assortment, more
or less.
So they believe in that andthey like the margins.
(26:27):
But I personally believe that alittle larger buildings, a
little bit more brandedrotations would serve them well.
But to answer your questionspecifically, yes, they can
operate like this.
Speaker 1 (26:38):
Good and it seems like they've done it for a
number of years and done itsuccessfully and, to your point,
it does differentiate them alittle bit from their two
competitors and maybe isintentional in terms of
differentiating and makingthemselves perhaps interesting
to a broader audience,particularly in the grocery side
(27:00):
.
Sure Does that make sense, yes,okay, well, take a little trip
outside the US and lookinternationally and reference
PriceSmart.
They continue to fly a littlebit below the radar in terms of
being as well known in retailingcircles as the three US chains,
(27:23):
but they're really starting toshow growth, particularly in
Colombia and in Central America,for maybe folks that aren't as
familiar with Price Smart.
What's the story there and arethey building kind of a new kind
of warehouse club modeling inyour view?
Speaker 2 (27:42):
No, and for anyone who wants to sell Price Smart,
it's just like selling Costco.
They operate in basically thesame way, except for they're
smaller.
As I mentioned, costco'saverage building size is 146,000
square feet.
Price Smart is at 50,000 squarefeet.
I apologize, I should havewrote this down, but I think
(28:03):
they operate 52 buildings rightnow in Central or Latin America
and the Caribbean and theiraverage annual sales again I
don't know why is around $3.5billion.
So they're much, much smaller.
But, as you can see from thischart, they are extremely
productive because of the simplefact is they focus on low
prices and they want to drivesales, and I can explain in a
(28:26):
second why they have that samephilosophy.
But if you look at PriceMart,in terms of sales per square
foot, just below Costco, andeven when you're looking at the
weekly sales per item, per club,they're above Sam's Club.
So they are extremely,extremely productive despite the
(28:48):
fact that they're very small.
And the reason they operatelike Costco is Robert Price who,
with his father, saul, startedPrice Club, and Jim Senegal
worked at Price Club before hestarted Costco.
All came from the same businesstree which is learning under
Saul Price and since Price Smarthas existed, robert has been
(29:08):
involved as president and CEOsometimes, which he is right now
.
He's chairman of the board ofdirectors.
His son is actually David Pricewill be taking over the company
in August.
So there's this consistencywith Price Mart.
That is the same with Costco,where they're focused on low
prices, they're focused onquality and they're based in
(29:28):
Miami, and for anybody who sellsBJ's Costco or Sam's Club, it
shouldn't be a difficult sell togo down there.
Actually, they're based in SanDiego.
They have distribution in Miami, so you'd be going to San Diego
to sell them, sorry.
Speaker 1 (29:44):
No, and that makes sense.
And I find it fascinating howtransportable the club format is
to other markets around theworld outside of here in the US.
And PriceSmart, in my view, hasbeen proof that there are
markets that maybe the three USoperators wouldn't necessarily
(30:10):
look at, that PriceSmart wentinto and it has, over the course
of time, proven to be verysuccessful in those markets.
Speaker 2 (30:17):
Their largest market has become Colombia over the
past decade, and Colombia'spopulation is commensurate with
Canada's.
It's more or less equal.
Costco operates over 100locations in Canada.
Price Smart operates around 8,9, nine or 10 locations in
(30:38):
Columbia.
They have a huge runway in thatcountry, just depending on the
economic conditions, right.
Speaker 1 (30:47):
Interesting to see.
Last thing I wanted to kind ofhear your thoughts on is a lot
of folks in the SPAR communitylisten to our broadcasts and if
you could give any advice tosuppliers trying to sell in to
the club channel, what's maybethe biggest piece of advice you
(31:11):
would give them for beingsuccessful in the wholesale club
format, not only this year butlooking forward into the future?
Speaker 2 (31:18):
I think there's two items.
One, to visit the buildings.
It doesn't matter what buildingyou're visiting, but to
consistently go into a BJ's, aCostco and a Sam's Club and not
just walk to your own category.
Walk the entire building,because packaging is such an
important component of the clubchannel and there are ideas and
(31:39):
concepts and things that youwouldn't imagine in other
categories that companies aredoing that potentially could be
applied to whatever you and yourcompany want to accomplish in
the channel.
So walk the buildings, Walkthem all the time.
Don't think that you knowwhat's in there.
And the second is don'tunderestimate their focus on low
(32:01):
prices.
It's what drives them and nomatter what you read about in
the media, about Sam's focus onOmni channel, BJ's expanding,
adding 20 locations, no matterwhat is said, that's what their
first and foremost going to talkabout is those low prices.
Speaker 1 (32:19):
That makes sense, Low cost yeah, yes, low cost and
that leading to low prices.
Yeah, this is what you did foryears, yeah, and be a very, very
efficient operator.
I think that's the role thatpackaging plays, is it makes it
easier, you hope, to stock theshelves and keep them stocked,
because if the item ispallet-driven that kind of very
(32:41):
efficient packaging it makes itvery easy and efficient for them
to run their buildings and tokeep their prices low.
Speaker 2 (32:48):
Oh sure, there's messaging.
So, just as an example, sam'sClub allows vendors to put the
savings or the benefits that youwould get by purchasing this
item, like save 11% bypurchasing this package of
diapers, and Costco doesn'tallow that type of messaging
generally.
So you get these types ofthings that you would not
(33:10):
normally see by walking thebuilding and all the categories.
Speaker 1 (33:14):
Yeah, no, I think the advice to walk the buildings
and to see what else is in thebuilding already and try to come
up with cool, neat,differentiated products is
probably the best advice andcertainly advice I gave to
suppliers when I was a buyerwith ZampClub as well, so that
makes total sense.
Like I have to say, this hasbeen a real master class in the
(33:38):
Club channel strategy and Ireally enjoyed talking about not
only the industry overall butsome of the things that each
operator is doing.
That's kind of unique, whetherthe things that BJ's is doing to
continue to improve theirbusiness now as a public company
.
Again, the focus of Sam's Clubis put on nominee channel, the
(33:59):
margin discipline that Costcohas and things like that.
I'm curious if someone isn'tfamiliar with Warehouse Club
Focus and they wanted to figureout how to get a subscribe,
where should they go?
Speaker 2 (34:13):
Warehouseclubfocuscom .
It's very easy.
You could sign up for asubscription or even a trial
subscription, and we respondwithin the day.
That's awesome.
Speaker 1 (34:23):
Well, thank you so much, Michael, for joining us
and for talking a little bitabout the Wholesale Club
Challenge.
It's obviously been a personaljoy for me, having spent so many
years involved in the formatand had an opportunity to chat
with you today.
Thank you so much for your time.
Speaker 2 (34:38):
Oh, thank you, I really appreciate it.
It was fun.
Thanks, enjoy it as well.
Speaker 1 (34:42):
For our listeners.
If you found value in today'sepisode, don't forget to
subscribe and share the DigitalFront Door with your colleagues.
We'll see you next time.
Thanks for listening For theDigital Front Door.
I'm Scott Vanodick.
Well, hello everyone and welcome to the Digital Front
Door.
I'm Scott Benedict, and todaywe're diving into the state of
the wholesale club industry, oneof the most fascinating and
rapidly changing or evolvingformats within retail, and One
that I have an emotionalattachment to, since I spent
(00:26):
more of my retailing career inthe wholesale club business than
in any other channel I've beeninvolved in.
So I'm excited to have thisconversation today.
Also excited because, while theclub industry continues to
evolve and change to servemembers in exciting new ways,
both in terms of the commitmentto Omnichannel and the use and
(00:49):
leverage of technology into thebusiness, the format has really
had some remarkable success bothduring and since the COVID-19
pandemic, and it remains aremarkable growth story right
now.
Joining me today is someone whohas documented and analyzed this
(01:09):
space for nearly three decadesMichael Klayman.
Michael is the publisher ofWarehouse Club Focus and if you
work with or sell into CostcoSam's Club or BJ's Wholesale
here in the US, chances areyou've come across Michael's
deep dive data, competitiveanalysis and really robust
(01:31):
club-level insights, and hispublication is really the go-to
source for understanding theWholesale Club formats, how they
operate and how they competewith each other.
And, michael, we're excited tohave you join us on the show
today.
Speaker 2 (01:47):
Thank you very much, Scott.
That was very generous.
Speaker 1 (01:50):
Well, it is so nice to have a chance to talk to you,
since I've been an avid readerof Warehouse Club Focus for
years, and I want to start theconversation today, maybe at a
high level, at a kind of a macrolevel.
And, as I mentioned in myopening, all three of the major
US club operators have reallyseen a lot of strong revenue and
(02:13):
membership growth since duringthe pandemic and even through to
the most recent quarterlyearnings reports that we've seen
.
From your perspective, assomeone who's really watched the
industry for years and years,what do you think is driving
this?
Speaker 2 (02:27):
I'll talk about the pandemic in a couple minutes.
But the most important item inthe Club channel has always been
low prices.
Members pay a membership fee toshop there and they expect one
thing they expect to save moneyby shopping at BJ's, costco,
sam's Club and we also coverPriceSmart and we'll get to them
(02:49):
a little later in the interviewbut those low prices have to
exist simply because if membersare not saving money by shopping
at the clubs versus a grocerystore or Walmart super center,
they're not going to pay and thewhole model won't exist.
I don't think the second mostimportant factor is product
quality.
(03:09):
So when the business wasstarted a long time ago, this
wasn't the most important or thesecond most important thing.
But it has developed over theyears, especially since Costco
got involved in the industry,and their belief and BJ's and
(03:31):
Sam's Club follow it to someextent is that we're going to
sell the highest qualityproducts at the lowest possible
prices and no one can disputethe fact that we're providing a
value to that member.
And the combination of thosetwo is really what enables
Costco and BJ's and Sam's Clubto differentiate themselves from
just about any other retailerin the country.
The two other factors are.
(03:52):
The membership fee, which I'vediscussed, is a result of the
low prices, but it provides theclubs with the ability to
operate at those low margins andhave some of that membership
fee.
It's reduced, but about 60% to70% of that membership fee at
BJ's and Costco a little bithigher maybe 80% to 90% at Sam's
(04:13):
Club flowing down the operatingincome.
And the last aspect, before Italk about the pandemic, is
treasure hunt and what the clubsdo with about 25, maybe 30, 35%
of their products is theyrotate them every six to eight
weeks and it gives theperception that they're stocking
(04:33):
a wider variety of merchandisewhen in fact they are not.
So those four factors existedbefore the pandemic, still exist
today, but the pandemic waskind of an accelerant to their
success.
One reason was they weremandated in some areas but they
were able to stay open duringthe pandemic.
(04:55):
Number two, they were able tosupply key items that people
wanted during the pandemic andtheir membership grew during
this time because people beganto trust them in a different way
.
I think that their lives werebeing pressured and we could
rely on BJ's and Costco andSam's Club to supply us with the
(05:17):
products that we needed.
So the combination of thosefactors pricing, quality,
membership and treasure huntbefore and the feeling that
members got because they helpedthem during this very stressful
time has propelled them, I think.
And then you factor in the realestate aspect, where some
(05:38):
companies failed and then theywere able to open up in markets
or expand in markets that theyweren't able to expand in before
.
But that's basically why theyare doing so well today.
Speaker 1 (05:52):
Neat and it's been really remarkable to see that
there's been a degree of stayingpower as the effects of the
pandemic on the retail marketoverall have waned a bit.
On the retail market overallhave waned a bit, although
inflationary pressures just madethe value equation, it feels
like, of the Club channel thatmuch more obvious to members or
(06:16):
potential members.
Speaker 2 (06:18):
Sure, I don't want to keep you on this one question,
but that aspect with Sam's Cluband Costco especially and
they've talked about it is thattheir limited SKU count gives
them the ability to not have todeal with the tariffs, for
example, or rising prices,because they can just get it out
of items or they can deleteitems that are not providing a
(06:38):
value and bring in other itemsthat are, and that limited SKU
count enables them to do that.
Speaker 1 (06:45):
Yeah, and I want to focus in a second on BJ's
specifically.
You've really tracked theirstrategy over the years and in
one of your recent issues yououtlined how BJ's is really
leaning in to private brands,private label and to digital
convenience, and I'm curious, onyour perspective, what stands
(07:08):
out to you about how BJ's ispositioning themselves against
Costco and Sam's Club from yourview?
Speaker 2 (07:17):
It's even more nuanced than that and I want to
take a step back.
In 2011, bj's went private.
They were bought by a companyand I think in 2018, they came
public.
In that seven-year time period,they took on a lot of debt.
The company that bought thempaid themselves dividends and
they used debt to do it.
(07:37):
So while they were doing that,bj's had to operate well and
they had to operate financiallywell, so they raised their
margins.
I don't think it wasintentional, but I think that
fact enabled them to see maybe anuanced approach to competing
with Costco and Sam's Club onone side and Walmart and grocery
stores on the other.
And they said we don'tnecessarily have to be at 11%
(08:01):
margins, which is where Costcoand Sam's Club are we can be at,
and where they are and you cansee in this chart they're at
16.5% margins.
They're 500 basis points higherthan their club competitors,
but still significantly lowerthan Walmart and grocery stores,
so they still offer a valuenumber one compared to what they
(08:24):
consider to be their truecompetitors.
At the same time, they're stillcompetitive with Costco and
Sam's Club on branded items, andthe reason we know this is
every October or September,october, we go to a market where
BJ's, costco and Sam's Club agrocery store in Walmart operate
(08:46):
within about five miles and wefind all the branded items and
there's actually not too manythat all five stock.
It doesn't have to be the samepackage, but it has to be the
same brand.
And we compare the pricing.
So this past year there wasabout 150, 160 items we found
and BJ's was historically andthis past year two to 4% higher
(09:09):
on those branded items.
So they're more competitive onitems that Costco and Sam stock
but they make more margin onitems they don't.
So that's why I say it's alittle nuanced, it's a little
high-low, and this is wheretheir private label comes in.
Is that they're able togenerate higher margins?
Most likely.
You don't know exactly becausethey don't report it Right.
Speaker 1 (09:33):
And that makes sense.
It's been interesting to seethat, to your point, some cases
they compete by not competing,at least not with their club
competitors.
They're more focused on groceryand mass than some others, and
that's been their approach.
Speaker 2 (09:47):
Their advertising comes through.
They do do advertising and theytalk about that specifically.
They don't talk about Costcoand Sam's.
Speaker 1 (09:55):
Interesting.
So I want to talk a little bitabout Sam's Club, and in full
disclosure obviously, of thethree major chains, that's the
one I've actually worked for, soI'm I'm gonna ask this question
in a way that hopefully doesnot appear uh self-serving, but
I'm really interested in yourthoughts on sam's club's
(10:15):
commitment to omni-channelstrategy, broadly talking about,
uh, blending physical anddigital experiences and some of
the other ways that they are, itappears, using technology more
aggressively than the two clubcompetitors.
I'm curious, from your view, assomeone who's tracked the
(10:36):
development of the club channelfor years and years, what's your
take in how serious Sam's Clubis about refining or continuing
to kind of transform the clubmodel?
Speaker 2 (10:46):
I just want to put a little perspective on Sam's Club
because and you know this overthe years they've changed their
core philosophy in differentdirections several different
times, and I'm not saying thatthis is going to be the same,
but they've always tried tocompete with Costco.
Just to give you just abroad-based overview in 2024,
(11:09):
sam's ended the year with 600buildings in the US, did 90
billion.
Costco ended with 617 units inthe US, 188 billion.
So two times as many, I meanthe same number of locations,
two times as much sales.
So you know, sam's is focusedon Costco and they always have
said how can we differentiateourselves?
(11:30):
And this omni-channel approachis the latest iteration, but it
might be the final iteration,you know, you don't know.
So, given that they're focusedon convenience, they want their
members to not only save on theproducts that they purchase,
their margins I think there's achart through here that shows
(11:54):
that their margins are basicallythe same as Costco.
They just started reporting itat 11%, but they're layering in
the convenience factor.
So Scan and Go is a tremendousproduct that enables members to
easily scan their items whilethey're shopping and not have to
interact with any Sam's Clubemployees Don't have to go
(12:14):
through the register, they don'thave to get, they don't have to
have their item basket, theirbasket checked as they walk out
because Sam's instituted orintroduced this new technology
that scans the items as theywalk through these huge arches.
They just introduce pizzadelivery through their own
delivery service.
They pick your orders for youand will deliver it curbside.
(12:37):
And they pick your orders foryou and, with their own
employees, deliver it to you atyour house.
So there's all these thingsthat they're doing as part of
the convenience factor.
The only hiccup that they couldface is there's a cost to that,
and what is Walmart as anoverall company willing to allow
Sam's to generate on theoperating income percentage side
(13:00):
?
That, because they're incurringthese costs, instacart is not
coming into their buildings anddoor dashes and I think it's
Sam's Club employees who aredoing all these deliveries.
So that's the only hiccup.
Is the convenience factorenough to compete against Costco
head on?
It may not matter, because Ithink they're going to be
(13:21):
selective as they expand and trynot to head right into where
Costco operates at its strength.
They might try to findlocations where there's a market
that doesn't have a BJ's or aCostco.
So I imagine that's going to besomething that will play out
over time, but generallyspeaking, if the operating
(13:45):
margin is acceptable because ofthe added cost, then it's
probably something that they canstick.
If it's not, then it's up forgrabs.
But it is very interesting andit's very convenient.
I don't have a Sam's Club nearme personally, but when I do go
I always use Scan and Go andit's a tremendous technology.
Speaker 1 (14:04):
It is, and I've really started to use it more
proactively, not only there butat Walmart as well, and I'm
starting to embrace theconvenience of it, particularly
when you're not making too largeof a purchase.
Speaker 2 (14:20):
One know one of the things.
Oh, and there's one other thingthat Sam's Club does with it.
They actually offer additionaldiscounts on select items that
members use Scan Go for.
So if you buy Tide detergent,they might offer an extra dollar
or two discount if you use ScanGo to purchase this item.
Speaker 1 (14:39):
Yeah, I've noticed that and I've noticed Walmart
and I'm a Walmart Plus member Inaddition to being a Sam's Club
member I've noticed Walmart dothat as well, and I assume that
that's an incentive to getmembers to try this or to be
more comfortable with using itright.
Yes, using it right, yes, yeah,one of the things that what I
(15:05):
would read that with a lot ofinterest in your most recent
issue was you did a verydetailed analysis of the
business member focus of allthree us chains and I think one
of the key takeaways in youryour article was that, of the
three chains, sam's club was themost focused on business
members, but all three wereplacing less emphasis on
(15:29):
business members than they hadin the early founding days of
the of the club channel, and itwas a really interesting article
and I'm just curious uh, whatprompted you to to do that
analysis?
Is that something that you'vedone over the course of years in
Warehouse Club Focus?
Speaker 2 (15:48):
We update it every two years and so it was just
time to update it.
And I think the interesting partis from Sam's Club's point of
view.
The last iteration of theirfocus strategy was this
wholesale consumer, and for awhile, and they're reducing the
assortments in some areas, butthere were some very significant
(16:11):
additions in key categoriesthat food service members would
want wholesale products,janitorial, automotive there was
a whole set of business membersthat they were trying to reach.
This was several, several yearsago that they added wholesale
items for Some categories stillhave it the kitchen category,
(16:33):
janitorial to some food serviceSKUs, certainly some vending
SKUs, but it's not as deep as itwas, and I think what they
found is that it was a challengeto have those items generate
the sales volume that theywanted.
And what all three clubs havefound over the years simply is
that consumer items aregenerating higher sales volumes
(16:55):
and as each club has reduced itsSKU assortment over the years
and we'll talk about that, Ithink, later the items that have
fallen away are generally thewholesale focused items that
just don't generate those salesvolumes Interesting.
Speaker 1 (17:12):
I want to also talk about profit margins in the club
format.
In a prior issue I believe itwas the April issue you did
analysis and it showed that ofthe three chains, costco is
running the leanest gross marginrate among the three operators
here in the US.
I'm curious what does thatstate about their operating
(17:35):
philosophy and is that asustainable approach for them,
given how competitive retailingis broadly and obviously the
Club Channel is specificallyhere in the US?
Speaker 2 (17:48):
So Costco believes in one simple fact low prices
drive sales, and there's a chartthat we can look at now that
really exemplifies this, andthis chart shows Costco's gross
margin since 2009,.
Every five years, and you cansee they haven't changed, and on
the right side of the chart orthe left side, depending on how
(18:10):
you're looking at it.
It shows the average annualsales per location, which, over
that same 15-year time period,has doubled per location.
And what has happened is, if youlook at the SG&A as a percent
of merchandise sales is asthey've reduced their SKU counts
in the buildings and we'll talkabout it, but Costco stocks
(18:30):
around 3,300 items and we countthem every year.
They are much more efficient inthose locations, so they don't
have to add the number, theamount of people and payroll
dollars that you normally thinkto operate a $260 million a year
location.
So, as their SG&A percent ofmerchandise sales has dropped,
(18:53):
their operating incomepercentage has increased and it
trails just slightly behind BJ's.
And so what Costco is doing istheir low prices are driving
sales, which is enabling them tobecome simply more profitable.
So, to answer your question,this is ingrained in them and if
you ever see their margins tickabove 11.5% to 12% on a
(19:17):
consistent basis, as an investor, you would be concerned.
I guess in a limited way,Although you think they're
making more money.
It's just not the philosophyand I don't expect that ever to
change.
It's just part of who they are.
Speaker 1 (19:31):
Yeah, and it has been a pretty consistent aspect of
the strategy and their approachsince the days of Price Club and
certainly Apple.
Price Club and Costco mergedback in the 90s and, to your
point, the analysis shows,there's just been a rock-solid
insistence in believing thatthat approach is the right
approach.
Yeah, that is correct.
(19:51):
Yeah, one of the other thingsthat I think you have tracked a
lot over the course of years isthe difference in value
perception in the club model, inother words, the difference
between cost, or what Walmartwould be called opening price
point, versus value.
And I'm curious, from your viewas someone who's tracked and
(20:15):
analyzed the industry, can youexplain the distinction and how
it affects how suppliers shouldapproach perhaps clubs broadly,
or any one of the operators,versus other retail formats in
terms of the types of items andthe types of proposals that they
bring to buyers in the clubchannel?
Speaker 2 (20:36):
Sure Cost to the club buyer means what's the lowest
possible net landed price at alocation not a distribution
center, but at a location.
Can I work with a vendor to get?
That's the cost Value meansfrom the member's perspective.
How much are they going to save?
(20:57):
What are they going to get bypurchasing this item in
comparison to purchasing thisitem elsewhere?
How much are they going to getby purchasing this item in
comparison to purchasing thisitem elsewhere?
How much are they going to save?
How much when I say get interms of a product, you could
have extra batteries in aproduct that needs batteries.
The battery cost is notincluded.
So there's different ways toachieve that value.
(21:17):
Generally speaking, we believeBGA's is a little bit more
focused on the cost factor, notbecause they're trying to drive
down their costs and lower theirprices, but they're trying to
drive down their costs and givethemselves the ability to make a
little bit more money Notexcessive.
But they do have those marginsthat are 500, 600 basis points
higher than Costco and Sam'sClub.
(21:38):
Costco and Sam's want to beable to provide their member
with value and that could be lowprices.
As I mentioned, that could beadded items in the product
package that could be.
For example, sam's Club justannounced or not just announced.
They've been working on it for acouple of years, taking out 40
(22:00):
bad ingredients in products andI forget what they call it, but
they've accomplished maybe 90,.
You know they've worked withvendors to get out, you know,
90% of these items in productsthat they're selling.
So they're focused on higherquality.
Organic plays into this valueaspect.
You know, instead of buying a apenny pasta, buy an organic
(22:24):
penny pasta and sell it for thesame price as a regular penny
pasta.
So there's different ways toachieve it, but Sam's and Costco
, I think, are more focused onthe value side and BJ's a little
bit more focused on the costside to expand their margins.
Gotcha.
Speaker 1 (22:42):
And it makes sense.
And certainly I've seen youtrack it as well as I, obviously
as a former buyer, tracked itin the categories I was involved
in and it's interesting that ithas remained relatively
consistent over the years.
One of the things I've alsoseen you track and report on,
michael, over the years is thesize of the assortment in the
(23:04):
three major operators, the sheernumber of used in a building,
and you referenced the fact thatCostco traditionally has the
fewest, bj's typically has themost.
I'm just curious about thebroader assortment being a
winning play in the club format.
Does it risk confusing kind ofthe treasure hunt experience?
(23:29):
Does it risk other parts of themodel?
What's your take on SKU capbroadly and maybe the way that
all three operators operatehistorically over time in terms
of the breadth of the assortmentthat they offer?
Speaker 2 (23:45):
So this chart that we have shows the skew counts over
time over the last 20 years foreach club.
And it's the third line that Iwant you to look at, because
we're not going to include booksand crafts and jewelry and
fragrances.
But BJ's assortment in food andnon-food has gone from 5,800
around to 5,200 currentlyroughly Costco 3,400 to.
(24:12):
You know we counted 3,100 inlast year but I think recently
it's ticked up.
There's different ways you getdifferent counts based on
different locations and maybe alarger location has more items.
But it's roughly around $3,200,$3,300 now.
Sam's Club on the food andnon-food side has gone from
$3,800 to $3,500.
(24:34):
So they've all reduced.
There's more full-palettedisplays.
It's easier to manage a buildingthat's like that, to answer
your question and as it relatesto BJ's, is it, do they have the
ability to stock more items?
Operate efficiently?
And I think they do.
I think they can rotate just aswell on the treasure hunt side.
(24:59):
But the problem they run intois the size of their buildings.
They're only 110,000 squarefeet on average.
Costco's average building is145,000 square feet.
The current new size is 162,000to 165,000 square feet and
Sam's is still.
I think as they open newbuildings, I think they're going
(25:20):
to still be around 150,000.
I didn't get the impression thatthe new building is going to be
any larger than that, but I maybe wrong on that.
In any case, rotating through110,000 square foot buildings
for BJ's and stocking 5,500items is definitely more
challenging, but I believe it'swhat BJ's has as a competitive
(25:43):
advantage versus the other twoand, just strategically thinking
, even if they reduce theirprivate label assortment and
went more on the treasure huntside, I think they would be
better served, because I thinkthey would.
You know, there's tons and tonsof items out there, 5,500
compared to Walmart.
At what?
100,000?
I don't even yeah.
Speaker 1 (26:03):
A super center is generally around 100,000, I've
been told Sure.
Speaker 2 (26:06):
There's tons of items and you know, focusing on a
rotation of, with more spaces tobe able to rotate more branded
items through, I think is awinning strategy.
Now they have taken a differentapproach.
Private label represents 18% oftheir current assortment, more
or less.
So they believe in that andthey like the margins.
(26:27):
But I personally believe that alittle larger buildings, a
little bit more brandedrotations would serve them well.
But to answer your questionspecifically, yes, they can
operate like this.
Speaker 1 (26:38):
Good and it seems like they've done it for a
number of years and done itsuccessfully and, to your point,
it does differentiate them alittle bit from their two
competitors and maybe isintentional in terms of
differentiating and makingthemselves perhaps interesting
to a broader audience,particularly in the grocery side
(27:00):
.
Sure Does that make sense, yes,okay, well, take a little trip
outside the US and lookinternationally and reference
PriceSmart.
They continue to fly a littlebit below the radar in terms of
being as well known in retailingcircles as the three US chains,
(27:23):
but they're really starting toshow growth, particularly in
Colombia and in Central America,for maybe folks that aren't as
familiar with Price Smart.
What's the story there and arethey building kind of a new kind
of warehouse club modeling inyour view?
Speaker 2 (27:42):
No, and for anyone who wants to sell Price Smart,
it's just like selling Costco.
They operate in basically thesame way, except for they're
smaller.
As I mentioned, costco'saverage building size is 146,000
square feet.
Price Smart is at 50,000 squarefeet.
I apologize, I should havewrote this down, but I think
(28:03):
they operate 52 buildings rightnow in Central or Latin America
and the Caribbean and theiraverage annual sales again I
don't know why is around $3.5billion.
So they're much, much smaller.
But, as you can see from thischart, they are extremely
productive because of the simplefact is they focus on low
prices and they want to drivesales, and I can explain in a
(28:26):
second why they have that samephilosophy.
But if you look at PriceMart,in terms of sales per square
foot, just below Costco, andeven when you're looking at the
weekly sales per item, per club,they're above Sam's Club.
So they are extremely,extremely productive despite the
(28:48):
fact that they're very small.
And the reason they operatelike Costco is Robert Price who,
with his father, saul, startedPrice Club, and Jim Senegal
worked at Price Club before hestarted Costco.
All came from the same businesstree which is learning under
Saul Price and since Price Smarthas existed, robert has been
(29:08):
involved as president and CEOsometimes, which he is right now
.
He's chairman of the board ofdirectors.
His son is actually David Pricewill be taking over the company
in August.
So there's this consistencywith Price Mart.
That is the same with Costco,where they're focused on low
prices, they're focused onquality and they're based in
(29:28):
Miami, and for anybody who sellsBJ's Costco or Sam's Club, it
shouldn't be a difficult sell togo down there.
Actually, they're based in SanDiego.
They have distribution in Miami, so you'd be going to San Diego
to sell them, sorry.
Speaker 1 (29:44):
No, and that makes sense.
And I find it fascinating howtransportable the club format is
to other markets around theworld outside of here in the US.
And PriceSmart, in my view, hasbeen proof that there are
markets that maybe the three USoperators wouldn't necessarily
(30:10):
look at, that PriceSmart wentinto and it has, over the course
of time, proven to be verysuccessful in those markets.
Speaker 2 (30:17):
Their largest market has become Colombia over the
past decade, and Colombia'spopulation is commensurate with
Canada's.
It's more or less equal.
Costco operates over 100locations in Canada.
Price Smart operates around 8,9, nine or 10 locations in
(30:38):
Columbia.
They have a huge runway in thatcountry, just depending on the
economic conditions, right.
Speaker 1 (30:47):
Interesting to see.
Last thing I wanted to kind ofhear your thoughts on is a lot
of folks in the SPAR communitylisten to our broadcasts and if
you could give any advice tosuppliers trying to sell in to
the club channel, what's maybethe biggest piece of advice you
(31:11):
would give them for beingsuccessful in the wholesale club
format, not only this year butlooking forward into the future?
Speaker 2 (31:18):
I think there's two items.
One, to visit the buildings.
It doesn't matter what buildingyou're visiting, but to
consistently go into a BJ's, aCostco and a Sam's Club and not
just walk to your own category.
Walk the entire building,because packaging is such an
important component of the clubchannel and there are ideas and
(31:39):
concepts and things that youwouldn't imagine in other
categories that companies aredoing that potentially could be
applied to whatever you and yourcompany want to accomplish in
the channel.
So walk the buildings, Walkthem all the time.
Don't think that you knowwhat's in there.
And the second is don'tunderestimate their focus on low
(32:01):
prices.
It's what drives them and nomatter what you read about in
the media, about Sam's focus onOmni channel, BJ's expanding,
adding 20 locations, no matterwhat is said, that's what their
first and foremost going to talkabout is those low prices.
Speaker 1 (32:19):
That makes sense, Low cost yeah, yes, low cost and
that leading to low prices.
Yeah, this is what you did foryears, yeah, and be a very, very
efficient operator.
I think that's the role thatpackaging plays, is it makes it
easier, you hope, to stock theshelves and keep them stocked,
because if the item ispallet-driven that kind of very
(32:41):
efficient packaging it makes itvery easy and efficient for them
to run their buildings and tokeep their prices low.
Speaker 2 (32:48):
Oh sure, there's messaging.
So, just as an example, sam'sClub allows vendors to put the
savings or the benefits that youwould get by purchasing this
item, like save 11% bypurchasing this package of
diapers, and Costco doesn'tallow that type of messaging
generally.
So you get these types ofthings that you would not
(33:10):
normally see by walking thebuilding and all the categories.
Speaker 1 (33:14):
Yeah, no, I think the advice to walk the buildings
and to see what else is in thebuilding already and try to come
up with cool, neat,differentiated products is
probably the best advice andcertainly advice I gave to
suppliers when I was a buyerwith ZampClub as well, so that
makes total sense.
Like I have to say, this hasbeen a real master class in the
(33:38):
Club channel strategy and Ireally enjoyed talking about not
only the industry overall butsome of the things that each
operator is doing.
That's kind of unique, whetherthe things that BJ's is doing to
continue to improve theirbusiness now as a public company
.
Again, the focus of Sam's Clubis put on nominee channel, the
(33:59):
margin discipline that Costcohas and things like that.
I'm curious if someone isn'tfamiliar with Warehouse Club
Focus and they wanted to figureout how to get a subscribe,
where should they go?
Speaker 2 (34:13):
Warehouseclubfocuscom .
It's very easy.
You could sign up for asubscription or even a trial
subscription, and we respondwithin the day.
That's awesome.
Speaker 1 (34:23):
Well, thank you so much, Michael, for joining us
and for talking a little bitabout the Wholesale Club
Challenge.
It's obviously been a personaljoy for me, having spent so many
years involved in the formatand had an opportunity to chat
with you today.
Thank you so much for your time.
Speaker 2 (34:38):
Oh, thank you, I really appreciate it.
It was fun.
Thanks, enjoy it as well.
Speaker 1 (34:42):
For our listeners.
If you found value in today'sepisode, don't forget to
subscribe and share the DigitalFront Door with your colleagues.
We'll see you next time.
Thanks for listening For theDigital Front Door.
I'm Scott Vanodick.
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