Shoppers shop for merchandise at a Sam’s Club store on January 12, 2018 in Streamwood, Illinois.
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For Sam’s Club buyers, a visit to the store usually means lugging home large and often cumbersome items. A month’s supply of diapers. Deck chairs. Big boxes of chicken broth or huge boxes of cereal.
Walmart’s own member club turns that on its head when it tests a new digital tool. Customers at select clubs can browse the aisles, find items that fit in the trunk, and send other purchases straight to their home. You can check all purchases in a single transaction on your smartphone.
Kath McLay, CEO of Sam’s Club, said the company sees technology as a way to improve the customer experience and build on last year’s profits.
“We want to have great articles. We want disruptive prices. And we want to make sure we provide comfort to our members, ”she said in an interview with CNBC. “What we really learned from the pandemic was that we need to stay true to this strategy.”
During the health crisis, Sam’s Club introduced roadside collection to all of its stores as customers sought quick and contactless ways to collect purchases online. The Scan & Ship service announced on Tuesday is the latest way Sam’s Club is using digital options to differentiate itself from the competition. It will be a feature of Scan & Go that will allow customers to view purchases with a smartphone while adding items to their shopping cart.
The company has also developed and launched app-based tools for employees, including a voice-activated service called Ask Sam, which helps find articles and answer customer questions.
By testing and introducing new shopping opportunities for consumers, Sam’s Club has grown in its own right and has become a technology incubator for its parent company.
Comparable sales, a key metric tracking sales in stores that have been open for at least the last 12 months and online, grew faster at Sam’s Club than at Walmart over the past year. For the first quarter ended April 30, Sam’s Club’s like-for-like revenue and e-commerce growth outpaced that of its parent company as they rose 7.2% and 47%, respectively, compared to 6% and 37%, respectively, for Walmart US
Overall membership of the warehouse club also reached an all-time high in the first quarter. The company does not disclose how many members it has.
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A moment to shine
Storage clubs had a moment to shine during the pandemic when supply rides became the norm and some necessities like soap and paper towels were hard to find. Costco and BJ’s Warehouse Club stocks outperformed the S&P 500 last year. BJ stock rose nearly 64%, while Costco stock climbed 28% in 2020, compared to a 16% increase in the S&P 500.
Profits have been more modest since January. Costco shares are up 8% year to date, but the stock trades near a 52-week high. It closed at $ 407.88 on Monday, which equates to a market value of $ 180.31 billion. BJ’s, which has a much smaller retail space, closed at $ 48.19, bringing its market cap to $ 6.61 billion. The stock is up more than 29% since the start of the year.
Walmart stock, which was up 21% last year, also outperformed the S&P 500. But Walmart stock is down nearly 3% year-to-date, bringing its market value to $ 392.44 billion. Investors worried that Walmart could beat last year’s strong performance.
Meanwhile, warehouse clubs have held out. The continued strength has surprised some investors who attributed membership gains to a “panic” period during the pandemic, said Steph Wissink, chief executive officer and retail analyst at Jefferies. Many of these customers are renewing their memberships and continuing to fill baskets, she said.
“It wasn’t just a fleeting experience because of the safety and supplies,” she said. “It was a real change of purpose. They buy more of their goods for their household.”
Real estate and demographic trends are expanding the clubs’ potential audience, Wissink said. As millennials get older, some will buy houses in the suburbs and live closer to warehouses. Businesses’ new attitude towards remote working has inspired some to move from the cities to homes with larger courtyards, closets and pantries.
“Buying two pitchers of ketchup or buying two loaves of bread is suddenly becoming an option,” she said.
The mix of items in the baskets has also changed in recent months, she said, as shoppers issued stimulus checks and bought more general goods like furniture and electronics.
McLay said Sam’s Club was surprised by some of the new patterns. For example, she said, packs of 45 pieces of toilet paper remained a hot item because people got used to having reserve stocks in their pantry. Home groceries sold at higher prices because workers with hybrid hours now split their weeks between the home office and the corporate office.
Sam’s Club is testing a new feature, Scan & Ship, that will allow people to send a purchase right to their door while shopping at the club.
Mix online, in person
McLay describes Scan & Go as “the best thing you can get closest to an online club shop”.
Sam’s Club with almost 600 stores and around 100,000 employees started Scan & Go in 2016. Two years later, Sam’s Club Now opened, a smaller Dallas store testing new technology with customers. A short drive from this store, it opened an innovation hub in downtown Dallas with nearly 300 engineers, user experience designers, and data scientists helping develop Sam’s Club technology.
In the past year, however, Scan & Go has gained in importance, according to McLay. In the first quarter, the number of members using the Scan & Go app increased by almost 44% compared to the same period last year.
“I keep telling the team it felt like it was a product we developed that was waiting for a moment like a pandemic because people just absolutely flocked to contactless payments. And then it was ready to go, ”McLay said at a virtual conference hosted by Jefferies in June.
With Scan & Ship, Sam’s Club will bring online and offline even closer together, says McLay. It is being tested in three different stores: a club in Murrieta, California; one in McKinney, Texas; and the Sam’s Club Now in Dallas. Home delivery is free for Sam’s Club Plus members.
Eventually, the dropship functionality will expand to other clubs and more items, from playsets and patio furniture to mattresses.
Tim Simmons, Sam’s Club chief product officer, said stores can drive more sales by making certain purchases less cumbersome. “I would probably put more things in my shopping cart if I didn’t have to drag it home,” he said.
The feature could also be used to sell out of stock items, goods of other colors or sizes, or items like a motorcycle or bicycle that can be difficult to store multiple times on the sales floor, he said.
The goal is to improve the customer experience, Simmons said. Numerous steps have been taken to achieve this over the past three years. At its member service desk, it swapped eight pieces of hardware for an iPad to speed up the return process and the registration of new members. It turned spreadsheet folders into a tool that uses machine learning to help bakers, butchers, and other employees predict how many birthday cakes, fried chickens, or hoagies customers will need based on past sales and factors like major holidays or weather conditions. And smartphone-based tools help staff prioritize tasks on the sales floor, like restocking items, and help managers keep track of the club’s sales metrics.
Some of the technologies developed at Sam’s Club are now used by Walmart – such as Ask Sam and Scan & Go, which are available to Walmart buyers who are part of the Walmart + membership program.
In addition to serving as a technology incubator, Sam’s Club has also been a training ground for executives who have become senior executives at Walmart and beyond. Doug McMillon was Sam’s Club CEO before becoming CEO of Walmart. Another former CEO of Sam’s Club, John Furner, now leads Walmart’s US operations as President and CEO. And Roz Brewer, former CEO of Sam’s Club, became Chief Operating Officer at Starbucks and most recently CEO of Walgreens Boots Alliance.
Fending off costs
For Sam’s Club, technology is also a differentiator from Costco, its biggest competitor.
Costco caters to higher income consumers and charges more for its service, but it has been slower to introduce new features like roadside collection. This option is currently in a pilot phase with three clubs in New Mexico.
The average Costco member has a household income of more than $ 100,000. You pay between $ 60 and $ 120 per year for a premium membership. By comparison, a typical Sam’s Club member has a household income of between $ 75,000 and $ 100,000 and pays about $ 45 per year for a basic membership or up to $ 100 for a Plus membership. Numbers are based on company comments and estimates from Jefferies. Costco had 60.6 million members in the most recent quarter that ended in May. Sam’s Club does not announce total membership.
According to Wissink, Costco emphasizes lucrative services that can quickly pay for themselves, such as booking a rental car or vacation or ordering a hearing aid.
“They are seeing that they are increasingly creating volume and value beyond the walls of their boxes,” she said.
So far this has worked in favor of Costco. It generates almost twice as much annual sales per store as Sam’s Club. It has a slightly larger footprint in these stores, averaging 146,000 square feet at Costco compared to an average of 134,000 square feet at Sam’s.
But Sam’s Club has “always been at the forefront when it comes to digital integration,” said Wissink.
Take the apps from the two companies. Sam’s Club app was downloaded almost twice as many times as the Costco app last year in the US – about 9.6 million times versus 4.9 million times, according to Apptopia, a company that tracks mobile app performance. According to Apptopia, the customers of the Sam’s Club app also gave it better marks: 78% of the users of Sam’s Club gave it positive ratings compared to only 27% for Costco.
So far, the technical advantage has not harmed Costco’s performance, said Wissink. But it’s possible that over time it could.
According to McLay, Scan & Go is “one of the stickiest products” Sam’s Club has made, and it’s “one of the most important things people innovate with us”.
McLay knows this because Sam’s Club closely monitors factors that increase a member’s chance of renewal.
“It’s one of those things that is a little addicting,” she said. “Once you use it once and go back and actually have to wait in a queue at a retail store, it feels very yesterday.”
– CNBC’s Christopher Hayes contributed to this report.