Club Stores Weather Downturn

MARK HAMSTRA

ISSAQUAH, Wash. — A strong emphasis on consumables categories and an overall value image helped membership club stores Costco Wholesale Corp. here and BJ's Wholesale Club, Natick, Mass., thrive in the economic recession of the past year — and left them in good position for future growth, analysts said.

Both chains reported quarterly sales growth last week, with strong gains in food items.

“One of the advantages the clubs have is that their merchandising proposition screams ‘value’ to the members,” Chuck Cerankosky, an analyst with Northcoast Research, Cleveland, told SN. “While shoppers might not be buying as many big-ticket general merchandise items, they are picking up spending on consumables, and that's worked out well for the clubs.”

He said he expects to see more sales of bigger-ticket general merchandise items as the club stores' more-affluent customers begin to feel more comfortable about their finances again.

“One of the nice things about the clubs is they have a consistent traffic pattern where people do shop there for consumables, even though the incidental spend on general merchandise is down,” Cerankosky explained. “When you look at the numbers, they are still making considerable money on the business they are doing, and the general merchandise will pick up as the economy slowly improves, in our opinion.”

In addition, both BJ's and Costco have robust new-store development plans in place, in contrast with other retail formats, he and other analysts pointed out.

Cerankosky also noted that club stores appear to be taking market share away from traditional supermarkets in grocery items. Both BJ's and Costco last week reported gains in the sale of various food items during their most recent fiscal quarters.

BJ's said strong fourth-quarter unit sales in perishables helped compensate for deflation in the category as the company posted gains in both net income and sales for the period.

Comparable-store sales of all food items were up about 3.7% in the quarter, which ended Jan. 30, while general merchandise comps were flat. Net income was up 4.6%, to $55.1 million, on a 9.4% revenue gain, to $2.56 billion.

“Product innovation and improvements in quality on the part of our vendors, particularly in frozen and prepared foods, were major factors in our success,” said Laura Sen, president and chief executive officer, in a conference call with analysts. “New and better brands, quality and freshness helped to grow other key areas, including produce, milk, eggs and dairy. The higher penetration of perishable foods together with strong inventory management contributed to gross margin expansion throughout the year.”

The company said it expects perishables deflation — which held perishables comps to 3% in the quarter — to begin to compare more favorably with year-ago numbers in the second quarter of this year.

For the year, BJ's reported net income of $132.1 million, a 2.4% decline from year-ago results, while revenues were up 1.6%, to $10.2 billion.

Costco, meanwhile, whose second fiscal quarter ended Feb. 14, said the average sale per category in food and sundries was up anywhere from 3% to 10% in the quarter. All fresh-food categories saw sales gains in the mid- to high-single digits as well.

Richard A. Galanti, executive vice president and chief financial officer, said the growth in private-label penetration at the chain is continuing, although not as rapidly as it was six months ago. He also said the chain has several new private-label food and sundries items slated for a fall rollout, although he declined to reveal details.