Sam’s Club seeks higher-net worth members, management under pressure to boost sales

by Kim Souza ([email protected]) 1,933 views 

Sam’s Club is setting its sights on higher-net worth members with household income of$100,000 per year, as opposed to the  $75,000 household income demographic targeted in recent years.

Sam’s executives said the club’s membership dwindled over the past year, something it hopes to address throughout this year, according to CEO Rosalind Brewer’s presentation at the Sam’s Club Year Beginning Meetings held in Orlando last month.

Membership is the core of Sam’s business, comprising 80% of operating income. Brewer said the retailer will focus on recruiting and retaining households with incomes that could afford club memberships, given the majority of losses were from $75,000 household income and below.

Brewer said the four targets for Savings Memberships were new moms. social couples, neighbor families and large families. The business membership targets will be food service, re-sellers/convenience, daycares, nursing homes and service industries.

Analysts say Sam’s Club management is under the gun to boost sales results after several disappointing quarters. In fiscal 2016, Sam’s Club net sales revenue slid 2.1% to $56.828 billion, down from $58.02 billion in the prior year. Operating income fell 7.9% to $1.82 billion from the $1.976 billion reported during the prior year period. Comparable sales were flat at 0.4% without fuel and down 3% including fuel for the full year. The company also expects flat sales in the first quarter which ends April 30.

John Furner was brought in as chief merchandising officer for Sam’s Club in the past quarter after spending three years at Walmart China. Furner’s mission is to grow sales by addressing merchandise selection and price. He said during the recent meetings that price is the top reason people join and quit clubs. He also said Sam’s needs a more consistent quality of merchandise while also improving the shopping experience with omni-channel capabilities.

Furner said the company is moving with speed to try and grow sales. They have restructured and added merchants in the fresh/grocery divisions bringing 10 new buyers and two new market managers for grocery. They also instituted regional buying practices with seven new buyers in the new regions beginning with Dallas. The company also announced George Agnacian to the local merchandising team.

Furner said the buyers would hold pricing meeting each Monday with divisional managers who will be encouraged to get out into the field every Thursday, taking a more hands-on approach. He also vowed to “wow” more savings level members with the treasure hunt items. At the same time Sam’s will continue to streamline its items further as it wraps all private label into the Member’s Mark brand.

Lastly, Furner said suppliers can optimize their relationships with Sam’s Club by seeing the retailers for what it is – a top 10 retailer with sales in excess of $50 billion annually, the No. 4 food retailers and the 9th largest retailer overall.

He said Sam’s business model is to be a lowest cost provider but does use not the same strategy Walmart U.S.. He urged them to think about a winning Club channel strategy, which is quite different from general retail and adde that Sam’s Club buyers will have their performance metrics evaluated differently this year.
• Sales will be tallied in dollars not percentages.
• Profit dollars matter more than margin.
• Inventory dollars are expected to growth at half the rate of sales.

Some analysts have said Wal-Mart Stores should consider spinning off Sam’s Club so that can flourish on its own instead of being a training ground for management. Veteran retail analyst Walter Loeb, a contributor to Forbes, said Walmart itself would better suited without Sam’s Club attached at the hip.

“I can’t help but wonder why Walmart has not yet found a way to split up its operations and spin-off Sam’s Club despite its weak management team. Walmart could grow faster without the encumbrance of Sam’s,” Loeb noted in a recent blog post. “I  believe CEO Doug McMillon would receive praise from small and large investors if he were to pursue a spin off of Sam’s.”

Insiders have told Talk Business & Politics that McMillon, who also served as CEO of Sam’s Club during a profitable run, is determined to see this part of the business turnaround in short order and management is under the gun to produce better results this year.