The Supply Side: Walmart, Sam’s Club battle for business customers

by Kim Souza ([email protected]) 2,217 views 

Walmart’s sister company Sam’s Club again finds itself battling the big dog with the recent launch of Walmart Business, an e-commerce site geared to serve large- and small-business customers.

When Sam Walton founded the wholesale club model 39 years ago, his mission was to “Be in business for small business.” The Sam’s Club model was borrowed from Sol Price, founder of Costco, and Walton was known to have said, “imitation is the ultimate form of flattery.”

Sam’s Club has evolved and now looks to focus just as much on busy and larger families and higher-income households, but the focus on business customers remains in the background.

Organizations that upgrade to a Walmart Business+ membership, at a price of $98 per year, have access to additional benefits. Those members also get free shipping with no minimums, free pickup and delivery from the store with a $35 minimum order, 2% rewards on orders of $250 or more and 4% savings on eligible items.

The membership is similar to a Sam’s Plus membership that costs $110 annually and offers free shipping on most items, 2% cash back on qualifying purchases up to $500 annually, member-only savings on fuel, pharmacy savings, instant savings each month on select items, free perks from the tire care center, and 20% savings on glasses. Last year, Sam’s Club had a $6.9 billion online business that reaches customers who aren’t near a club.

“We know millions of small and medium businesses [SMBs] and nonprofits utilize Walmart’s stores and website to purchase supplies to support their day-to-day operations. These customers are under more pressure than ever due to inflation and supply chain issues, adapting to a hybrid workforce and post-pandemic behavioral shifts,” said Ashley Hubka, general manager of Walmart Business.

She said Walmart has worked with businesses and nonprofits to help them run smoothly, have the right items on hand and easily find products to meet their needs. The result of those efforts is the launch of Walmart Business as an e-commerce site designed to help this customer base save money and spend less time on business purchases.

“Our focus is to remove complexity in purchasing, lower costs and give our customers more opportunities to serve their customers and communities. Walmart Business is built to leverage the very best of Walmart — our unmatched operating scale, our proximity within 10 miles of 90% of the U.S. population and the very best of our eCommerce, fulfillment and delivery technologies,” Hubka said.

There are mixed feelings about Walmart’s new membership model.

Scott Benedict, a former executive at Walmart and Sam’s Club who is now an executive at Rogers marketing agency WhyteSpyder, said Walmart Business looks somewhat duplicative, given that Sam’s Club already does a good job serving business customers dating back nearly four decades.

“It feels strange to me, and it’s an interesting play by Walmart,” Benedict said. “We know in some markets Walmart and Sam’s customers overlap, which is nothing new. Sharing parking lots and customers is nothing new. That said, it’s unclear why Walmart could try to compete with Sam’s Club, which was founded for the sake of being in business for business.”

He said the base model for Sam’s Club has always been to offer value on comparable items and sell them for 5% less than Walmart. He said the 5% savings were baked into the business model and typically greater than traditional discounters because they have a smaller curated assortment and focus on larger pack sizes for added value.

Benedict said that is different from previous years in which Walmart and Sam’s Club were complementary, not competing.

“Is Walmart Business meant to compete with Amazon or some other retailer? Maybe so, but it looks like direct competition with Sam’s Club,” he said.

Peggy Knight, the head of retail sourcing at Woodridge Retail Group in Rogers, spent 30 years at Walmart and Sam’s Club. She helped oversee membership marketing at Sam’s Club from the mid-1980s through the late 1990s. Knight said that Sam’s Club’s focus early on was to cater to the business customer. She said the announcement of Walmart Business+ is odd.

“The clubs were merchandised for small businesses like convenience stores, vending machines and other items key for the hotel /motel sector were commonly found in clubs,” Knight added. “Memberships were exclusive back then and required a business association.”

She said small restaurants also shopped for the 50-pound bags of rice, beans and other commonly used food ingredients. Knight said Sam’s Club’s are now merchandised for families and higher-income households. While they may have office supplies and other business essentials, the focus is more on consumer households.

“Today, anyone can be a member, and Sam’s has grown its membership to record levels,” Knight said. “I am a Sam’s Plus Member and Walmart+ member today, but I don’t see the added value proposition with Walmart Business+. Perhaps Walmart is after households not already served by the other two membership programs.”

Knight and Benedict said the Sam’s Club evolution to serve consumer households has been beneficial in terms of growing income and the record membership levels reached last year. It also likely opened the door for others to focus on business customers.

“Competition is good and healthy, and it makes us better,” Knight said, adding that was a common belief during her days at Walmart and Sam’s Club. “I don’t know what is behind the new Walmart Business+ initiative, but perhaps there is untapped demand to be gained.”

Knight said Sam’s Club members benefit from Member’s Mark products that are not sold at Walmart and offer value and quality. Shoppers have more choices at Walmart. It’s a toss-up, she added.

Benedict said time would tell if the Walmart Business+ memberships will help to grow the overall profits.

When recently asked why Sam’s Club does not get a proper valuation given its contribution to Walmart’s business model, Walmart CEO Doug McMillon said, “If we did not already own it, we would want to buy it.”

“It’s an awesome business. And we love it,” McMillon said on Dec. 7 during the Morgan Stanley Consumer Conference. And it’s multinational. Like it’s a great business in Mexico. Sam’s Club is a terrific business in China. It’s our strongest brand in China. So you could look at Sam’s as a global brand, not just a U.S. brand. It’s a great place for people to learn.

We’ve, in some cases, recruited talent out of there. I used to work at Sam’s. [Walmart U.S. president and CEO] John Furner used to work at Sam’s. We try not to turn over Sam’s merchants too fast, but it’s a great place for people to grow and develop. And it’s just a really awesome business.”

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.