Sam’s Club Aims to Be Less Like Wal-Mart
Warehouse club wants go more upscale, but has hard time shaking Bentonville’s influence
Sam's Club wants to attract more upscale customers by offering fresher merchandise, store designs and selection unlike those of Wal-Mart, its parent. PHOTO: RICK WILKING/REUTERS
After struggling for years to turn around sluggish sales, Sam’s Club is now pursuing a more fundamental fix: breaking away from the low-income consumers who shop at at its parent, Wal-Mart Stores Inc.
“We want to be less of a Wal-Mart,” said Rosalind Brewer, chief executive of the warehouse-club retailer that has tried more modest moves like improving online ordering and adding such services as tax preparation that appeal to small-business members.
The new strategy means carrying fewer products that appeal to households that earn $45,000 a year—Wal-Mart’s sweet spot—in favor of targeting wealthier shoppers with more organic food, brand-name clothes and 1,000-thread count Egyptian cotton sheets, she said during a recent interview.
Sam’s struggle to shake an early focus on mainstream consumers has become a liability as club stores have evolved into a favorite among more affluent shoppers who are able to pay a membership fee for access to discounts on items from large screen TVs to bulk boxes of peaches. At the same time, big- box retailers and grocery stores have embraced discounted bulk sizes, without a membership fee. Rival Costco Wholesale Corp. has thrived, building stores in wealthy enclaves and delivering strong annual sales gains.
For Sam’s part of the challenge is Wal-Mart itself. Wal-Mart founder Sam Walton created the warehouse chain in 1983 as a place for small businesses to stock up on discounted bulk items, not as a Wal-Mart clone that offers everyone everyday deals. But as Wal-Mart grew, Sam’s followed. Now, some 200 of Sam’s about 650 U.S. stores share a parking lot with a Wal-Mart.
Advertisement
“By far, and regardless of region, Wal-Mart is Sam’s largest competitor,” says Sara Al-Tukhaim, a director at Kantar Retail, a consulting and research firm. Kantar data shows that 81% of Sam’s shoppers say they also shopped at Wal-Mart in the past four weeks, compared with a 15% overlap with Costco, says Ms. Al-Tukhaim. Twenty percent of Wal-Mart shoppers say they also went to Sam’s Club, she says.
Ms. Brewer doesn’t agree that Wal-Mart is her biggest competitor but she notes that “a winning model is when Wal-Mart operates in their lane and Sam’s in their lane.” Most of Sam’s products are already different than Wal-Mart’s, but when Sam’s sells single deodorants or Wal-Mart sells five pound bags of frozen strawberries, the two stores are competing, said Ms. Brewer, who has been CEO since 2012.
Growth in Sam’s club stores open at least a year inched up 0.5% in its last fiscal year, a gain dwarfed by Costco’s 6% increase over a similar period. For the past five years, Sam’s has lagged behind Costco’s growth. Total sales at Sam’s hit $58 billion last year while Costco booked $110 billion from its 664 global stores. Sam’s accounts for about 12% of Wal-Mart’s $482 billion in annual revenue.
Costco has done well in part because it clusters stores around urban areas and along the country’s coasts, drawing a wealthier clientele that has fared well in the economic recovery. It went into organic foods early and now offers an average of about 200 organic items per store. Sales of organic food at Costco are about $4 billion a year, said Richard Galanti, chief financial officer for Costco, the third largest retailer in the U.S. by revenue.
Mr. Galanti sees Sam’s as Costco’s most direct competitor, but he notes that Costco’s strength is its laser focus on club stores, while Sam’s is but one of several priorities for Wal-Mart. Costco also has regional product buyers who can hone purchases to local preferences. Sam’s buyers are all based in Bentonville, Ark., Wal-Mart’s home.
Sam’s has made forays into more premium products like those at Costco, but frequent leadership changes have stymied efforts to shake its parent’s influence. In 2001, Sam’s added expensive jewelry and said it wanted to sell high-end art to better compete with Costco. Those plans floundered however when Sam’s president left in 2002. More recently Ms. Brewer’s predecessor, Brian Cornell, added more fresh food and upgraded merchandise. Mr. Cornell is now CEO of Target Corp.
Running Sam’s Club has been a steppingstone to larger jobs at the parent company. Wal-Mart’s current CEO, Doug McMillon, managed Sam’s from 2006 to 2009. Eight executives have run Sam’s in the last 20 years.
Sam's Club CEO Rosalind Brewer says the warehouse chain wants to attract more affluent customers as it tries to lift sales growth to match rival Costco Wholesale Corp.PHOTO: PHELAN M. EBENHACK/ASSOCIATED PRESS
Sam’s executives are starting to use new technology to study its consumers, gaining access to data on the specific demographics of shoppers at each club, including household income by ZIP Code of shoppers, said Bill Durling, a spokesman for Sam’s. That data showed that 150 Sam’s are located in areas with many high-income shoppers but don’t draw enough of those customers.
In two regions, the retailer is testing what a high-end Sam’s might look like, with more individual prepared meals, pricey furniture, apparel and food alongside rows of bulk Coca-Cola typical in most Sam’s Clubs. The test allows a small team of Sam’s buyers to practice selecting products with wealthy consumers in mind. The aim is to try to attract shoppers that might also shop at places like Whole Foods Market Inc.
However, many of Sam’s top suppliers don’t sell products that target wealthier shoppers, making the transition more difficult.
Last fall Sam’s buyers called Maple Hill Creamery hoping to sell its organic yogurt made in New York. “I was absolutely surprised,” said Tim Joseph, founder of the company.
After the first call Mr. Joseph said he went to his local Sam’s store in Albany, N.Y., and found no organic foods selection. He rejected Sam’s buyers’ overtures three times, worried his tart, full fat, lightly sweetened yogurt wouldn’t be a hit with its customers.
Eventually he was lured to Bentonville, Ark., for a tour of the flagship store where Sam’s buyers explained they are working to add more premium and organic food, he said. Maple Hill Creamery yogurt now is being sold in about 150 Sam’s Clubs mainly in Michigan, Texas and the Northeast, but sales haven’t met expectations yet, said Mr. Joseph.
“They are being patient,” he said.
