Bill Werner: The Werner family lives about a half hour from the nearest club. And with four kids at home, eating out, out of house and home, same-day delivery has been a game changer for us. Welcome. It’s great to see so many familiar faces here today. Excited to be here. I’m going to talk about our footprint, give a deeper dive on the growth and the clubs that we’ve opened since the IPO. And then I’m going to wrap with some perspective on the future growth and how you should think about that growth from a modeling perspective. But before we do that, I want to just take a minute to discuss our club footprint today. On the left-hand side, you’ll see that our current footprint extends from Maine to Florida, expands West into the Panhandle Florida, Michigan and Indiana.
The most western markets all represent expansion markets since our 2018 IPO. You’ll also notice that our DC infrastructure looks quite a bit different than what you’ll remember since the IPO. Specifically, you see the addition of our perishable DCs, which became part of the BJ’s operations about a year ago. It was important for our company to control the experience in both the dry and perishables DCs as we continue to grow our footprint and we are very pleased to bring these team members supporting these DC operations on to the BJ’s family. On the right-hand side, I want to provide a perspective on our club share by market. The short story is, if you want exposure to the club business in the New England and New York — the Metro New York markets, you’re going to want to have exposure to BJ’s equity.
About one in four club doors in the southeast is a BJ’s Club, about every other door in the Mid-Atlantic, including the Metro New York region is a BJ’s and about 7 out of every 10 club doors in the Northeast is a BJ’s Wholesale Club. Every investor should know that we are a scale player with share leadership in some of the most attractive markets in the United States. Finally, I’d be remiss if I didn’t cover our expansion into the Midwest. We have 15 clubs today, and we are quickly gaining share as we continue our adjacent market expansion. Another important baseline for investors to all understand is that our comp clubs are all EBITDA profitable. You will see on the chart some bars are in blue. These bars represent the profitability of the new clubs we have opened since 2016 when we reinvented the new club model.
The highlighted clubs on the left of the chart generally represent the clubs opened around the time of the IPO, and the clubs highlighted on the right are some of our newer clubs that are still very early on the maturity curve. As a reminder, our clubs usually hit mature profitability in about their fifth year. Overall, we are seeing strong payback on our new club growth. In fact, the clubs on the left-hand side are now paying back almost every year over and over at this point. If you think about how we spoke about our future real estate growth when we came back to the public markets in 2018, it was that we had a lot of confidence in the work we had done on our new club playbook, while we are conservative in our long-term growth commitments as we knew it would take time to rebuild our pipeline.
We now sit here today with a robust pipeline, having opened up 23 new units since the IPO and nine of those opened in the last year and now 11 in the last 13 months. These clubs as a group are performing above our expectations, and we have confidence in our ability to continue to lean into new unit growth going forward. I want to spend a minute to speak about the balance of our growth. At the IPO, we spoke about our desire to continue to infill some of our core existing markets while expanding into new adjacent markets in the West. On the adjacent market growth, we have now opened up in five new markets since the IPO and now have five clubs in the State of Michigan have backfilled into Pittsburgh with two new units. We’ve also expanded into Columbus and recently opened up a club in Noblesville outside of Indianapolis and also expanded into the Panhandle, Florida with our club in Pensacola.
The performance in these new markets have been solid, grounded by the work we have done to improve everything about new club openings. We’re also very pleased with the infill market growth. We have delivered five new clubs in and around the New York City Metro area, expanding into the Boston market, Richmond and several markets within Florida. I will share some data with you today that underpins why we believe there is still much opportunity to continue to infill development in our core markets. I talked earlier about the work we have done to reinvent our new club playbook. Early in our transformation, we were challenged by Bob and Chris Baldwin to take an unconstrained view of how we would reinvent every aspect of the new club process. From how we acquire members in the new market, to how we make sure they have the best in-club experience, to how we engage members and drive them on a path towards renewal.
This innovative and entrepreneurial approach has allowed us to quickly test and learn with each new club, building on the wins for future club openings and oftentimes exploring the key learnings to other clubs in our installed club base. Our goal of the team supporting new club openings is to make the next opening the best opening in the history of BJ’s Wholesale Club. The results that we are seeing are proving out that we are working on the right things to drive the long-term success of our new clubs. To put a finer point on the results, our recent new club openings have almost 16% higher tier membership penetration, 60% greater first year sales and 12 points greater first year renewal rates than the clubs we opened prior to the reinvention of our new club playbook.
These stats, especially the first-year renewal rate gains are game changers when we think about the long-term new club investment case. Further, these results have improved over time with renewal rate and higher tier penetration up an incremental 400 basis points from these numbers on our most recent openings. I touched on earlier that we have seen good success in infill markets. A question we get a lot is, what’s the full potential of the club — for club units in the U.S.? And I know it’s a question that the investment community often analyzes. My answer to that question is always some version of either, I don’t know or ask me in 10 years. Bob talked about the growth of the club industry in the U.S. and our market share gains over the past few years.
As I think about that through the new club lens, every basis point of market share we gain opens up more opportunity to infill. The more relevant the cloud model becomes, the more units it will support, the more convenient we become, the more members will want access to the value. So for us, when it comes to infill growth, we have transitioned from a conversation that was always around the risk that we just cannibalize ourselves, to a broader conversation around how do we build out the BJ’s franchise to as many members as possible. Let me bring that concept to light through the data. When modeling a new club, we always return our — we always run our return models net of transfer. For one of our recent openings, our return model met our threshold.
However, because we expected the transfer to be fairly substantial, we expected the upside in the model to be limited. As we evaluate the results of the new club and more importantly, using our data to build up in detail the member activity, we were excited for the results. As you look to the middle section, trips from existing members living in and around the new club increased substantially. Maybe more importantly, while there was transfer, our pre-existing members continue to spend at their existing club to shop while also adopting incremental trips to the new club. The result is, we earn a much greater share of our members’ wallets, thus driving much higher lifetime value for these members. The more important unlock maybe what we’re seeing from the new members.
Of the new members who signed up at the club, 2/3 of their spend was at the new club but maybe more importantly, 1/3 of their spend was actually going to other clubs in the chain. These new members, like many of our 6.8 million members are taking advantage of the full BJ’s network and all the value we have to offer. So in the past where we always do the math of sales of the new club less the transfer would be the sales available to support the new club returns, now we can use our data to evaluate the lifetime value gains from existing members, factoring new sales, we are exporting to other clubs in the chain as we enroll new members into the BJ’s franchise to evaluate a more holistic view of the payback and the lifetime value we can create.
Now this math doesn’t mean that we’re going to put a club on every corner in our footprint, but it does mean that we can continue to leverage our data and analytics to evaluate the total franchise value we can create by opening up infill locations. For our most recent infill openings, the results have been very compelling. One final point I will submit for your consideration as you think about the future for club units in the U.S. Bob shared the data of the clubs being penetrated at about 5% of total retail sales. We are big believers in the club model, that should be not very surprising from what you’ve heard today and the value that we can provide. Our view is that, that 5% share will be materially greater in the future, and we’re excited about the unit growth created by the share opportunity in front of us.
Right. So we covered off the success of the new clubs, we talked about the playbook and some of the data supporting the returns of our new clubs. Let’s talk about what’s next. So we’re happy to announce today our next wave of openings for 2023. We announced our entry into La Vergne, outside of Nashville, a couple of weeks back. This will mark our first club in Tennessee and our 19th state overall. We’ll open up a second club in the Nashville market in Mount Juliet later this year and also expand to the south through the Huntsville market, marking our first club in Alabama and what will be our 20th state. Additionally, our plans include opening up in Johnson City in the Binghamton market, further build out in the Columbus market in Lewis Center; and finally, expansion in the Jacksonville market with a club in North Jacksonville.
In addition to our unit growth, we continue to lean into improvements in our installed club base to deliver even further value to our members. We did such a great job during the pandemic for our members and standing up convenience initiatives like curbside, enabling a full assortment for pickup in club, these convenience initiatives have become an important part of our value proposition to our members. And as we think towards the future, we are investing to optimize the club experience with better parking, better signage and a better overall experience inside the club. We’ll also continue to build out our gas program, as Bob mentioned earlier. We’ve seen such tremendous share growth over the past few years on fuel, and we expect that to only accelerate with all the great new benefits of our higher-tier memberships that Tim shared earlier.
We’re going to add another 15 gas stations this year between our new clubs and also bringing gas to clubs that don’t currently have a fuel offering in our footprint. And finally, we’ll continue to innovate in other ways to continue to bring the value closer to our members. Our BJ’s Market test club is seeing many of the same spending attributes as the data we shared for our infill clubs. We continue to test and learn in this club as we evaluate its potential as a prototype for future infill markets going forward. All right. So maybe most important for you guys is the models. What do you expect from us? We’ve upgraded our new unit aspirations based on our success since the IPO. We now expect to deliver around 10 new units per year. And as we build up the pipeline over the next few years, we expect to be in a place where our new unit growth will supplement about 1 point of comp in our long-term growth algorithm.
It’s been a long time since we got a stack cadence from new openings to augment our comp growth. And we’re now at the place where we will start to see the benefit in the next few years. On modeling, we’ve updated our expectations around costs and returns from new clubs. As we have talked to the investment community over the past year or so, our balance sheet strength has given us much more flexibility to execute on real estate deals than in the past. In this period of rising costs, our flexibility has been an asset in getting several deals across the finish line. As a result, we expect 7 of the next 10 clubs we open will be owned projects as opposed to leased. This will result in a slightly higher CapEx investment this year, and Laura will tell you a little bit more about our expectations around CapEx in a bit.
In terms of returns, we have updated our guidance here on expectations for the capital associated with new units. These are placeholders to help you think through your models and will be directional as every deal will be different based on a variety of factors. The net of the math is that costs have gone up slightly and thus, our total out-of-pocket cost for a lease project have risen from roughly the $7 million to $10 million that we had previously talked about to about $10 million to $13 million. This would include the investment in working capital, about $1 million and preopening expenses of about $3 million per club. Owned projects will add an incremental $12 million to $25 million based on the location and the scope of the site work involved.
Despite the increased costs, our increased performance supports paybacks that are still in the same ballpark of four to five years for leased clubs and five to seven years for owned clubs. We will continue to evaluate the overall capital portfolio as we go forward and potentially leverage sale leasebacks when appropriate, to manage our total new club cash investment envelope. We’re excited for the growth and how it will support our long-term growth going forward, and I’m very excited to turn it over to my friend and our CFO, Laura Felice. Laura has been such a great partner as we have planned for our growth, and we are lucky to have her as part of the team. I’m happy to now turn it over to Laura, and she’ll bring it all together for our financial expectations going forward.
