WHILE WAL-MART STORES HAS BEEN STRUGGLING to regain its sales momentum in the U.S., its Sam's Club division has been making great strides in terms of financial results and merchandising.
Sam's was the only Wal-Mart division to grow both comparable-store sales and operating earnings during the first quarter, with comps rising 4.2% — the banner's fifth consecutive quarter of positive comps — led by food and consumables.
“What we're most pleased about is the quality of the results,” Brian C. Cornell, president and chief executive officer of Sam's, told analysts earlier this month at the parent company's investor conference.
Sam's Club has been a bright spot in Wal-Mart's U.S. sales growth. “The top line was fueled by increased traffic, with current members shopping more frequently, buying more items and shopping more categories despite the inflationary environment, and we're also attracting new members to the club.
“Our job now is to keep the momentum going. It took a lot of hard work to get here, and if we deliver the best results every day and stay hungry for success, then Sam's Club can have the best year ever.”
Natalie Berg, an analyst with Planet Retail, London, said Sam's is offering a sharper and more relevant merchandising strategy that is resonating with consumers.
“Sam's is going after individual customers as well as small businesses with a combination of value, quality and innovation,” she told SN.
She also said Sam's is getting better at fresh merchandise, particularly in terms of adding more assortment.
“The treasure hunt nature of the club has been extended to fresh foods, with portable display cases at the back of the store for seafood specials, for example, which adds an element of excitement at a low price point.
“And Sam's is offering smaller pack sizes, which is attractive to consumers who don't always want to buy in bulk.”
Private labels are playing an increasingly important role at Sam's Club. The company is eliminating the Member's Mark name on all but paper goods and introducing several new labels. Sam's is also rethinking its private-label portfolio, Berg said — opting to maintain the Member's Mark name only on paper goods and introducing several new labels, “which gives it a way to differentiate its lines and generate excitement within food categories — and they are good-quality lines,” Berg added.
Among the new labels are Artisan Fresh for baked goods and prepared foods; Daily Chef for basic Center Store groceries; and Simply Right for health and wellness and family-care products.
“This is a positive move because it reinforces Sam's commitment to growing its grocery business while creating excitement and differentiation in the food categories,” Berg explained.
Another analyst contacted by SN said the main reason for the success Sam's is enjoying is similar to the reason competing clubs are also doing well — demographics. “Most club members have higher incomes, and with the stock market doing better, high-income people are spending more — at the same time they are value conscious and looking for ways to save money.
“Inflation in fresh foods is also helping boost Sam's sales,” the analyst added.
Volume Gains in Food
Food and consumables account for about 12% of purchases at Sam's, Linda Hefner, chief merchandising officer, said at the analysts' meeting, so if Sam's could get members to increase spending on food and consumables to 20%, it could boost volume by approximately $18 billion, she said.
Hefner said Sam's is starting to see the percentage rise above 12% as it begins selling smaller packages of frozen and prepared meals, and maintains prices on items such as laundry detergents.
She also said she expects most of the volume increases to come at the expense of purchases at conventional supermarkets.
According to Cornell, Sam's is not only managing gross margin and leveraging expenses, “but our members are also telling us their in-club experience continues to improve, so we feel really good about the quality of results.”
He said Sam's is also utilizing consumer insights to improve and elevate overall club standards “and to ensure we're creating a great in-club experience for our members.
“We think the ‘Savings Made Simple’ framework that we've developed will allow us to continue to grow and bring great returns to Sam's Club,” he said.
“Consumer confidence continues to drift, and we're seeing this in an inflationary environment where we know we've got to play our game carefully to continue the momentum.
“But we think we're well positioned to continue to win. We think the value we bring our member is more important today than perhaps ever before. And we think the changes we have made from a merchandising and operational standpoint and the efficiency we're bringing and the way we're able to leverage the knowledge around what our Sam's Club member wants positions us well for continued growth.
“So right now, we're going to continue to play our game, execute our strategy and bring great value to the member in the products and services we offer. We think that's going to continue to stimulate the traffic we have today and get members to shop more frequently and become bigger advocates of Sam's Club.”
