BENTONVILLE, Ark. -- Sam's Club here said it plans to boost some annual membership fees by $5 and invest a portion of that money into lower prices and added services.
Speaking at a Wal-Mart Stores analysts' meeting in Rogers, Ark., Doug McMillon, president and chief executive officer of Sam's, said the fee increase will take effect Jan. 1 and will affect Business and Advantage (personal) members, boosting their annual fee to $35 and $40, respectively. Fees for Sam's Plus and Advantage Plus members will remain at $100, he said.
"We expect to pay it back to members over time by investing a percentage of the increase into lower prices and adding new services to help small-business owners," McMillon explained.
He said the amount that will be invested back into pricing has not yet been decided. "Once we determine our renewal rate, we intend to devote a substantial portion [of the fee increase] to margin investment," he explained. "We'll decide how much when we see how renewals go."
McMillon said Sam's is committed to offering the best prices possible to accommodate the needs of its small-business customers. Although prices charged by food-service competitors encompass both delivery and service -- which Sam's prices do not -- "the price gap between us and them is so big that a member can afford to buy the item at Sam's and pick up himself and still save money," McMillon pointed out.
Sam's is making progress attracting individual customers from higher-income levels in all membership categories by introducing a treasure-hunt strategy, McMillon said. "Affordable luxuries are important to them, so we've added items like diamonds, fine wines, electronics and apparel to our mix."
Greg Spragg, executive vice president, merchandising and replenishment, Sam's Club, echoed McMillon's comment. "Treasure-hunt items create excitement in the clubs and an urgency to buy because of the shocking values and the in-and-out nature of them."
Sam's is trying to fine-tune treasure-hunt items to the demographics of each club location, Spragg added.
McMillon said Sam's prefers buying treasure-hunt items on a direct basis, "and that's what we pursue with our suppliers. But while we buy some items direct, we buy others through diverting relationships, and we're confident of our ability to keep both sources of supply going, particularly as more suppliers are willing to listen to and deal directly with us."
Spragg said Sam's sees opportunities for sales growth in organics, "and we will move ahead thoughtfully in that direction," he said, starting with frozen organic vegetables and private-label lines of organic sugar and coffee.
Greg Johnston, executive vice president, operations, for Sam's said internal efforts to reduce shrink have resulted this year in the lowest shrink loss in Sam's Club history, "but we still have work to do on turning inventory better by improving inventory flow management and reducing the amount of inventory carried at the clubs," he said.
