Join the Club, Buy in Bulk
SAUGUS, MASS. — THEY call it a "shopping experience." You can buy anything from a gallon of salsa to a state-of-the-art stereo system; a gargantuan box of Wheaties to an electric Weed Eater.
Here at Sam's warehouse club, brand name merchandise is stacked on pallets nearly 20 feet high, aisle after aisle: bulk groceries, hardware, clothing, furniture, appliances, sporting goods, electronics, automotive goods, garden supplies, books, luggage, and more. The sheer size of such 100,000-square-foot warehouse clubs would allow a family of giraffes a good game of hide-and-seek. Members - who have paid a $25 fee to join - joke about forgetting their walkie-talkies and forklifts.
Now more than ever, shoppers are flocking to warehouse clubs all across the country. More than 21 million people belong to warehouse clubs in the United States. In the past year, the number of clubs rose from 495 to 632 (including several in Mexico) generating $34 billion in sales, according to James M. Degen, a Santa Barbara, Calif.-based food industry consultant.
"What we're seeing are stock-up shoppers emerging from the haze," says Bill Bishop, president of Willard Bishop Consulting in Barrington, Ill., which specializes in retail consulting. "More shoppers than anybody would expect will buy large quantities of a product in return for what they believe is a good price discount," Mr. Bishop says.
With names such as Sam's, Price Club, Costco, Pace, and BJ's, these warehouses have narrow profit margins and high inventory turnover; they do little or no advertising, accept few credit cards - if any at all, and have bare-bones ambience. While retail store markups can be upwards of 30 percent, club markups tend to be around 10 percent.
The concept originated with Price Club, which opened its cash-and-carry membership warehouse (geared for small businesses) in 1976 in San Diego. Member loyalty has been key to its growing success, says Debbie Greenhouse, director of marketing for Price Club, on the east coast.
Mitzi Federicci, an independent guidance counselor, has been an enthusiastic member of the Price Club in Edison, N.J. for five years. "It's so much fun to go. I never walk out of there without spending $100, and I'm not an impulse buyer," she says.
By modest estimates, average club prices are 20 percent lower than supermarket prices. But price is only part of the draw, says Chris Wolf, editor in chief of Food Channel, a publication that tracks trends in the food industry. Clubs also have entertainment and status appeal, he says. "We've had discount stores for ages; we've also had bulk selling for ages. This is still the `experience."' The products rotate all the time and you go to "the club" as a member, an insider, Mr. Wolf points out. He notes th at more than 60 percent of club shoppers are between the ages of 27 and 46.
Food is increasingly becoming the focus of the warehouse club experience. "Club stores have caught on very fast that food is a hot seller," says Wolf. Initially they carried 70 percent non-food items and only 30 percent food. Now they're offering more fresh food, including produce, dairy and baked goods, upping their stock to 53 percent food. Wolf predicts that by 1996 club sales will be 65 to 70 percent food.
INDEED, warehouse clubs have reshaped the way America shops for food and other staples. But they won't replace supermarkets, and there are limitations, says Edward Weiss, president of Packaged Facts, a New-York based market research company. Selection is limited: Whereas the average grocer carries 30,000 different products, clubs handle only about 3,500. Also, if you warehouse shop, you must have a lot of storage space. Some get around this, however, by sharing with friends or neighbors.
As for the future, clubs will continues to grow, Bishop says, adding that "that they will probably start to compete with each other directly." But supermarkets will still have strengths that clubs generally do not have, such as variety, selection, convenience, speed, and service, Mr. Degen says.
To be sure, the warehouse shopping scene is here to stay. "It's not a fad, certainly," says Mr. Weiss. "They've changed the picture of food retail, of all retail."