Warehouse clubs gravitate toward more food

Warehouse clubs as a retail channel actively shifted space from general merchandise – hardlines and pharmacy – to edible grocery through 2011, according to a comprehensive space planning study released by Kantar Retail and CROSSMARK.

This trend continues into 2013, at Sam’s and Costco clubs.

This particular retail channel has been well-positioned through a lengthy economic recovery appealing to a value-conscious consumer base. As a channel, the sales results have been strong since 2010, while individual player performance has been mixed this past year.

Club operators continue to generate a higher proportion of sales dollars in grocery-related departments with a lower portion of dedicated space. Despite a growing emphasis on food, general merchandise plays a key role for the clubs, bringing to life the “treasure hunt” environment that so attracts members.

INSIDE COSTCO
Grocery sales, including fresh, comprise roughly 55% of Costco’s total sales, while taking up 52% of the warehouse floor space, according the Kantar study.

Since 2010, Costco has invested in its food segment, specifically service deli and dairy, which has been a strategic growth area for the company. The study also notes an expansion in health and wellness with more products geared toward older shoppers such as anti-aging serums and face creams.        

Costco continues to lead this club category with strong results in fiscal 2012. The company said their average annual sale per warehouse for the 608 warehouses in operation was $154 million, up 7% from the $146 million figure in fiscal 2011.

Total sales for the 608 clubs in fiscal 2012 rose 12% to $97.06 billion from the prior year, which did include one less week.

Membership revenue exceeded $2 billion in fiscal 2012, up 11% from the 2011, according to company records.

Costco reported same-store sales rose 7% in fiscal 2012 from the prior year.

SAM’S CLUB
While Sam’s Club also reported a strong fiscal 2012 ending January 2012, the nine months since – that more correlates with competitor Costco’s fiscal 2012 – have not fared as well.

In the first nine months of fiscal 2013, Sam’s Club reported total sales revenue of $41.93 billion, up 5.4% from the same period last year.

Same-store sales excluding fuel rose 4.1%, declined from 5% in the same months of fiscal 2012. Including fuel, comparable sales were 4% in the first nine months of fiscal 2013, down from 9% a year ago.

Rosalind Brewer, CEO of Sam’s Club, attributed the decrease in comparable sales to inflation and some deflationary prices during the last earnings call in October. She said the company fell short of its own guidance in the most recent quarter ended Oct. 31.

“Sam's Club is stepping up price investment for the holidays, and we are well prepared for our members' gifting and entertaining needs,” Brewer noted in the release.

In the recent quarter, Sam’s Club opened seven new stores, the most since the fourth quarter of 2006.

She said the club’s business members continue to experience economic pressure and uncertainty, which led to slower growth in business member traffic. She warned this softening would likely provide some headwinds in the fourth quarter.

Brewer also told investors that inventory increased nearly 11% over the past year, a level unacceptable, but given much of it is consumable; any negative exposure is likely at minimum risk.

PROMOTIONAL / SEASONAL
Clubs have the most promotional footage to support their “treasure hunt” merchandise philosophy. Promotional space represents about 5.8% of any given retailer’s store space, up 1.5% since 2009. 

In the club category, promotional space was 6% of store square footage, up 2.7% in the past two years.

Sam’s Club leads Costco and B.J.s in terms of space devoted to promotion. Between 2009 and early 2012 Sam’s had dedicated 7.2% of store space to promotional usage. Costco had just 4.2% devoted to promotional during the same period. B. J.’s had 2.8% of its store space set aside for promotional, according the study.

The seasonal departments are also large in the club channel, according to the Kantar/CROSSMARK analysis, but in total space percentage pale in comparison to the smaller drug store channel.

Warehouse clubs dedicate about 2.3% of their space to seasonal merchandise, smaller drug stores seeking higher margins and a highly promotional strategy dedicate 4.9% of their square footage to seasonal offerings, according to the study.

CHECKOUT
When the study survey was done throughout 2010 and 2011 the average club had 13 staffed checkout stations with just one self-checkout station among this retail channel.

Brewer recently announced that Sam’s Club is in the midst of stepping up the number of self-checkouts.

A new club in Kansas City is a glimpse into what Brewer calls “future operations." This is the first club that will have all registers set to be fully convertible, meaning they can operate in either self-checkout or manned modes.

She said it is a test market in which the company will evaluate increased customer satisfaction and inventory shrinkage.