Costco, Sam's Club and BJ's
Wholesale. The US warehouse club
space, with its rows of pallets stacked from floor
to ceiling, is valued at more than $320 billion. The format is simple. Members pay a fee to shop. In return, they get access
to low-priced goods and services in a warehouse
setting. With over 65 million paying
members and a market cap of more than $200 billion,
Costco controls the lion's share of the market. But Walmart-owned Sam's
Club is tweaking the formula, betting that
investments in robotics and technology can help them
better engage with budget-conscious shoppers
and take on its competitors. You've got cameras here and
here, and these cameras are using computer vision. They're the ones that are
actually capturing the image. I think we're really
creating a big moat with our competitors in terms of the
convenience we're going to be able to bring to our
members on staying in stock, helping them know where
things are. At Sam's Club, staffing now
includes robots that check stock levels, verify prices
and clean floors. Shoppers can also use the
chain's app to purchase products in the aisle,
bypassing the checkout counter on the way out the
door. To bring in new members,
the warehouse club has also leaned into its private
label brand and announced its most aggressive
expansion in years, opening 30 new clubs along with new
distribution centers. It's a curated environment. I mean, we can buy
anything, but we only choose to buy the very best. Walmart CEO has called Sam's
Club an innovation engine for the company. So how do
warehouse clubs like Sam's get members to pay to shop? And what impact will new
technology have on the future of the retail chain
and its rivalry with Costco? Walmart founder Sam Walton
launched Sam's Club in Midwest City, Oklahoma, in
1983. But it was in a converted
San Diego airplane hangar where the warehouse store
model was born. Launched by entrepreneur
Sol Price in 1976, Price Club served only small
businesses at first. The business merged with
Costco in 1993 with its over 200 locations. Sam's Wholesale Club was
growing too. By 1988, it had 100 stores,
with sales making up 19% of Walmart's total revenue. Two years later, it was
renamed Sam's Club. In the late 70s and 80s,
warehouse clubs were a relatively new idea in the
retail space, albeit with a simple concept: negotiate
with suppliers to keep prices low, sell in bulk
and get members to pay to shop. The benefits to
consumers? Deep discounts on everyday
goods. Stores are laid out with a
treasure hunt design, allowing shoppers to
discover new items along the way. While consumers come
for groceries, they can leave with a new pair of
yoga pants, fill their car up with a tank of gas, or
buy a $90,000 engagement ring. It all fits together to
create this treasure hunt which causes people to want
to get up on Saturday morning and go to Sam's
Club just to see what they're going to find. Costco attracts that middle
to upper income consumer, whereas Sam's Club is a
little bit more similar to its sibling Walmart in
being more value focused and attracting a broader swath
of consumers. We tend to say that the
Costco customer is the wealthiest of the three,
maybe a little bit over $100,000 in annual
household income. Sam's Club was going to be
a little bit below that and then BJ's probably a little
bit below that. While both Costco and Sam's
Club have overseas operations, stores are
located in different markets closer to home. There are 600 Sam's clubs in
the US in 2023, 82 of those in Texas. By comparison, Costco has
585 locations in the US, including 133 in
California. Net sales at Sam's Club
reached $73.6 billion in fiscal year 2022, 15%
higher than the previous year. Rival Costco had net
sales of $222 billion in 2022, almost 16% more than
a year earlier. For Costco's club, their per
club output is around 245 million per club. And that means that Sam's
productivity is about half that at about 125 million
per club. So significant throughput
difference in clubs that are pretty much the same size,
attracting the same customer base. Sam's Club breaks up its
merchandise into five categories. Grocery made up 63% of 2022
net sales, followed by fuel and tobacco, home and
apparel, health and wellness, and technology
and entertainment. One of the interesting
things about the club channel is that, and this
might come as a bit of a surprise to many people,
but it's actually that they don't make money or very
much money, if at all, on the products they sell you. Most of the money that
these businesses make are really just on the
memberships. Club members pay $50 per
year at Sam's Club, compared to $60 for a basic
membership at Costco. And competition with Costco
doesn't end at the checkout counter. Sam's Club lowered
the price of its hot dog and soda combo in 2022 to
$1.38, compared to $1.50 for Costco's famous offering. Sam's Club has also served
as a training ground for a lot of prominent Walmart
executives and even Fortune 500 executives. Walmart US CEO John Furner
had the top job at Sam's Club from 2017 to 2019. Walmart CEO Doug McMillon
served as Sam's Club CEO from 2005 to 2009. Operating income at Sam's
Club was $2.2 billion in 2022, more than 18% higher
than 2021. Sam's Club accounted for
13% of net sales at Walmart in 2022. Walmart's stock price
reached $140 a share in March 2023. The downside of being
connected to Walmart is that sometimes suppliers and
vendors don't feel like Walmart is the right luxury
end atmosphere for them to portray or to display their
products. So sometimes some brands
hesitate to sell to Sam's Club, but would embrace
selling to Costco more rapidly. This might look like an
ordinary floor scrubber, but outfitted with cameras,
sensors and a barcode scanner, this autonomous
vehicle can track inventory levels, verify whether a
price sign is correct, and recognize what item is on
display. The scrubber itself has
numerous sensors on here that help it self navigate
and tell it there's an obstacle, not to go hit
that, or there's motion it detects and it stops to be
very safe. In 2022, Sam's Club rolled
out nearly 600 inventory robots across its fleet. Using computer vision
technology, the machine captures data as it moves
throughout the club. So this would tell us that
the Snickers is low and we probably need to get more
Snickers dropped from our backstock and brought out
to the floor. That data is then uploaded
to the cloud and delivered to store managers. Previously, retail workers
would have done the time-consuming task by
hand. And the cameras are what are
actually capturing the image itself. The image of this
Starburst jelly bean, for example. Now our scrubbers
across our fleets are capturing millions and
millions and millions of images a day. Future inventory machines at
Sam's Club could take on additional tasks too, like
checking on potential hazardous conditions in the
store or assisting workers picking up items for
curbside delivery. We do what we call steel
safety walks. It's really important task
where a manager or a team lead will go through the
club and they look down every aisle and what
they're doing is they're looking up in the steel at
our back stock and they're looking for are any pallets
like too close to the edge? Is anything stacked not
right, etcetera. We're not ready with this
yet, but we're training the computer vision model to
detect anomalies in the steel that would say
there's an issue here. And it's not just robotics
Sam's Club is leaning into. In 2016, the retailer
launched Scan & Go, a mobile checkout and payment
solution which allows members to bypass the
checkout line as they exit the store. So I've got this great dog
treat here. I click on the barcode,
just opens up my camera, uses my camera as a
barcode. And as you see, it's now
added that dog treat into my cart for Scan & Go. Now when it comes time to
check out, all I have to do is click the checkout
button here at the top. The Sam's Club app was
downloaded 11.9 million times in the US in 2022
versus Costco's, which was downloaded 7.4 million
times. This is cutting edge. No other retailers are
doing what we're doing here. There are other robot
inventory scanning solutions, but the way we
solve this by leveraging a floor cleaner with our own
innovative approach to multiple scanners and then
behind the scenes, that computer vision that AI
that we've created, I don't know of anybody else that
has this capability. With a 123 million
cardholders in over 68 million households, Costco
relies heavily upon its members for its income. In turn, members are
fanatically loyal to the retailer. Costco's
membership renewal rate was 93% in the US and Canada in
2022. While Sam's Club doesn't
break out specific numbers, it said membership reached
an all time high in its Q4 fiscal year 2023 earnings
release, with membership income up over 7% from a
year earlier. Warehouse clubs like Sam's
sell just a fraction of the products found in most big
box stores. A stock keeping unit is an
alphanumeric code a retailer assigns to a product to
distinguish it from one another. A Walmart
superstore, for example, can have more than 100,000 SKUs
compared with a supermarket that has about 30,000 SKUs
or a Costco that has about 4000. Sam's clubs have
about 4500. Its private label brand
Member's Mark offers an alternative to national
brands, but at a more affordable price. Member's Mark has about 500
items ranging from frozen food to baby diapers. Member's Mark got its start
in 1998. In 2017, Sam's Club
revamped the then $10 billion line, bringing
three dozen other brands under the label. Private label has become
increasingly more important for retailers in general
and for Sam's Club specifically for a number
of reasons. One, it is margin enhancing
. Members Mark accounts for
30% of Sam's Club sales and more than a third of its
units sold, CEO Kath McLay told CNBC in a recent
interview. Sam's Club, for example,
recently decided to bring athleisure under the
Member's Mark label. The global athleisure
market was valued at $306 billion in 2021. Prior to the strategy we
have now, we had multiple brands across and from a
sourcing strategy, we really didn't have a really clear
one. So materials could come
from different places. Fit wasn't necessarily
perfect. Members Mark athleisure
hoodies are now placed alongside iconic brands
like Adidas in hopes that shoppers are drawn to the
renowned label but end up buying the private label
version instead. So that they know that it's
as premium, but it's at a disruptive value. The retailer also uses its
My Member's Mark community, which started in 2019 and
includes 40,000 members to provide feedback on the
category's products. They may find that one
thing that they see out there like that's it,
that's the item I know will delight a member. And then
we actually have a community of members that will bring
items to and we'll say, Are we on to something? Do you
like this? Should it be a different
color? Is the flavor profile right? And with that
engagement, we continue to iterate on the item until
we get that perfect item. Those initiatives, along
with investments in tech, could help propel Sam's
Club as it battles potential economic headwinds, along
with the ongoing competition from rivals. We've had a phenomenal 12
quarters of positive comps. Our membership is at an all
time high. It just feels like we are
finally starting to hit our sweet spot and it's time to
accelerate.
