Why America Is Going Clubbing

Warehouse club shoppers practically by definition were pandemic shoppers before it was cool. They stock up on big quantities, from a small selection of known brands, and respond to value.

With each of those trends intensifying during the last eight months—and a concurrent move toward retail subscription programs also seemingly taking off among other channels of trade—it’s little wonder America has gone clubbing.

Recent results from the “big three” U.S. warehouse clubs make the case.

Westborough, Mass.-based BJ’s Wholesale—which guided analysts upon its IPO in 2018 to anticipate reliable but stunningly modest growth of 1%-2% annual comps and store growth at about the same pace—has found pandemic trends especially to its liking. Helped along by several years of behind-the-scenes tech innovation and an ongoing merchandise renewal that prepared it for a new growth, the catalyst appears the be the pandemic, but to the extent those trends have strength, BJ’s is hoping also to far exceed new unit growth targets.

The company just this week revealed same-store sales, excluding gasoline, climbed by 18.5% in the fiscal third quarter ending Oct. 31. Officials in a conference call discussing results said more than half of that growth represented share gains from competitors, based on IRI data, and much of that was winning share from others in food.

“Members are consolidating their trips, buying bigger baskets in response to the pandemic and searching for savings given broad economic anxiety. Our industry leading value, bulk sizes and broad category participation work exceptionally well in these times,” CEO Lee Delaney said, according to a Sentieo transcript.

Comps in grocery at BJ’s were up by 19%, most notably in perishables, where according to Delaney, BJ’s grew twice as fast as the rest of the market. The merchandise reset—BJ’s intends to play a bigger role in trends like organics, while reeling back some of choice in staple brands—is also catching on with shoppers. BJ’s grew sales in the “alternative snacking” category by eight times the market, officials said.

Some analysts have remarked that among the clubs, BJ’s was in best position to grow during the pandemic, if only because it had room to relative to its rivals. Not having nearly the volume of an average Costco, they were better able to absorb a crush of new customers.

From my perch in Queens, N.Y., I can see as much. Since the pandemic began, the Saturday morning wait to enter the Long Island City Costco has surpassed LaGuardia Airport’s Delta terminal as the borough’s longest line. And about a mile to the southeast of that store, a new BJ’s is rising fast with an opening date expected early next year. That store—positioned between a high-volume Food Bazaar on one side and a Stop & Shop on the other—should be a nutritious alternative snack.

According to Delaney, however, some of BJ’s best-performing are outside of its core Northeast markets, a pretty impressive achievement for a new brand shoppers need to be convinced to pay to belong to. These include sites around metro Detroit and, sometime soon, in Pittsburgh. Officials note getting new markets up requires more advance spending, but the company can also benefit by not needing to change anyone’s existing impressions about what the brand is all about. BJ’s did this quite cleverly in metro Detroit, and opened with an offering that’s only now rolling out elsewhere.

Delaney says BJ’s is eyeing six new stores in 2021—that’s about 2.75% annual growth—and as many as 10 new stores in 2022. This week he said he'd like to build still more, but we’re not talking about Dollar Generals here. Wholesale clubs consume massive amounts of real estate and parking. That takes time to find and develop, especially now with the era of substandard club real estate—in industrial parks, for example—is coming to an end. But with distress striking other retail formats, opportunities could arise. The Long Island City center where the BJ’s is going in, for example, has been a historic burial ground for dying or defunct retail concepts, including Toys R Us, Modell’s Sporting Goods and National Wholesale Liquidators, all of which had to close shop before a BJ’s could even think about squeezing into the available space.

“We have a quite aggressive push internally to find and develop sites and properties, and we'd love to move at a faster rate,” Delaney told an analyst this week. “But as you just think about a challenge of finding that many sites and moving at a faster rate, we’re governed simply by our ability to make progress. It’s less so from a financial attractiveness standpoint.”

Other wholesale clubs are also seeing good times lately.

Walmart’s Sam’s Club subsidiary said sales were up b y 15.8% in its third quarter with comps led by food and consumables growing by 7.9%. Costco, the Issaquah, Wash.-based giant, said comp sales in October were up by 13.6%, with food and sundries in the mid-20% range.

That performance helped the chain generate enough cash to issue its shareholders a $10 dividend this month, or the kind of thing its investors don’t mind waiting in line for.