Wholesale buying is booming

Statistics show more consumers have been targeting<br>wholesale retailers.
Statistics show more consumers have been targeting
wholesale retailers.

Wholesale retailers are continuing to turn regular profits with their “stack-it-high,
sell-it-cheap” philosophy and the industry’s biggest players – BJ’s Wholesale
Club, SAM’S Club and Costco Wholesale – continue to expand, eyeing one another’s
turf and market share.



Natick, Mass.-based BJ’s was primarily the only wholesale retailer in the Northeast until other competitors began to build across the country during the early 1990s. With close to 150 stores spread through all of the East Coast states (except Vermont), sales from the chain’s 8 million card holders were just under $6 billion for 2003, a 11 percent increase compared to the previous year. Perhaps a better sign for BJ’s, the industry’s No. 3 chain, was that the company’s net income more than doubled over the last year, to $130 million.



While the Issaquah, Wash.-based Costco doesn’t have a strong local presence (the closest locations are just south of Boston), the chain is one of few taking on Wal-Mart (which owns SAM’S) and winning. With more than 400 warehouses and upward of 42 million members, Costco had 2003 sales of $41 billion (almost 10 percent growth) for net income of $721 million (a 3 percent year-over-year increase).



Along with a solo Ocean State location in Warwick, the closest SAM’S stores are in Seekonk, Natick and Worcester, Mass. Bentonville, Ark.-based SAM’S Club accounts for about 15 percent of Wal-Mart’s annual sales, running more than 500 stores in 2003 for sales of more than $31 billion (7.8 percent growth) among 46 million club members. Both Costco and SAM’S also have an international presence.



All three chains are coming closer to literally butting heads as SAM’S regularly builds within blocks of Costco locations in Middle America while BJ’s has headed further west and south in recent years. The biggest difference among the trio is in per-store sales for Costco’s – where the store average is a $114 million in sales a year, while the normal SAM’S location takes in closer to $60 million a year and BJ’s around $44 million.



Cathy Maloney, vice president of investor relations for BJ’s, said following a change in management about 18 months ago, the company began a strategic review of its business after watching its sales trend deteriorate after the economic heyday of 1999.



While the chain continued to expand its locations, it saw dwindling single-digit profit growth in 2000 and 2001. Maloney said the first question asked internally was, “Who is our core member?” The answer was mostly women buying for a higher-than-average income household.



“Our customers were a little confused by our offerings,” Maloney said. “What we were offering was not always the best.”



She points to the elimination of the chain’s entire line of “As Seen on TV” products, and notes that shelf space began to be filled with higher quality, and brand-name items, such as KitchenAid and Cuisinart appliances and Sony electronics. Maloney said an even more noticeable change was upgrading bakery and produce and tailoring the tastes to the market from introducing ethnic foods, to improving the quality of foods carried under BJ’s private label.



Maloney said BJ’s locations tend to be in areas with populations between 100,000 to 125,000 in places where people tend to make higher-than-average incomes for the immediate area. Along with three Rhode Island locations, the closest BJ’s stores are in North Dartmouth and South Attleboro, Mass., as well as a new Taunton location that opened in November.



As for targeting a market, Maloney said the decision was made to head back to BJ’s roots and consistently target those upper-middle class families, hopefully letting Costco and SAM’S duke it out over the small-business customer.



“Our number-one goal is to take market share from the less efficient channels of distribution,” Maloney said. “There’s lots of opportunities in our core market and we still see a lot of expansion potential.”



In particular, BJ’s is eyeing the supermarket industry as its main competitor, a “less efficient” distribution model that will always have to carry a much larger array of product offerings as well as dealing with costs ranging from lighting to union labor.



Maloney said the next step for BJ’s would be tapping into a whole wealth of information gleaned from transactions as customers show their membership cards. The company is in the process of refining its customer database to evaluate who is shopping, when they’re shopping and what’s unique about their purchases.


Maloney said that “untapped potential” will allow BJ’s to continue gearing
their marketplace to their customer and hopefully catch up to the average per-store
Costco sales transactions.



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