Higher Fees And Coupons To Boost Sam’s Club Profits

From Kim Souza with our content partner, The City Wire:

Sam’s Club, often seen as a hidden gem inside the Wal-Mart Stores Inc. mega corporation, is working fast and furious to raise revenue amid a competitive warehouse club channel that rakes in about $140 billion annually.

The warehouse club has turned to a fee increase and coupon strategy to help boost revenue during an unpredictable business climate.

With a total revenue of $56.4 billion last year, Sam’s execs see growth potential to capture marketshare from two of its main competitors, Costco and B.J.’s, while also wooing new members like young mom’s and cost-conscious millennials.

Last month Sam’s Club raised its memberships fees as company management said the previous rates were undervalued given there had been no increase since January 2006. Business members saw their annual rate increase from $35 to $45, while Advantage membership rates rose $5 to $45 per year. Sam’s Plus membership rate stood steady at $100.

Company insiders said Sam’s membership comprises about 80% of the company’s total revenue on an annual basis. The City Wire estimates this fee bump has the potential to raise membership revenue by as much as $5 billion this year, if membership retention remains stable.

In the first quarter of this year Sam’s reported net membership income grew 2.4% driven by Advantage member growth, offsetting slight declines from business members.

“This fee increase has the potential to raise Sam’s overall revenue it the club can use this to grow the percentage of operating profit from membership and lower margins. In effect, tighten its adherence to the club model. I think this would position it well for longer-term success,” said Sara Altukhaim, analyst with Kantar Retail.

She also cautioned that the small business sector remains under stress and yet saw the largest increase among Sam’s membership rate hike, which could hinder retention efforts as the year progresses.

Michael Dastugue, chief financial officer for Sam’s Club, said nearly half of the club membership revenue comes from business members and half comes from advantage savings members. He said there has been very little pushback from this recent fee increase. Dastugue spoke last week to investors at a Jeffries & Co. conference in Nantucket, Mass.

Sam’s Club recently experimented with a new effort that mirrored its competitor Costco? It had a very positive result.

Also, the warehouse club is adding “Scan & Go” service and “Click & Pull” service, which allows customers to order online and pick up their products at Sam’s Club already bundled.

Read the full story at this link.