John Furner, CEO of Sam’s Club, told the Wall Street investment community last week he understood their questions about whether his new leadership team will move the needle in a positive way.
He admitted the company has tried to serve too many members, targeting as many as 16 different member segments. Furner said the retailer was not doing a great job with any of the 16 segments. Furner said most clubs now have one core member to serve and that’s usually a busy family living in the suburbs with an annual household income between $75,000 and $125,000. He said sometimes those members also own a small business.
Furner said when fuel and tobacco are taken out of the basket, 95% of Sam’s Club purchases look as if they are being bought for the household. Furner said the retailer is focusing on one core member with enhanced services like Scan and Go and club pickup, and having the quality products members want and expect with a sprinkling of items they didn’t expect to find in their local club. Furner is a merchandiser and said club members really care about products.
Sam’s Club comprised 11.8% of Wal-Mart Stores total sales last year. Sam’s Club had net sales of $56.8 billion last year and revenue has been locked between $56 billion and $58 billion since 2014.
“Sam’s Club’s performance versus its chief public comparable [Costco] has been even more disappointing,” noted Budd Bugatch, a retail analyst with Raymond James & Associates.
During Furner’s two-quarter tenure as CEO, Sam’s Club posted net sales up 2.6% and traffic counts up 1.6%. He said food comps have been negative but now are up more than 5%. He also acknowledged the somewhat stagnant performance in recent years and said Sam’s Club “competitive position (comp sales) must improve.” He said the e-commerce division is gaining momentum with sales up 27% in the first half of this year. Sam’s Club had an increase of more than 7 million visits year-to-date and Scan & Go usage has doubled this year, generating over $1 billion in sales since the initiative was launched, according to Furner.
“Sam’s Club management sounded confident about the prospect for Sam’s Club and believes it can be a meaningful contributor to growth going forward,” said Ben Bienvenue, a retail analyst with Stephens Inc.
Bugatch said Furner’s presentation was different from the other CEOs given Sam’s Club has been an under-achiever in recent years. He said Furner’s focus on product, people and digital capabilities looks solid, with his primary focus on product.
Furner said the Member’s Mark private brand initiative, which began nearly two years ago under the leadership of former Sam’s Club CEO Roz Brewer, is resonating. The brand now represents 23% of total sales and is worth $11 billion. In recent years private label accounted for just 17% of Sam’s Club total sales. While Furner said Sam’s Club will win and wow with great merchandise, there is also continued focus on streamlining operations and using digital technology to improve service.
One key area changing is the member signup process, which Furner said could take about 20 minutes on average under the old system. The service can now be expedited in about one minute. The old protocol used two separate systems. Now the expedited service has been streamlined so one employee can handle the entire process much more efficiently so the new members can begin shopping sooner.
Furner said as Sam’s Club invests in reducing customer “friction at checkout and store exits” the company’s overall member satisfaction scores increased 7% in the past five months. He said members like more self-check out options, Scan & Go and not having their baskets checked at the door.
“We are moving with speed and along the way, we’ll show you the progress through results,” Furner said.
Bugatch said Sam’s Club would appear to be a growth opportunity, but he believes it means little, if anything, to investor perception about Wal-Mart Stores.
“That’s a hard judgment for a retailer that is nearly $60 billion in size; but, unfortunately, we think that is the stark reality. It will be interesting to see if Furner and his team can change that during the next few years,” Bugatch said.
Bugatch also said Wal-Mart Stores is now operating with the best consistency, rhythm and speed he has seen in a decade. He applauds the retailer’s efforts to save consumers time and money, and said Wal-Mart Stores CEO Doug McMillion appears to be confident in Furner’s ability to grow overall sales while managing expenses.