Ahead of the Curve and Staying the Course: Insights from Sam’s Club EVP Linda Hefner (Part II)

Last week, I shared my first take on Linda Hefner's presentation as part of the Bentonville Bella Vista Chamber’s WalStreet speaker series. Today, I wrap it up with Part II.

Read Part I

Read our coverage of Linda Hefner's 2010 presentation to the Chamber in which she outlined Sam's merchandising transformation initiatives.

Hefner’s presentation made it clear that Sam’s three key strategies have not changed: offer a relevant and unique merchandising portfolio, deliver superior member value, and create a preferred club experience. At the same time, she added quite a bit more color to these initiatives and brought in some interesting updates and examples. Part I addressed ways that Sam's is offering a unique merchandising portfolio, Part II below continues with the remaining initiatives and more...

Deliver  superior member value

One way to drive value perception without the burden of literal comparison is through exclusive brands. When club retailers compete national brand to national brand, value is defined by price and pack size. Exclusive brands blur the comparison, and give retailers the added benefit of owning the value context. Hefner made the point by calling out a new item that already enjoys a cult following – Olive Garden salad dressing. Sam’s now offers it as a retail exclusive, and at a 40% value over the restaurant price. Of course, creating their own brands gives retailers the ultimate exclusive, and Sam’s has made some significant headway on that front. Hefner is always quick to point out that Sam’s does not set private brand penetration goals, but that doesn’t mean that Sam’s isn’t all about private brands when it makes sense. In grocery, for example, Sam’s launched two brands late last year, Artisan Fresh and Daily Chef, and it continues to expand product selection in health and wellness under its Simply Right brand which was launched at the same time. Sam’s focus for its proprietary brands is on delivering quality as well as value, and it is building a quality team to reinforce the former. I found it particularly interesting that Hefner referred to these brands as “proprietary” brands rather than “private,” or even “owned,” brands. Clearly, exclusivity is top-of-mind.

When Hefner mentioned, almost parenthetically, that Sam’s is the only warehouse club where Apple is on the floor every day, she wasn’t talking about fruit tumbling off of pallets. In 2010, Costco unceremoniously ousted Apple from its stores, giving Sam’s a warehouse club exclusive on the brand. This would seem to be auspicious timing to go all-in with Apple as Best Buy attempts to find its sea legs in the wake of business struggles and executive turmoil. I can’t think of a brand more compelling to Sam’s business and individual members and one with more potential to drive dwell time into the stratosphere. (As an aside, just last week, pictures of gorgeous Apple shop-in-shop displays at a Walmart store in Arkansas hit the internet. During my visit, associates revealed that iPad sales have been on the uptick since the displays were installed.)

Store layouts and category strategies aren’t the only places where Sam’s is getting granular. The retailer has clarified its price gap targets, the difference between the value it can bring in relation to competitors, and is bringing that information to its buyers through “constant reporting.” According to Hefner, this “double down” strategy, which includes adding headcount to create a centralized pricing team, will ensure merchant focus on member value and an understanding of price elasticity down through the club, category, sub-category, and seasonal levels.

Create the preferred club experience

As part of its merchandising transformation, Sam’s is leveraging new tools that allow it to analyze space allocation and layout by category and by club, with a renewed focus on “all-important” feature planning. When marketing plans are developed months in advance and store features are tied to them, Sam’s is determined to execute these features in stores. This is one area where Hefner clearly expects a focus on fundamentals at the supplier level. In her presentation, she noted that while some features will be tailored to local club conditions, the company’s number one job is to ensure that they are placed to begin with, and she encouraged suppliers or their third-party auditors to call out any anomalies to store managers during walkthroughs.

In early 2010, Sam’s consolidated and outsourced its in-store demo program under the Tastes and Tips moniker. This week, Hefner reiterated that demos are a “big deal” at Sam’s. In-store demos consistently rank in the top five member-preferred perks, and next-stage iterations of the program will include advanced capabilities for tracking and measuring sales lift generated by the demos.

In her previous presentation, Hefner outlined three “enablers” for Sam’s strategy: merchandising capabilities, organizational alignment, and supplier collaboration. These remain intact, but on the merchandising capabilities front, Sam’s has made some significant moves in its approach to headquarters employees’ career paths. Previously, buyers had to take “big steps” in order to advance, but Sam’s has now created a series of logical steps, including director-level roles that will build a stronger pipeline to VP- and DM-level positions. Hefner hinted that additional changes would be on the way within a couple of weeks, with the goal of reducing “churn” and creating training programs that are targeted to each level. Clearly Sam’s is focused on employee retention and not just member retention, and I found Hefner’s statement that category expertise is “invaluable” at the buyer level refreshingly retro at a time when break-neck buyer transitions are par for the course for most retailers. If other retailers follow in this path, it will be great news for suppliers, who have had to get used to their stories, and programs, getting “lost in translation” in the wake of multiple buyer shifts.

With quite a bit of history building up behind Sam’s clearly-articulated vision, you would think that its suppliers would be in lock-step by now. According to Hefner, some suppliers (though she acknowledged “fewer and fewer”) are still treating the club channel as an afterthought and building “derivative” strategies. She made it clear that simplistic, bigger and cheaper approaches aren’t going to cut it, and that joint business planning and “step change” plans for brand, price, sustainability, packaging functionality, and pack size innovation will be the standard for suppliers who want to grow with the fourth-largest grocer and eighth-largest retailer in the U.S. (a gentle volume-potential reminder for those who missed it in Part I). Hefner took things a step further by suggesting that suppliers should build their strategies around Sam’s first. Considering the nuances that Sam’s has continued to master in setting and staying its customer-centric course, any supplier who follows suit is likely to be better prepared for other opportunities.