WAL-MART SHAPES UP SAM'S CLUB DIVISION

DAVID GHITELMAN

Last year at this time, the weakest part of Wal-Mart's retail empire appeared to be the division named after its founder.

Comparable-store sales at Sam's Clubs, the membership warehouse club division of the Bentonville, Ark.-based behemoth, fell 1.6% in October 2002, rising into positive territory (1.3%) the next month before descending back into negative numbers (-2.8%) in December.

Simultaneously, comps at the Wal-Mart Stores division of the company, which encompasses its discount stores and supercenter, were 4.8% (October), 2.8% (November) and 3.3% (December), not its most spectacular results, but clearly in the positive column.

The company's leadership was not pleased by the developments at Sam's, recalled Sandy Skrovan, vice president, Retail Forward, a Columbus, Ohio consulting firm.

"Up until early 2003, Sam's Club's comparable-store sales performance relative to Wal-Mart's other operating segments was relatively disappointing," she said, "and Wal-Mart executives were not too quiet in keeping that a secret."

Probably distressing the bosses in Bentonville even more were the results posted during the same period by Sam's principal warehouse club rival. In the last three months of 2002, Costco Wholesale Corp., Issaquah, Wash., had comp-club sales of about 2% to 3%.

Looking at these numbers, Wal-Mart "set out to determine what was happening, what they weren't doing right," said Skrovan. "The plan was to refocus on the business customer, and go after the small-business segment as opposed to the end-use consumer."

Meanwhile, in the last year, BJ's Wholesale Corp., Natick, Mass., the third largest of the three membership warehouse clubs, has moved in the opposite direction, targeting the household consumer through such tactics as offering supermarket-size portions of consumables instead of the enormous packages that have traditionally characterized the clubs.

At Sam's, part of the new approach has involved attempting to get small-business owners who come to the clubs looking for office supply bargains to ultimately splurge on life's little luxuries for themselves, observed Chuck Cerankosky, equity analyst, McDonald Investments, Cleveland.

"All the clubs, which have seen a growth slowdown, are trying to get that higher-income customer to buy some high-end items," he said.

He also noted that Sam's has improved both its merchandise and food offerings, in contrast with some of the more humdrum products it used to stock. "In the past, they suffered from that," Cerankosky said, "but recently, they've moved away from that handicap. If you look at the merchandise and perishables at Sam's, you're going to see high levels of quality."

Not perhaps, he admits, quite as high as its rival. "I think neither of the two clubs do as good a job in produce as Costco," said Cerankosky. "In meat, I would put BJ's and Costco pretty tight.

"Sam's could improve their overall perishables presentation, but all three have shown that they can do pretty well in perishables with that more discerning upscale customer."

Sam's appears to have proved itself to its corporate higher-ups. Lee Scott, Wal-Mart's chairman and chief executive officer, told an analysts' conference in October, "We have a good feeling about the direction Sam's is going. Month by month, we're seeing increasing comparable sales as we differentiate our assortment and focus on business customers.