As online retailers are challenging traditional brick-and-mortar stores in terms of pricing, there’s one category in which traditional retailers are capable of standing up to them and attracting customers with lower prices: warehouse stores. Americans like lower prices (who doesn’t?), which became particularly vital following the recent financial crisis, when a decline in disposable income forced many households to start looking for cheaper prices. IBISWorld estimates the total revenue of warehouse clubs at supercenters at $460 billion, but pointed out that a fast development over the last decade helped the industry become saturated. However, even though a slowdown is expected, the industry is expected to increase its share of the retail sector through 2021.
Warehouse stores have a lower markup than supermarkets, which allows them to compete with low-overhead retailers. Currently, there are three popular warehouse stores: Costco Wholesale Corporation (NASDAQ:COST), Sam’s Club (owned by Wal-Mart Stores Inc (NYSE:WMT)) and BJ’s Wholesale Club. For example, Amazon.com, Inc. (NASDAQ:AMZN)’s average markup is estimated at around 15%, Costco has a markup of 10%, while mainstream supermarket chain Target’s markup amounts to around 46%. Even though warehouse clubs require customers to purchase a membership, the price of which depends on the benefits offered, customers can make up for these costs by buying goods in bulk at lower prices. Warehouse clubs also have other benefits that allow them to compete with online retailers, such as offering a wide range of products, from tires and car batteries, to jewelry and flat screen TVs, branding themselves as places for “one stop shopping”. Most club stores also have specialty businesses like optical shops, pharmacies, and gas stations.
However, even though warehouse club retailers make the largest part of their money through membership fees, customers don’t always save money even though the goods are bought at lower prices. Customers are inclined to make up the costs for the entry fee, which leads to them buying more stuff with the idea that they are saving more money. Nevertheless, according to a survey conducted by Consumers’ Checkbook in 2012 and cited by CNBC, a household that spends $150 per week at a mainstream supermarket, can save over $2,000 per year when shopping at one of the three aforementioned warehouse stores.
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On the other hand, warehouse clubs also have their drawbacks, the main one being the small selection, despite a wide range of product categories. According to CNBC, Costco has around 4,000 items, while BJ’s and Sam’s Club have approximately 7,200 and 4,900 items, respectively. While these numbers may not seem small, they pale in comparison to the 100,000 items carried by a traditional Wal-Mart supermarket. In this way, customers that shop at a warehouse store are also required to go to a grocery store to fill out their groceries list.
Nevertheless, warehouse clubs’ customers are not being scared away by fewer options and having to pay a membership fee. With the three aforementioned warehouse clubs: Sam’s Club, Costco, and BJ’s Wholesale club dominating the market, we decided to take a look at how they stack up against each other.
