US Insights

What 4 closed Sam's Clubs tell us

Tim Campbell

Analyst

Retail 01.21.2016 / 05:43

Closing down sale

3 big takeaways from the club's move to close 4 Northeast and Michigan stores

Sam's Club has not been left unscathed by Walmart's portfolio management and store closures. On February 5, Sam's will close four clubs in the Northeast and Michigan. Here are three observations we can ascertain about Sam's Club from this latest news:

Key Numbers

  • 48% share of total buildings in the club channel operated by Sam's Club
  • 37% share of sales in the club channel claimed by Sam's Club

Acknowledging reality. Sam's Club operates 48% of the total number of buildings in the US club channel, but garners only 37% of the channel's sales. Competitor Costco fares far better. Sam's Club has too many buildings, and closing the least productive ones to improve longer-term comps and traffic makes sense. According to Senior Director of Corporate Communications Bill Durling, membership income was not high enough to justify the continued operation of these clubs. Shuttering four clubs is a small concession of national market share and overall sales volume in exchange for higher profitability for a company struggling with slow growth. It is not indicative of any large retrenchment or further  change in strategy. The closings also coincide with the layoff of 120 corporate Sam's Club's employees in Bentonville and field offices. Additional small-scale closings are possible if growth continues to be lackluster over the coming quarters.

Right-sizing geography. Sam's most important markets historically and in terms of current club penetration are in the Southeast (up to the southern Midwest) and Texas. All of the club closings are outside these areas. In particular, the three Northeast closings may represent a concession to a region that Sam's has been unable to master with the same degree of efficiency as it has in its Southeast home base. Expect Sam's to face increasing pressure in the Midwest and Northeast as Costco and BJ's open new locations in these areas, potentially drawing existing Sam's Club members away from their current club. For instance, in late 2015, Costco opened three new clubs in Wisconsin alone. Though Sam's Club is opening fewer clubs this year than it has for the past several years, six or more clubs will still open this year. Sam's Club will need to be smarter about where it opens and how it manages newer clubs if it is to compete effectively.

Facing communication challenges. Though the closures do not indicate any new red flags, as all of the clubs in question have struggled with Sam's ongoing issues of membership income levels, some closures strike an odd tone. The Warwick, New York club had reopened only in January 2014 after being closed for more than two years for extensive remodeling. Poor sales and membership levels could have contributed to the club's candidacy for remodeling, which then was insufficient to fix larger underlying problems. However, it is also possible that Sam's Club is not applying the necessary nuance in its large-scale club remodeling program to see which clubs would actually receive the necessary benefit to keep them above water. This level of detail will be necessary to achieve the operational efficiency that will allow Sam's Club to thrive in the future.

Source: Kantar Retail

Editor's Notes

This article was originally published on the Kantar Retail blog on January 20, 2016. Journalists, to speak with the author or for inquiries, contact us. Follow @Kantar and sign up for our insight alerts.


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