Sam’s Club takes a chapter from Costco’s playbook to go more local

by Kim Souza ([email protected]) 322 views 

John Furner, chief merchandiser for Sam’s Club, isn’t wasting time in his new role to try and revive sluggish sales for the retail club giant. Furner recently told Reuters that Sam’s Club has placed a small team of buyers in the Dallas market to focus on bringing in more local and organic groceries.

This is not a new concept. Costco has utilized a regional buying approach for several years and corporate cousin Walmart U.S. instituted a local buyer program with its store managers as early as 2004. But it’s the first time Sam’s Club has moved toward decentralizing its buyer teams.

Sam’s Club spokeswoman Tara Raddohl confirmed that the retailer may position more local buyer teams in the coming months, but no exact number or timeframe has been announced.

There are ample reasons for Furner to shake up the retailer’s product offerings on the heels of a rough quarter which included holiday sales. Sam’s Club reported disappointing results with a 0.5% dip in comparable store sales for the quarter ending Jan. 31. Over the past 2.5 years, Sam’s Club sales have averaged just a 0.7% gain, excluding fuel. Traffic in Sam’s Club continued to move down well into negative territory throughout the back half of 2015. Traffic in the recent fourth quarter was down 1.4%, putting Sam’s Club leadership under pressure to grow sales.

Part of the logic behind the local-buyer strategy is to create a better pipeline for higher-end foods and a broader assortment of organics which Furner believes will attract more affluent shoppers to the clubs. Retail watchers agree with the new strategy for Sam’s Club despite the fact it was borrowed from its competitor Costco.

“Sam’s creation of local buying teams makes sense on a number of levels. Most importantly, it is the best way to ensure freshness which in turn drives the trip frequency and destination shopping that is key to driving sales in higher-margin categories. At the same time competitors in the organic space, including Whole Foods, are known for forging relationships with local suppliers so if Sam’s is serious about fresh, localization is a must,” said Carol Spieckerman, CEO of Spieckerman Retail.

She said Sam’s must also consistently strike a balance between fostering a Costco-like “treasure-hunt” experience that focuses on newness and surprise while ensuring that the day-in-day-out brands and items that shoppers expect to see on every trip are always in stock.

“That alone is enough of a challenge to keep Sam’s on its toes,” Spieckerman added.

Jason Long, CEO of St. Louis-based Shift Marketing Group, said Sam’s use of localized buyer team works for some products and categories, but it’s not a total fix.

“The downside is it can add a level of complexity for Sam’s and suppliers. At the supplier level, working with a local buyer can make it easier for smaller companies to secure distribution, but expanding is often more difficult working with multiple buyers versus one at headquarters,” Long said.

Kantar Retail’s Sara Al-Tukhaim noted in a recent report that Costco has benefited from having its buyers spread across a network of regional offices. Al-Tukhaim, a director at Kantar that focuses on the club segment, credits Costco’s use of regional buyers with bringing to the stores more local and exclusive items that can help drive “excitement and retention.”

Kantar research found that premium perishable foods such as meat and prepared fresh meals were a major factor in membership renewal for about one-third of Costco shoppers. She said food selections drives membership loyalty just 23% at Sam’s Club.

”If I’m a shopper and I’m paying for a membership I want only the most relevant items in the club. I want something that speaks directly to me,” Al-Tukhaim said, adding that Costco has been successful with its longstanding regional buying structure doing just that.

Analysts with Cleveland Research said Sam’s new plans are essentially a copy of Costco as they experiment with store clustering and regional merchandising. They also mention Sam’s efforts to reduce the number of items it carries in its clubs to get closer to Costco’s more disciplined inventory count.