Magazine article Editor & Publisher

Warehouse Membership Clubs: Experts Forecast Rapid Growth for New Retail Format

Magazine article Editor & Publisher

Warehouse Membership Clubs: Experts Forecast Rapid Growth for New Retail Format

Article excerpt

Information in this article is from Packaged Facts research report, "Warehouse Membership Clubs," issued in April 1992.

Warehouse membership clubs are large-scale retail units that offer their members-only customers giant-sized and multiple packs of groceries and general merchandise at extremely low markups, usually the lowest retail price available in the market area. The clubs depend on high volume turnover of goods in a limited number of stockkeeping units (SKUs), typically around 4,000. About 60% of the items for sale fall under the heading of general merchandise, ranging from clothes to computers to tires: The other 40% are groceries, including both food and non-food items.

In 1991, warehouse membership clubs had dollar sales of $29 billion dollars, up 34% from the $21.7 billion sales in 1990. In the same period, the number of stores grew from 400 to 497, an increase of 24%. Average sales per unit increased 10%, from $53.3 million in 1990 to $58.4 million in 1991. The need to reduce spending by small businesses and consumers was a major force in this growth. The four leaders in units and dollar sales in 1991 were:

Company     Dollar Sales(*)  # Units
Sam's Club     $9.6          208
Price Club     $6.9           77
Costco         $5.5           82
Pace           $5.3           87
(*) In billions

Both business and individual customers are attracted by the near-wholesale prices offered by the clubs. Prices are as much as 60% below other types of retailers. Customers will drive many miles to shop at the clubs because of their low prices.

Most clubs charge a fee, typically $25 per year. Business customers are preferred over individual members because of the lower costs associated with handling their larger-ticket transactions. Typical small businesses that the clubs serve are gas stations, grocery stores and small offices. Restaurants and bars are reported to be the most frequent business users.

Why Clubs Can Affect Any Newspaper's Market

1) They meet the need for low prices required by businesses and consumers battered by the continuing recession.

2) Members of most clubs are solidly middle-class, the most important part of any newspaper's readership group. Specifically, warehouse membership club shoppers are more likely than the average shopper to be married, to be between the ages of 25 and 54, to have attended college, to work as professionals and managers, and to have a household income of between $20,000 and,$75,000.

3) Dollar sales for the category are expected to jump 182% in the period 1991-1996. Estimated sales by years are:

Warehouse Membership Clubs'
    Projected Sales
Year    Dollar Sales(*)
1991       $29
1992       $37
1993       $48
1994       $59
1995       $71
1996       $82
(*) In Billions
Source/ Packaged Facts

Minimum Advertising Activity

Because customers usually have their membership privilege through affiliation with a group, news about a club's merchandise and services can be issued directly. Positive word-of-mouth reports within the affiliations by satisfied members are probably the best form of advertising that the clubs get.

Advertising by the clubs is reported to be down around 0.5% to 1% of sales by many of the clubs. The use of advertising by clubs is so low, that the publisher of the Daytona Beach News-Journal sent a memo to his staff asking them not to shop at the local Sam's Club because its non-advertising policy was "blow at our survival."

In general, clubs take the position that since they are not open to the general public, it is not cost-effective for them to advertise to the general public. However, clubs do advertise to a limited degree when they enter a new market.

In the future, some limited print advertising could be used during the entry to a new market but, again, not as part of an ongoing campaign. As competition heats up with more than one warehouse membership club in a market, the last club in the market may feel the need to advertise its presence to win shoppers away from those clubs that have already established a presence, but it is more likely that clubs will keep advertising and promotional costs as low a possible. …

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