story by Kim Souza
ksouza@thecitywire.com
Memberships are the key to growth in the club format and Sam’s Club CEO Rosalind Brewer is taking bold steps to draw in more members through rewards, better merchandising and a growing list of services for what has been a challenged small business customer base.
Sam’s Club reported total net sales of $14.863 billion in the fiscal second quarter, up 2.3% from a year ago. However, the gross profit rate was dinged 0.5% in the quarter, nearly half of which related to investments in a new cash rewards program. Also, Sam’s Club inventory rose 4.7% in the quarter, a problem Brewer said was being addressed.
Wal-Mart CEO Doug McMillon has been supportive of Brewer’s changes that include reducing cost structures and raising membership fees while keeping renewals trending upward. The fee increase was the first in six years.
“She and the team are working to bring it all together to improve our performance in Sam's Club,” McMillon said of Brewer during the recent investor’s conference in Rogers (Oct .15)
Brewer said she’s happy with membership income through the first half of this year, which grew 11.4% overall, excluding fuel.
“Part of this growth is from the (fee) increase taken last May as we raised our membership rates by $5 for our base members and $10 for business,” Brewer said at the Oct. 15 conference. “While we're moving in the right direction at Sam's Club, yet there's a need to move faster and faster.”
When raising the membership rates, Brewer’s goal was to ensure that members would see added value through better merchandising efforts and a cash-back rewards program with a new MasterCard deal they hoped would appeal to business members. She said the recent launch of plus cash rewards and what has proven to be a popular instant savings programs have helped moved the membership trends forward.
“Our growth has been tampered by some of our larger core categories like business candy and tobacco. Now, historically, tobacco has been extremely important to our independent mom and pop convenience store owners. However, the rapid expansion of national convenience store chains and increased competition from dollar stores that now sell tobacco has really hurt their business,” Brewer said.
She reports Sam’s tobacco business has run negative comps over the past several quarters. Contributing to the negative business member traffic.
MERCHANDISE MOVES
Sam’s said it’s trying to create more newness in its clubs all year long around merchandising displays based on member feedback. Charles Redfield, chief merchandiser at Sam’s Club, said in August when the summer merchandise had been sold through and it was too early for fall, they promoted a new furniture line upfront in the club that was well received by members. He said they then pushed Christmas displays upfront in September, another move that resonated with members.
He said it’s not just about shifting the merchandise displays. The club also has been actively adding products to the shelves in categories like “Healthy for you.”
“Since the beginning of this year we've brought in 40 brand new items that fall into the ‘better for you’ trend and our members love them. You can see three-quarters of our incremental sales already this year have come from those new better-for-you items,” said Shawn Baldwin, senior vice president of food and beverage at Sam’s Club. “We've got 70 more brand new items coming in between now and the end of this year.”
Cindy O’Conner, vice president of home and apparel at Sam’s Club, said the healthy-for-you category is also important in apparel.
“Tangerine is one of our newest brands, and it's produced by one of our women-owned businesses who specializes in active wear. The bright colors and the [trend-right] fabrics are amazing. ... Most of these items are priced under $20,” O’Conner said.
In the home category, she said the packaging of holiday decor such as wreaths and garland are designed to be storage quality with lids so they can be easily packed away after the holidays.
PICKUP TESTS
Sam’s Club also is testing grocery pickup in its Bentonville club to fulfill online orders from members. This test is open to all members and is very similar to the pickup grocery test at Walmart’s newest format, also in Bentonville.
This is not to be confused with Club Pickup, formerly called Click and Pull, which is an online order process for business members. Club Pickup for business members is being expanded ahead of the holidays across 700 clubs, according to Jamie Iaonnone, CEO of SamsClub.com.
“We're leveraging the powerful intersection of our digital platforms, our clubs, and our associates to provide a new level of convenience and access for our members, and our members are responding to these investments. In Q2, both our direct-to-home business, our e-commerce business as well as our Club Pickup business delivered double-digit sales growth,” Iannone said.
SERVICES EXPANDED
Sam’s Club management recently rolled out a trifecta of service options geared to help small business customers save time and money.
SamsClub.com/services have been expanded to include payroll, health care and legal solutions to benefit small business owners and their employees.
“Whether they lead startups or seasoned firms, America’s small business owners are constantly strapped for time,” Brewer said in a statement. “To help, we’ve enhanced our suite of business member benefits to bring big-business benefits to small business owners at a value they deserve. Our service providers share our commitment to simplifying our members’ lives, offering affordable, innovative solutions and convenience to critical business operations.”
Teaming up with Aetna, Sam’s Club is extending access to a health care exchange run by Aetna that can quote premiums for small business owners. This service is available in 18 states to Sam’s Club business members with two or more employees.
Small business owners seeking help with payroll functions can now find solutions with Sam’s Club/Execupay service. The retailer said its members could see up to 40% savings on solutions including online payroll, time and attendance, direct deposit and automated payroll tax filings/payments.
Lastly, Sam’s said it’s offering legal solutions with the help of LegalZoom. Members could see up to 25% savings on company formation, one year membership of the LegalZoom legal plan, and access to over 160 downloadable forms” according to the company release.
REACTION
Jason Long, CEO of Shift Marketing Group in St. Louis, said he doesn’t see the health insurance and legal service specifically moving the needle at Sam’s Club but they do help position a membership as a better value overall.
“Consumers often have a ‘not that I would, but I could’ mentality with products and services. Most Sam’s members will never take advantage of the health and legal services but it’s nice to know that they could if they wanted to,” Long said
Long said ultimately the enhancements are about driving membership renewals and new member acquisition.
“Some of these initiatives may seem small on the surface but combined they can add up to a greater perceived value and keep members renewing their membership from one year to the next,” Long said.