The Supply Side: Sam’s Club growth plan may include no checkout stations

It took 42 years for Sam’s Club to reach $90 billion in annual revenue, but CEO Chris Nicholas and his executive group plan to double the business in the next eight to 10 years — if not sooner.

During a recent investor conference in Dallas, Nicholas said the time is right to expand the club footprint by adding 30 clubs over the next two years and remodeling all 600 club locations over the next decade.

“We will redefine the future of the club channel and what it looks like, and that future is omni,” Nicholas said. “We will define success by membership growth, how many new members we acquire, and how loyal they are to us. Over the last several years, we’ve delivered strong growth, and we have a solid foundation, and our members are telling us they want us to do more and to go faster. We’ve learned, listened, and adjusted the value proposition. We’ve sharpened our focus, and we’ve begun the work to leverage the enterprise and to move faster, all of which has created the conditions for aggressive growth.”

A big part of Sam’s plan involves growing membership beyond the organic growth the retailer has achieved over the past seven years without any new clubs until they opened the Grapevine, Texas, club six months ago. That club is considered the model for the future.

Sam’s Club Chief Financial Officer Todd Sears recently told investors that membership income has grown 22% over the past two years. He said renewal rates are strong, with tenured renewals above 90%, and more than half of Sam’s Club members opting for the Plus option at $110 annually over the regular membership at $50. The Plus membership includes free shipping and delivery for online orders with a cash-back feature on promotional items.

Sears said for Sam’s Club to reach its aggressive goal, the retailer must also expand its digital reach and grow membership by increasing its online business. He said Sam’s will use Walmart’s technology platforms to grow its digital business.

“We do not have the same fixed-cost burden or long development lead time that we would have as a standalone operator,” he said. “We’re using the same tech platforms as Walmart. We’re utilizing Walmart’s Spark driver network for deliveries, including for Express, and we are merging supply chains with Walmart that will help us enable two-day shipping nationwide for most items over time, even in places where we don’t have clubs. That means not all members will have to live near a physical club, which is a new growth opportunity for Sam’s Club.”

‘ANYTIME, ANYWHERE CLUB’
Over half of Sam’s Club members transact digitally with the retailer, and 40% of the transactions at Sam’s Club are digital, according to Sears.

Nicholas said e-commerce accounts for 15% of Sam’s Club sales, excluding fuel, and the retailer thinks 40% is achievable and profitable over the planning horizon. Over half of Sam’s Club’s e-commerce sales are being fulfilled from clubs, and it’s a cash-flow-positive business. Becoming more digital is also at the top of the list for Sam’s Club, according to Tom Ward, the chief end-to-end officer for the retailer.

“We’re designing an anytime, anywhere club model that appeals to the fastest-growing generation of digitally native consumers, which is why we’ve seen around half of our new membership growth coming from Gen Z and millennials — consumers under age 45,” Ward said.

He said digitally-engaged members shop three times more often at Sam’s Club than those members who only shop inside clubs. Ward said the digitally-engaged members shop across twice as many categories, driving three times the overall spend, and they renew at a 10% higher rate than club-only members.

“At Sam’s, this ecosystem, fueled by omnichannel, helps us grow membership, and it drives renewal. We are excited about the opportunities ahead as we accelerate our omni club ambitions, our members are asking us to do more and to go faster by using seamless, connected experiences,” Ward said.

SCAN AND GO
A controversial goal Sam’s execs unveiled during the recent investor conference was to eventually remodel all 600 clubs to resemble the Grapevine, Texas, club that removed all cash register terminals from the front-end of the store and requires members to use the Scan & Go feature inside the Sam’s Club mobile app on their smartphones.

Nicholas said Scan & Go is now broadly adopted at the Grapevine Club at 100%. He said the AI computer vision exit technology was scaled from zero to all stores in less than a year. He said Sam’s Club already has a digital relationship with 100% of its member base with digital membership cards. Ward said members love the shopping tool, and it also provides additional revenue opportunities through ad sales linked to the app and the data Sam’s can generate from members’ shopping trips.

“As we look to the future, we know value and assortment will not be enough, as famously said, what got us here won’t get us there,” noted Diana Marshall, chief experience officer at Sam’s Club. “We’ve learned that connection is at the heart of every shopping journey, giving us confidence that experience will be a key differentiator for Sam’s Club going forward.”

Marshall said the Scan & Go shopping tool scores high among users with a net promoter score of 90. However, there are industry insiders who do not believe Sam’s Club should remove all cash register terminals immediately during a remodel.

Scott Benedict, former Sam’s Club executive and now a retail consultant, said he applauds the growth strategy overall and feels it’s timely for the club segment to grow given its value proposition. He fears that taking away an option like cash registers could cost the retailer members among those who do not want to transact digitally.

“I am reminded of the fiasco at JCPenney when management abruptly made changes overnight that alienated the retailer’s most loyal customer base, leading to a disastrous financial outcome,” Benedict said. “To require 100% membership conversion to digital without first testing in each market is a risky move. I can commend Sam’s for being out in front with their digital strategy, but taking choices away from members could be costly.”

Retail consultant David Biernbaum expects Sam’s Club to expand the Scan & Go technology but does not believe the retailer will completely replace checkout stands. He predicts some challenges, such as ensuring all customers have smartphones and are familiar with the technology. Also, it would require staff training to help assist members unfamiliar with the system, and there is also risk of technical difficulties, theft or mis-scanning items that would necessitate more robust security measures.

Walmart does offer Scan & Go for its Walmart+ members through its mobile app. But the shoppers still have to go through a terminal station to scan their phone and complete the transaction.

Other retailers have tried and abandoned the technology. Wegmans discontinued its self-scanning app in 2022 due to high shoplifting rates. Midwestern grocer Hy-Vee discontinued its self-scanning app in early 2023 because of low use rates.

Sam’s Club has given no schedule for the remodels, and retail analysts and consultants are waiting for more clarity from executives regarding the decision for 100% digital transactions inside club locations.

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 is sponsored by HRG.