retail news in context, analysis with attitude

Reuters reports that after a decade of rampant sales growth and expansion in store county, the three major warehouse club chains -- Sam’s Club (517 stores), Costco (290), and BJ’s (139) -- are facing slower sales and profit growth.

Part of the problem is competition, as the chains increasingly compete with each other in a variety of markets are moving to solidify their hold on specific areas by building more stores there, as opposed to opening in new, untapped regions.

In addition, there seems to be a sense among analysts that there is a natural limitation on how many people are interested in paying membership fees to have access to large sizes, especially when the competition in so many areas already is highlighting low price as a strategic imperative.

Reuters notes that both Sam’s and BJ’s have seen recent changes at the CEO level, suggesting that there is some corporate discontent with how things are going.

One of the likely trends seen emerging from slower growth could be the elimination or reduction of membership fees, though none of the chains will admit to this being a strong possibility.

Several of the companies are already experimenting with self-scanning at their checkouts in order to quicken the shopping trip.

Ironically, Phil Lempert’s SupermarketGuru.com consumer site recently did a survey that suggested shoppers were willing to go to the clubs for specific kinds of items, such as detergents and paper towels.
KC's View:
We have a Costco near us, and we shop it at least 12 times a year -- four times to buy all the laundry detergent, paper towels, toilet paper, dishwasher detergent and other non-perishable necessities that we can use in a quarter, and the other eight times to fill in with large sized branded products that aren’t carried at Stew Leonard’s and Trader Joe’s.

In short, Costco exists to keep us out of traditional supermarkets for our regular day-to-day shopping. Now, we do go into local stores because there are the occasional specific needs, plus it’s our business. But if it weren’t our business to know what supermarkets are up to, we’d been even less likely to go in.

And we’re not alone.

The lesson? The fast growth of the warehouse clubs may slow down, but that doesn’t mean they won’t serve an important need for a lot of high-volume shoppers…the shoppers that the traditional supermarket chains cannot afford to lose.

Which means that traditional supermarkets have to be ever more innovative, clever and aggressive in finding ways to keep us coming in. (See the Superquinn story at the top of the page for one idea that would certainly appeal to a lot of people.)