How Sam's Stands Out in the Shadows of Wal-Mart, Costco

Sam's Club is celebrating 25 years of operation, but its greatest feat hasn't been its longevity. The biggest success was finding its own path in a world of two giants: Wal-Mart and Costco. Sam's has honed its own identity under the umbrella of goliath parent Wal-Mart, and has found its niche in a membership warehouse industry dominated by the imposing Costco.

All of this progress was made despite stumbles, and some important challenges lie ahead. This week's SN profiles Sam's in a story that begins on Page 14.

First let's take a look at how Sam's carved its niche in relation to other membership warehouse clubs. That industry was born chiefly to serve small businesses, and only secondarily to cater to individuals. But over the years some of the biggest players crossed into the consumer sphere. Today, Sam's major rivals, Costco Wholesale Corp. and the regional operator BJ's Wholesale Club, are more consumer-oriented than Sam's. Costco's loyal following stems from its upscale clientele, theatrical merchandising and perishables panache. The Issaquah, Wash.-based operation, still driven by its 72-year-old founder Jim Sinegal, outperforms Sam's in revenues despite having fewer club units.

For years, Sam's struggled to identify its primary customer base, but finally threw its hat firmly into the small-business ring in 2002, underscored by a new slogan: “We're in business for small business.” That move, spearheaded by then-CEO Kevin Turner, enabled the club to funnel energies into serving various business segments and the personal needs of business operators. This gave Sam's the direction and differentiation it needed. The club operator understood it would not succeed by trying to become Costco, so it returned to the roots of the club industry.

Now let's turn to Sam's relationship with parent company Wal-Mart, another case in which Sam's had to set its own path. Sam's has the reputation of being the lowest-priced club, an accomplishment that results from joint buying arrangements with Wal-Mart. Sam's has worked hard to benefit from that partnership without becoming a club-sized copy of Wal-Mart, which has a very different and less affluent customer base. Years ago, Sam's and Wal-Mart bought a lot of similar merchandise together, but more recently Sam's has steered away from that practice while still benefiting from its parent's buying leverage. Sam's has also taken diverging routes from Wal-Mart in private label and other merchandising elements.

Sam's doesn't always get credit for differentiating itself from club store rivals. That's because the company needs to better relay its message through marketing and advertising. Potential members need to understand how Sam's differs from the competition. Business customers might benefit from more in-club events that target individual sectors. One recent promotion enables small-business operators to enter a contest to win a $100,000 “makeover” for their company that includes free supplies and mentoring from experts. That's the kind of promotional energy that will generate more buzz for Sam's.

But don't expect Sam's to seek a makeover for itself. The operator appears satisfied with its overall course and is likely to take only small detours along the way.