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Sam's Club looks to improve execution

Warehouse club needs to refocus on low-cost operations

Brent Felgner, Staff Staff -- Home Textiles Today, October 7, 2002

Sam's Club needs to return to the fundamentals of its business — item merchandising with particular attention to being the low-cost operator for a small-business customer — the warehouse chain's new ceo told analysts last week.

Yet, at the same time he indicated a significant departure from the clubs' traditional market entry strategy.

Kevin Turner, who was named president and ceo of Sam's six weeks ago, offered a repair plan to "resurrect" the original vision of founder Sam Walton, including greater attention to the wholesale side of the business, along with a dogged effort to control expenses.

"Our competitors today have better discipline and execution than we do," Turner told an audience assembled for Wal-Mart's annual stock analysts' meeting here.

While Sam's works to fix its operation — and as the warehouse club industry, itself, slows — there will be less attention focused on expansion, Turner said, despite Wal-Mart's continued commitment to the format.

The chain has already announced 40 to 45 domestic openings next year, about two-thirds of which will be relocations or expansions of existing units. Overall, it will add just 4 percent in square footage.

"We aren't going to be as focused on opening up new clubs in existing markets as we have been in the past," Turner said. "We're actually doing really, really well in some markets where we are not the dominant club. We come to town because we're able to sustain and obtain profitability at a much lower sales volume than our competitors."

Additionally, Turner said the opening strategy would shift to "heartland" markets — non-metro areas. He didn't elaborate further, except to note that he'd be working with Wal-Mart's vast real estate operation to select opportune locations.

Sam's Club was the original metro market presence for Wal-Mart, whose discount stores preferred tertiary and rural markets through the early 1990s. Conventional wisdom, even until the present, has always been that the clubs' low margins and high volumes demand more densely populated urban areas, commonly on outer beltways. This would be a marked departure from that thinking and perhaps a concession to its chief competitors, Costco and BJ's.

If the broader market strategy represents a new way of viewing the operation, the business inside is attempting to return to its roots.

"There's going to be a real push to put the focus back on the business member," Turner explained. "The small business member shops three times more frequently and spends twice as much as our Advantage [non-wholesale] member."

Part of that effort will involve additional attention on staple wholelsale items — many related to foodservice and institutional use. Turner said a core list of 1,500 skus had been identified and that Sam's will seek to ensure a consistent brand and in-stock position.

Those moves are intended to address a perception by some business customers that Sam's had become a "glorified retail outlet." The back-to-basics philosophy may represent a sea change in vendor relationships, particularly as Sam's shifts its merchandising focus.

"You're not going to see an assortment of vacuum cleaners as you do now," Turner said. "Sam's is not in the assortment business; we're in the item business. We're going to be aggressive item merchants. Because it's not about the signs; it's not about the club — it's about the merchandise and how we serve that member."

Part of that shift will also be reflected in the clubs' return to Gold Key hours, beginning Oct. 14. Those are the restricted shopping hours reserved exclusively for business members.

But Sam's will continue to serve its general membership with a continued, but more selective, emphasis on the "treasure hunt" experience for shoppers and by continuing to offer department- and specialty store-quality merchandise at 40 percent to 50 percent savings, Turner said

On the cost containment side, he cited several initiatives, in particular. For example, handling costs may be reduced by bringing more merchandise into the clubs' sales floor ready, along with changes in how some goods are palletized and racked, Turner explained.

Moreover, the units' signage provides perhaps the most symbolic example of how Sam's has strayed from its roots. Turner illustrated a glitzy signing package currently used in the clubs that was clearly very promotional and consumer oriented — carrying a $150,000 per unit price tag. He compared it to signage in a 1997 Sam's opening that cost just $13,000. "That's not the lowest-cost operator," he said.

Turner, who was previously the chain's chief information officer, also promised to better leverage Wal-Mart's vast information and logistics resources to improve performance and lower costs.

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