I was recently trying to remember when Sam’s Club EVP and chief merchandising officer, Linda Hefner, last addressed the supplier community at a Bentonville Bella Vista Chamber event, when, lo and behold, she opened her presentation this week by filling in the blanks for me.
It’s been about a year and a half since Hefner last spoke to the group, and the overarching themes in her latest presentation were consistent with the last, in which she outlined multiple new initiatives and approaches. In fact, according to Hefner, upon reviewing Sam's business, newly-minted CEO, Rosalind Brewer, issued a simple three-word directive: stay the course. That bears a bit of consideration at a time when so many majors, including Best Buy, J.C. Penney, Kohl’s, Lowe’s, and Tesco are embarking on partial or total reinventions.
Sam’s may stand out by sticking to its story but it isn’t lost on me that it got ahead of change by setting its transformational course early on. Now, it has the advantage of adding layers to a well-built foundation while many of its competitors are revamping or tearing down and rebuilding from scratch.
Impressive results have been rolling in since Hefner’s 2010 presentation, with Sam’s two-year stacked comp growth sitting at over 8%. I should note that its U.S. ranking has gone up a notch as well. Hefner was quick to emphasize that Sam’s is now the eighth-largest retailer in the U.S., and the fourth-largest grocery store. The latter ranking is particularly impressive as Target continues its grocery-focused PFresh format rollout and as convenience retailers, dollar and drug stores continue to expand and refine their food programs.
Whether convenience stores morphing into restaurants, grocers pushing health, wellness, and beauty, or drug stores expanding their food offerings, retailers in every tier have continued to opportunistically jump into new categories, rendering traditional boundaries all but obsolete and making the competitive landscape less than straightforward. Wholesale clubs have always operated in this everyone-is-the-competition position, since product offerings have traditionally been determined based on margin and customer value perception rather than limited by category. Wholesale clubs compete with grocers, drug stores, pharmacies, department and specialty stores, consumer electronics retailers, furniture stores, and basically everyone else, doing so under fairly daunting constraints.
As Ms. Hefner pointed out, every item in the store has to drive critical mass in order to earn its place on the shelf, since maintaining its value premise requires Sam’s to work on razor-thin margins, with limited SKUs across a broad range of categories, and in space-hogging pack sizes. Sam’s doesn’t have the luxury of endless testing and course correcting. If its buyers don’t do their homework and get it right from the get-go, productivity plummets. Adding to the pressure, members are paying for the privilege of shopping there and so expect thoughtfully-curated selections and extreme value. On average, Sam’s prices are 30% below those of grocers, according to Hefner, and day-in and day-out, they compete favorably against mass retailers, club competitors, and even food service providers. With so many competitors to be compared to, Sam’s can’t offer its members implied value. It’s got to be obvious.
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.
Offer a relevant and unique merchandise portfolio
The next stage of Sam’s Project Portfolio project, launched back in 2010, has it taking a granular look at space decisions, adjacencies, and category shifts. Hefner cited ongoing expansion in the fresh category and additional investments in health and wellness as primary examples. With everyone from drug to dollar stores ramping up both categories, Sam’s has to offer more than great prices to resonate with choice- and convenience-spoiled shoppers. On the fresh front, Sam’s is taking pains to message expansive selection while ensuring that each store’s unique layout isn’t compromised in the process. In her presentation, Hefner hinted at localization without using the term, stating that the communities in which stores reside are being taken into consideration. During Q&A, she also referred to the creation of some kind of regional buying structure as an opportunity that Sam’s is exploring. To me, that points to Sam’s potentially creating a localization-enabling framework similar to those leveraged by Macy’s and Costco.
In his presentation to the Chamber last May, Dr. John Agwuonobi, Walmart’s president of U.S. health and wellness, provided great insights into the company’s wellness mission. Sam’s is also making considerable investments in health and wellness by providing free health screenings for chronic conditions, with the logic that they will drive awareness, not only for Sam’s pharmacies and health-related products, but also adjacent categories such as baby products and health and beauty. Given that drug and grocery stores continue to expand their health service offerings, and the recent announcements that dollar stores are waking up to the pharmacy opportunity, around-the-corner convenience will be an ongoing competitive reality for Sam's. Once members are in the store, however, Sam’s enjoys a captive audience in a comparatively focused and less cluttered environment, and its free screenings, in addition to acting as a lure, offer members an instant and unambiguous return on their membership investment.
Matching the right investment to the right category, based on customer demand drivers, is one of Sam’s key points of differentiation. Let others have their across-the-board margin rules; Sam’s is willing to drop margin requirements in order to drive value perception in key traffic-driving categories such as fresh. In pharmacy, on the other hand, resources are being directed toward driving outreach and awareness, which will in turn promote adjacent categories.
Part II will reveal some interesting updates to Sam’s merchandising structure and brand strategies, (including a sneak peek at a groovy new brand boutique).
Read Carol's coverage of Linda Hefner's last presentation to the Chamber. The initiatives that she outlined then are still guiding Sam's strategy.
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