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BJ's Smaller in Store Size but Mightier in sku Count

Cecile Corral, Meredith Schwartz -- Home Textiles Today, July 20, 2009

BJ's Wholesale Club might be the smallest of the country's three warehouse club operators — both in sales and in average store size. But the 182-club chain claims it better appeals to higher-income shoppers concentrating on buys for their .families — not businesses — and offers a greater sku count per store, positioning it better to compete against supercenters and grocery stores.

During BJ's presentation at the Oppenheimer Ninth annual Consumer, Gaming, Lodging and Leisure conference last week, president and ceo Laura Sen made many comparisons between BJ's and its competitors, and asserted its advantages compared to Costco and Sam's Club, as well as supercenters and grocery chains.

"Aside from wholesalers and warehouse clubs, our primary competitors are supercenters, specialty retailers and super markets," she said.

While about 90% of BJ's large format clubs face competition from another wholesale club within 10 miles, Sen said, "We believe there is still plenty of opportunity for growth within our existing markets. And accordingly, since most BJ's clubs already compete with another wholesale club, we are much less likely than our competitors to be affected by major new club competition in the future."

On a market basket of like items, BJ's prices average about 20% lower than those of supercenters, she said.

"Our operating costs are significantly lower, the quality of our merchandise is higher, and we cater to a higher income demographic," Sen continued. "Supermarkets represent the greatest opportunity for taking market share."

The club's 2008 revenues were $10 billion. Costco and Sam's Club posted sales last year of $56 billion and $44 billion, respectively.

And yet, Sen said, "It is worth noting that despite these high volumes, that the industry still has less than a 15% share of the food and drug market in the U.S."

Store size is also smaller for BJ's. Sen said the club's units run about 20% smaller than the average Costco site and 10% smaller than a Sam's Club.

"This strategy allows us a higher density of clubs in each of our markets, which in turn allows us to maximize management support, distribution and marketing expenses," Sen said.

BJ's currently operates in 15 states and claims to be the leading warehouse club operator in the Northeast. Costco is more concentrated on the East and West Coasts, and Sam's is heavily anchored in the central part of the United States.

But where BJ's is bigger is in sku-count, she said. BJ's clubs each carry about 7,200 skus versus Costco and Sam's, which offer about 4,000 to 5,000 stock items per store.

More importantly, though, Sen noted, is that "we offer a wider assortment of package sizes. We carry selected foods and consumables that are more comparable to supermarket sizes."

Not surprisingly, food and consumables are the core product offerings , representing 75% of BJ's total merchandise sales.

Excluding gasoline, BJ's divvies its assortment into four groups:

Perishable foods, including all refrigerated and frozen products as well as bakery items;Edible grocery, including all shelf stable packaged foods;Non-edible grocery, including paper products, household cleaners and health & beauty aids;General merchandise, including all non-grocery items, such as apparel, books, electronics, housewares, seasonal and tires.

"In 2008, perishables sales outpaced all other categories, with a 12% comp increase," Sen said. "[That trend is] continuing into 2009, with a 12% comp increase in the first quarter."

For this year, the wholesale club is focused on improving the quality and presentation of its perishable foods, making investments in some renovation projects, and expanding store count by six to eight units — two of which already opened in May.

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