Big Box Is Big Business According to Fung Global Retail & Tech’s Warehouse Club report, Costco is by far the biggest player in the warehouse club industry, with $119.6 billion in net revenues for 2016, an increase of 2.5% YOY and more than twice its next biggest competitor. Sam’s Club, owned by Walmart, is number two with $57.4 billion in revenue, a 0.9% YOY increase. BJ’s is last, with $15.0 billion in revenue, a 4.0% YOY increase. Interestingly, Costco carries the smallest number of SKUs, 4,000, compared to Sam’s Club’s 6,000 and BJ’s 7,000. While membership fees for all three clubs are comparable, Costco’s average sales per square foot are $1,168, to Sam’s Club’s $659 and BJ’s $637.

Domestic Doldrums, International Increases Euromonitor International projects total warehouse club revenue worldwide will reach $191 billion by the end of 2017. The industry’s revenues increased at a brisk CAGR of 6.5% in the US (2001– 2005), but is predicted to increase 4.0% through 2020. US warehouse clubs recorded a new low in revenue performance, at almost 0% for 2015. It is projected to be approximately 2.4% through 2020. International revenues are forecast to increase much faster. Currently, the US market accounts for approximately 72% of the global warehouse club market.

Higher Hurdles Younger people are moving back to city centers, making transporting bulk purchases from warehouse clubs difficult. The number of persons per US households is decreasing, 2.53 during 2016, compared to 2.59 during 2010, reducing the need for bulk items. E-commerce grocery purchases increased 20.9% during 2015, compared to 4.6% for warehouse clubs. Amazon’s Prime members qualify for no shipping costs and its AmazonFresh program directly competes for grocery dollars. During the economic downturn, consumers shifted some grocery share to discount grocery stores, such as Aldi and dollar-store formats. BJ’s currently operates 34 mini-locations in two formats: 72,000 and 85,000 sq. ft. clubs for smaller markets.

Channels and Choices  The three warehouse clubs are well positioned in the top of the Weinswig Retail Hourglass Model, as appealing to higher-end shoppers. Costco’s average member household income is $74,000, BJ’s, $59,600 and Sam’s Club $45,000. They are also positioned as offering high value with low prices on a variety of items, including organics, an increasing segment. Customers like the treasure-hunt aspect, not knowing what unique high-end products they will find. Sam’s Club and BJ’s offer click- and-collect services. Costco offers it in the UK and is expected to introduce it in the US. E-commerce accounted for 4.0% of Costco’s total 2016 revenues, 2.8% of Sam’s Club/Walmart revenues and none of BJ’s.

Making the Most of the Millennial Market Older Millennials, aged 30-36, are increasingly joining warehouse clubs, as they are forming families and households with room to store bulk purchases. The percentage of Millennials shopping at clubs is 32%, higher than that of the overall population, 26%. To be close to Millennial consumers, BJ’s and Costco are opening more stores near urban areas. Sam’s Club’s digital advertising targets consumers at specific life stages, such as marriage, buying a home and having a child.  Costco has focused more on its in- store offerings by adding more organic and fresh food. During 2015, Costco sold more than $4 billion in organic products, making it the leading organic retailer in the country, moving ahead of Whole Foods.

Advertising Strategies Streamline the checkout process to shorten lines and appeal to Millennials. Highlight the treasure-hunt aspect of warehouse club shopping, and finding unique gifts during the Christmas and other holiday shopping season. Target higher-income consumers with competitive pricing for electronics, appliances, furniture and bedding.

New Media Strategies Introduce your club to new potential members with a Bring- Your-Friends event, advertised on Facebook and Instagram. Offer membership discounts or coupon book when new members sign up on that day. Shoot and post periodic videos with a host walking through the store and revealing new and unique products at bargain prices. Post on YouTube, Facebook with hashtag #LookWhatIFound, allow members to post their own videos too.  Schedule live online video events from the store, with customer interviews, focusing on how much they saved and the unique items they found, and promote hourly discounts/bargains.