NATICK, Mass. — When Sam’s Club decides small business customers are its nirvana, what’s a smaller competitor to do?
Become the consumer club of choice, according to BJs Wholesale Club president and chief executive Michael Wedge, who laid out steps for reaching that goal to a smattering of shareholders at the annual meeting here last week.
The 143-store chain, which has its stronghold in the Northeastern U.S., has given itself a tall order: lower prices while becoming more upscale in club appearance, selection and marketing. It’s putting its eggs, essentially, into the basket of the shopping mom, hoping that visually pleasing displays and more national brands will breed loyalty.
“We believe we can win with our low-cost expense structure and a much higher taste level,” Wedge said.
The company, which tallied $5.7 billion in sales in 2002, carries more stockkeeping units than Sam’s or Costco, but builds stores that are 10 to 20 percent smaller. These stores are less expensive to construct and operate, and easier to make profitable, the company claims.
The company’s Kissimmee, Fla., store, slated to open in October, will serve as a laboratory, testing a bevy of new member services before rolling them out. “We’re looking for services that consolidate errands,” said a spokeswoman, citing dry-cleaning as an example. In the Southeast — where competition from Sam’s Club is intense — BJs might drop its small business goods altogether in favor of faster-moving consumer items, the spokeswoman said.
The firm already has seen some positives from its strategy.
Apparel, particularly men’s, has performed well, tripling sales of designer labels from the same period a year ago. Wedge cited a Polo Ralph Lauren shirt hanging at the Framingham, Mass., store for $29.99. “That shirt starts at $52.50 at a department store. We won’t make the kind of margin we make on a [generic] brand but we believe in investing in these products to make sure we have the right quality and taste level.”
BJs carries Tommy Hilfiger, Polo, Nautica and other brands, focusing mostly on basic styles and offering merchandise well ahead of season. A relocated staffer now works directly with California manufacturers, cutting out fees paid to jobbers.
The company does not break out apparel sales.
Asked by a shareholder why the company lowered its earnings per share guidance during its first-quarter conference call, Wedge said BJs needs to invest capital in lowering sourcing costs and sharpening prices to undercut competitors.
“We’ve been looking not just at taking care of threats today, as seen in our declining comp-store sales trend, but also looking to the next three years to try to understand what other threats we will face,” he responded. “Our 20 to 22 percent price advantage against a Wal-Mart Supercenter is probably not going to be good enough because you need to pay [a membership fee] to shop BJs. You don’t need to pay to shop a supercenter.”
The company will not enter new markets until at least 2006, Wedge said. The dozen or so clubs expected to open this year will back-fill existing New England and Mid-Atlantic markets.
For the first quarter ended May 3, BJs net income plummeted 51 percent, to $12.7 million versus the year-ago period. Net sales rose 15.7 percent over the 2002 quarter to $1.4 billion, while comp sales rose 5.7, fueled mainly by gasoline sales.