Bob Eddy: I might add on to that just a tiny bit to say the new clubs are also experiencing all the things that we’ve been talking about today all at once in their finest form, where you can take a couple of examples that we talked about already, simplification, right? The new clubs have a fully simplified assortment already, where in the balance of the chain, we are kind of ratcheting it down over time because you’re always taking away somebody’s favorite SKU. We try not to do that too much. And digital is another great example. We built and installed curbside in two weeks, and now it’s 50% of our digital sales. We never built the infrastructure inside these clubs to allow them to efficiently store and refrigerate product and make sure that they’re getting out to the parking lot in an efficient manner.
And so some of our clubs will look kind of haphazard that way. They’ve outgrown the initial shot of capital that we put in there. So Bill’s team will be revamping our entire chain this year from that perspective to really present that experience, the cool way that it’s presented in our new buildings. You’ll see one version of that today on our tour that should be what you see everywhere when you travel our clubs later in the year where it is one cohesive place where it’s stored, where you come to check in, you can pick up your product there. It’s in a convenient place and to the members, and it’s actually in an efficient place to our team members as they try and do curbside deliveries, right? We are in some places using existing doors, in some places cutting holes in the wall to install new doors, put in the parking spaces right outside those doors because footsteps matter in our business, right?
Go back to that efficiency point. We want to take every opportunity we can to be efficient to reinvest in value. And so whether it’s those two things or many of the other things we’ve talked about, those new clubs are getting the best of the best. And we’re taking the lessons that we learn from those clubs and bring it back to the mothership over time, too. We’ll go to Rupesh.
Rupesh Parikh: Rupesh Parikh, Oppenheimer. So just on merchandise margins. As you look longer term, there seems to be a focus on expanding margins, at least in the outer years. Just want to get a sense of how you’re thinking about price investments within that guidance.
Laura Felice: Yes. Look, I think price investment is always part of our story. We’ve said that all day. Value is really important to our members, and we’re committed to delivering that to our members every day. It’s not specifically in the merch margin guide for the future. It will — we do think merch margins will expand. The bigger part of the story, Rupesh, is we will continue to grow out brands. We’ll continue to invest in things like our general merchandise business. And we think those over time will deliver incrementally from a merch margin perspective.
Rupesh Parikh: Okay. Great. And then maybe just one follow-up question. So on the credit card, we’ve seen with other companies when there’s a new partnership. Typically, there’s a financial benefit, lower interchange fees or higher bounties. It seems like you are reinvesting in member value. But is there also any financial benefit that BJ’s is keeping anything significant within your guidance this year or even in the intermediate term?
Bob Eddy: Yes. Why don’t let the Godfather handle that.
Laura Felice: Bill you want to take up?
Bob Eddy: And maybe let Tim talk about how we’re trying to enroll our members in this whole program to get the best possible result too?
Bill Werner: Yes, I’ll start. And again, not to go back to like Simeon’s point on what was broken. But the journey on where we started with credit card becomes an important part of where we are today and then where we’re going. So when I joined the Company in 2013, we had about 100,000 members in the credit card. And again, culturally, if you went to the desk at the club, they would say, “Oh, yes, there’s a credit card like don’t worry about it. It’s not important.” And now today, we have an entire team of people in the field who are like topping at the bank. We haven’t turned on acquisition yet as part of the transition that will turn on later this month, but they cannot wait to talk to our members about all the money they can save with the new product they’re going to have.
And it really goes back to this idea of what did we do? We created — we took all the money that we got from the credit card and said, what would a club — what should a club business do? Club business, you bring their membership base to its vendors, negotiate the best damn deal possible, take all that value, reinvest it back into the member value and then deliver an unbelievable experience. So we started to do that in 2014 by increasing the value prop substantially then — and now we came to the market again a couple of years ago. The transition of Capital One started actually back in the summer of 2020, if you can believe it. And because we now have a critical mass of 1.5 million members of the program, there was a much more — much larger critical mass of value for the best banking partners in the world to kind of compete for.
And as a result, it allowed us to take the value — incremental value that’s in the program and create a value prop that we feel really excited about. When you think about the top end card, right, 2% always on reward is the best there is out there. It’s top of market. And then we’re going to stack on top of that $0.15 on gas plus $0.05 on back in store, which, again, top of market for club store value back, like it should be amazing. And so when we — as we thought about the value that was created and should it come to us if you go to our members, the answer is always, no, should go to our members. And so as we think about that, if we can take — if the reason why because we invested all that value back to our members takes our renewal rate from 90 to 91 to 92 at some point in the future, right?
And Tim shared some math earlier about the incrementality of what the value that creates. Like that’s the value we need. The value we need is lifetime value, value. It’s not the value in any given dollar from the bank. But maybe I don’t know, Tim like…
Tim Morningstar: Credit card members delivered 2x LTV. Bob said at the begin of saying that’s a great use of funds. As I’ve the membership card, I’ll take more. It’s a great destination for investment.
Bob Eddy: Chris?
Chris Horvers: Chris Horvers, JPMorgan. So I was curious on the potential membership fee increase whenever it does come. How do you think about doing 5 and 10 versus like a 10 and 20, you’ve added a ton of value since 2017, gas, the credit card, digital and all that. So Amazon did the 10 and 20, Sam’s is still below you at this point, cost goes in line. So can you talk about how you think about that decision matrix basically? I have one follow-up.
Bob Eddy: Yes. Maybe I’ll start and hand it over to Tim. So we haven’t — as Laura mentioned, we haven’t built a fee increase into our guidance for next year. My personal opinion is we will not do one next year. But I do think one is in the offering at some point. And Chris said it in his question, we provide our members a ton of value, more value today than we did yesterday, particularly more than five or seven or 10 years ago. And we’ve got to consider that in the overall economic mix, what our competitors do, what we’re doing with co-brand. And so I think our first priority is just to provide the right value. Our second one is to get co-brand up and stable and running and our members using the cards. And so I don’t think we’ll do one this year, but we could in the future. So Tim, how would you?
Tim Morningstar: I think I mean five and 10, 10 and 20. To me, that’s the math, Bob. We have perfect data on our acquisition. We know what it costs to acquire a person. We know how many people will give up by charging more. And when the time comes, we’ll look at the data and make a call. I don’t know if we have a philosophical approach of how big or how small more is we’re going to look at the data and .
Chris Horvers: And then on the price gaps, you’ve reinvested a lot this past year. And I think that’s a big change of what it was like you constantly trying to provide more value. So can you talk about how your price gaps have changed? Have they expanded versus grocery it reads some people do pricing servicing and shows maybe was a little above Costco, a few percentage points? Has that gap narrowed? So just overall, and then any comment on what the current pricing environment is like?
Bob Eddy: Sure. So again, we talked about 130 basis point improvement. That was against a composite of all of our competitors, right? We have an incredibly robust price tracking team. They track well over 50,000 data points a week against club, against mass, against grocery. We improved against everybody this year, whether it’s in club or whether it’s in mass or whether it’s in grocery. We have improved the most, I believe, against grocery. They are — go back to the structural advantage of the club business. They have 3x, 4x the labor that we do. So when wages go up, they have to price up more than we do. I’m sure they’ve seen that pressure this year. We’ve definitely seen that pressure but at a lesser degree. We have improved against everybody, and we’ll continue to do that.
It’s a key differentiator against what we would do in the past, right, when we didn’t have so much flexibility in our P&L to do so. And when we didn’t, quite frankly, have the same commitment to doing so, we know that value is the most important thing. It drives the entire flywheel. And so every bit of investment that we can, we throw back into member value. I know what — we do say guys, Paul or Rachael about the current environment and what you’re seeing out there.
Paul Cichocki: We’ve certainly improved across every class of trade that we compete with. We have incredibly sophisticated models, whether it’s inflation or the coming deflation to be what I think is the best in the world at figuring out how much our vendors’ cost base has changed and working with them as partners to squeeze out any sort of excess windfall. And we’ve industrialized that process, as Bob said, since the original CPI. So we have almost an infinite capacity to calculate how commodity prices are impacting a box of corn flakes, if you will, and work with our partners to go do that. And Rachael and her team brought a lot of upgraded capacity in working with our vendors and working our categories to make sure that we have the right approaches to provide that value. So I’m immensely confident in our ability to continue to invest in price while supporting the margins that Laura laid out.
Corey Tarlowe: Corey Tarlowe, Jefferies. So I have two questions. On market share, where do you see most of your market share coming from ahead? You talk about your marketing campaign, and I think it’s absurdly simple savings, and you talked about the discount to groceries. Do you see grocery as a really meaningful share donor to BJs or customer finding the right customer, not going after every customer, but going after the right customer. Who is that right customer for BJ’s? And how has that customer profile maybe changed a little bit over the last 5 to 10 years?
Bob Eddy: Yes. Maybe I’ll farm these questions out to the team. So maybe, Tim, you can talk about — that acquisition strategy, who we’re going after, how we’re going after them. And Rachael and Paul, you can answer the first question.
Paul Cichocki: So in terms of sort of who our member is, I mean young families that live near the club. I mean, people and families that are sort of their highest score intake when food and value is the most important to them are the members that we want. And so that’s where we’ll lean in to invest. And so that’s been the case. I can’t speak to what it was like 5 or 10 years ago, but I doubt that’s changed drastically over time. So that’s the type of member going after. I think you had a question about sourcing share and where we source share from it. Our message and our messaging resonates across grocery and GM. We talk about grocery store pricing when it comes to food, but our GM assortment is also incredibly an important part of that.
So I would say we have taken and continue to take share from traditional grocery players as Bob shared, but we expect to take share in harder-to-measure categories like GM as well. I’m not sure if there are maybe a couple of other questions in there, other thoughts on that.
