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Shrinking, Can Sam’s Club Keep Up with Costco?
After closing 63 stores,Wal-Mart unit to focus on high-income families
Sam’s Club hopes fewer stores help the warehouse retailer attract more-affluent shoppers.
This month, the Wal-Mart Stores Inc. chain closed 63 U.S. Sam’s Club locations.
The closures cut about 10,000 jobs and are the largest since Wal-Mart founder Sam Walton
opened the first Sam’s Club in 1983. Wal-Mart says some of those workers will get jobs in other
stores.
The closures aren’t only a result of retail’s rapid shift online, but are part of a strategy pivot by
new Sam’s Club Chief Executive John Furner to turn what has long been Wal-Mart’s
underperforming sibling into a retailer that can rival its most successful competitor, Costco
Wholesale Corp.
“The strategy isn’t to close clubs. The strategy is to transform the business,” said Mr. Furner, a
Wal-Mart veteran who took over the warehouse chain last February.
Sam’s Club hopes that by strategically closing underperforming stores, it can fine-tune its focus
on stores that are driving higher profits, especially those that serve a higher-income clientele.
Under Mr. Furner Sam’s Club plans to target a single demographic: families with children and
annual incomes between $75,000 and $125,000. The new target came into focus after Sam’s
built an internal team and hired consultants from Bain & Co. to review purchasing behavior,
discovering many shoppers classified as small-business buyers actually bought more products
for their homes, Mr. Furner said in an interview. The newly targeted shoppers already
contribute a large piece of sales, Mr. Furner said. But in the past, Sam’s Club spent too much
“time and money and investment chasing something else,” including narrow groups such as
large families or restaurant owners.
Sam’s Club has long struggled to increase sales at the same pace as Costco, acting more as a
profit center for its parent company than its growth engine. Geography has played a role, say
executives. Costco, based in Seattle, naturally opened more stores in affluent West Coast areas,
attracting those shoppers. Sam’s Clubs often opened near Wal-Mart stores, in lower-income or
less-populated areas.
In the most recent fiscal year, Sam’s Club’s sales in existing stores edged up 0.2%, while Costco’s
rose 3.8%. More recently Sam’s Club sales have accelerated, but at a slower pace than Costco.
Higher-income shoppers have been on Sam’s Club’s wish list for over a decade. In 2001, Sam’s
Club added expensive jewelry and said it wanted to sell high-end art to better compete with
Costco. Then it added more fresh food and upgraded merchandise. Rosalind Brewer, CEO for
five years before Mr. Furner, also tried to mold Sam’s Club into a company that more-closely
mirrored Costco.
Frequent leadership changes and targeting too many types of customers hurt those efforts, Mr.
Furner said. So did some store locations. “We would try to say, ‘work on a higher-income
customer,’ but a number of locations we had pulled us in the opposite direction.”
Some of the recently closed stores were less profitable because their remote location makes it
hard to keep them stocked, such as those in Alaska, he said. Some siphoned too much business
from nearby Sam’s Clubs or were in areas where the population has declined, but competition is
fierce, he said.
Sam’s Club closed all its stores in Costco’s home state of Washington, and in a number of areas
where it competes heavily with Costco.
“We estimate Costco has at least one club within 10 miles of 52 of the 63 closing Sam’s
locations,” said Peter Benedict, retail analyst with Baird in a research note.
Other changes are afoot. Sam’s Club is reviewing its store assortment with the new shopper
focus in mind, Mr. Furner said. The review likely will lead to fewer products such as bulk candy
that are resold by convenience stores and more household goods, he said. Last year Mr. Furner
added more staff to produce areas and introduced training, knowing many shoppers choose
their grocery store based on the quality of produce. Some of the closed stores will become ecommerce
fulfillment centers, to speed online home delivery.
After the Sam’s Club In Linden, N.J., closed, Mayor Derek Armstead organized a job fair last
week for the 187 workers who were employed at the store.
“I was in a state of shock,” Mr. Armstead said, after receiving a call from Wal-Mart one recent
Thursday morning saying the local branch of Sam’s Club would close that day for good.
“I thought they were going to call me with good news, maybe expand,” said the mayor of the
working-class town 20 miles south of New York City. “Unfortunately it was quite the opposite.”
Sam’s Club assisted with attracting workers to the job fair, said Pam Jones, executive director
of Communities In Cooperation, a local social-services organization. About 30 local businesses
came to interview workers, including representatives from nearby Wal-Mart and Sam’s Club
locations and other retailers. About 15 workers received job offers, she said.
