The following is a recap of Sam's EVP of merchandising, Linda Hefner's presentation as part of the Bentonville Bella Vista Chamber'sWalStreet speaker series in Bentonville - with additional NMB insights.
Ready for some good news? How does this sound—the club channel is growing, Sam’s Club is growing within that channel, and Linda Hefner, Sam’s EVP of Merchandising, says that Sam’s is “hungry for more.” Fantastic news for the ballroom-filling group of Sam's suppliers that convened yesterday morning to hear Ms. Hefner’s presentation, “Serving Members' Needs in a Uniquely Sam’s Club Way.” And no doubt they are also hungry for more . . . information! After all, Sam’s can seem like an enigma when compared to Walmart’s more frequent announcements and disclosures over recent months (and woe to those who assume that what works for one is good for the other). Sam’s hasn't been completely silent or withholding; it's just that, when compared to the rationalization-ridden, consolidation-crazed, re-orging mayhem going on elsewhere, the club channel in general has been a bit, well, sleepy. To hear Ms. Hefner, club retailing will no longer remain a slumbering giant . . . and Sam's will be delivering the wake-up call.
She began her presentation by stating her passion for finding out what people want and delivering it. Fortunately, Sam’s suppliers figure prominently in that vision—I can’t remember the last time I heard the word “supplier” used so many times in a retailer presentation (and that's a good thing). Ms. Hefner made it a point to specifically outline the role that suppliers play in Sam’s vision for the future throughout her presentation.
However, there is one role that suppliers didn’t play at Sam’s 2010 annual confab. In the past, Sam’s yearly meeting was a vendor-funded exercise in simulation, in which a cavernous space was set up to look like an actual Sam’s store. This year, Sam’s invited its frontline team of 600 club managers to Bentonville; the managers toured Sam’s shiny new headquarters and got a glimpse of their future by checking out the area’s two prototype Sam’s clubs. Currently, 11 Sam’s stores reflect this “Project Portfolio” format, with 30 more on the way (and many more planned).
Sam’s is the ninth largest retailer in the U.S., with $46.9 billion in sales in 2009 (up 5.6%). Higher gas prices and the promise of all-around savings for members have helped to insulate the club channel from the advertising costs and price battles that have dinged traditional grocers’ profits. Sam’s, however, isn’t resting on its laurels—in fact, it is in the midst of implementing a major strategic shift in merchandising focus and strategy, a shift that is being driven by Ms. Hefner along with direct feedback that it solicited from 9,000 of its Members.
Minding the Overlap
Sam’s two diamond logo is symbolic of its two Member constituencies: business and consumer. However, the retailer’s Member survey revealed an opportunity within the overlap. It turns out that many of Sam’s business shoppers make purchases for personal use, which indicates that consumer sales are even more weighty than originally thought. This discovery has Sam's renewing its commitment to drill down on the types of purchases being made by both groups rather than taking the sales numbers at face value. And make no mistake, Sam’s is no longer just doing battle against “the other one” and “the rest;” we've noted how non-club players are horning in on the action and minding their own overlaps. In January, Target’s post-holiday “Great Save”program created a stir as its seasonal section morphed into a mini warehouse experience featuring 6-packs of towels, 35-packs of Target’s private label Market Pantry bottled water and other mega packs. The program was developed after Target identified an “overlap” between its customers and those who shop at Costco and it was the ultimate representation of Target’s stated intention to focus more on the “Pay less” side of its “Expect more. Pay less.” tagline. Sam’s undoubtedly knows that other retailers, many of them outside of the club channel, can and will continue to flex space opportunistically and that Target and others’ temporary events won’t always focus on fashion.
Drilling Down and Focusing on the Core
Sam’s conducted an independent survey in order to learn more about Member behavior and preferences. What they found is that the household income for Sam’s Members is 20% higher than the income of the average U.S. consumer. Furthermore, Members tend to be price-conscious families with traditional values who like to celebrate traditional events . . . and they "love to shop." (yay!) The survey also found that Sam's Members spend 13% of their food and consumables budgets at Sam’s, while “another” club’s members spend 22% at their club. That wee 9-point gap translates to billions in annual food sales alone, and doubles when you add in the difference in other sales.
Sam’s has identified an opportunity to close that gap and increase its share of wallet from existing Members and that's why all three of its merchandising strategies are laser focused on those who have already joined.
Ms. Hefner identified Sam’s three strategies as follows:
1. Offer a relevant and unique merchandise portfolio
2. Deliver superior Member value
3. Create a preferred club experience
Furthermore, she identified three “enablers” to those strategies:
1. Merchandising capabilities: The criteria and processes that buying teams use to make decisions and choosing to make investments in the right tools and systems for replenishment and logistics.
2. Organizational alignment: Facilitating alignment both within the Sam’s organization across Operations, Merchandising, and Membership (the mantra of Sam’s president and CEO, Brian Cornell, is “One team, one mission, one Sam’s Club”) and, as appropriate, tapping into Walmart corporate’s scale.
3. Supplier collaboration: Sam’s knows that they are one of the top five customers for any supplier who does business with them, and that they are one of the fastest growing. As such, they are expecting to have “top level conversations” with suppliers. They have introduced a joint business planning process that is currently being piloted with six suppliers. The cornerstone of the process is an “open sharing” of where Sam’s is investing, where suppliers should be, and reaching agreement on strategic initiatives with the ultimate goal of increasing share of wallet within Sam’s membership.
Portfolios and Positions
Ms. Hefner’s use of one of my favorite words (portfolio) delighted me because it is one we often use to describe the broader view that retailers are taking and the ways they are exercising a growing number of brand, product, service, and platform options. Retailers are constantly changing their “positions” within each of these portfolio branches and that means that private labels may make more sense in one category while a national brand works better somewhere else--and quality may be more important than price depending on the product. I found her contrarian stance on private label particularly refreshing: she plainly stated that she doesn’t believe in setting penetration goals for private label; instead, Sam’s is basing its brand decisions on Members’ brand preferences and in many categories that will still favor national brands.
Four categories of “roles” and accompanying member needs form the basis of Sam’s portfolio analysis process:
1. Everyday Needs: Categories like food, office supplies, and tobacco, where Sam’s will have price leadership and brands. Sam’s has defined this Member need state as “Help me feel reassured.”
2. Convenience: “Simple solutions,” such as vehicle tires. The Member need state is: “Provide me with simple solutions.”
3. Wow: Health and wellness, as well as fresh offerings in food and beverage, are categories that Project Portfolio clubs are expanding. The Member need state is: “Help me have a quality life.”
4. Excitement: Generated by aspirational apparel brands and a “treasure hunt” vibe—something that the “other” warehouse club pioneered (my comment) and that, as mentioned before, other retailers have also taken to lately. At Sam’s, this is achieved through innovation, fashion, newness, aspirational brands, and service. The Member need state is: “Let me experience what I have always wanted.”
Sam’s is also taking a portfolio approach to the resources it will dedicate based on those roles, including space, price, features, marketing, and inventory. Sam’s buyers are being challenged to go beyond price when defining benefits as well. Ms. Hefner defined the “bundle of benefits” as: quality, brands, sustainability, service, pack size, and unit price.
Have Members. Will Travel?
Sam’s also learned that the more its Members travel around the club and the more roles they participate in, the better advocates for the club they become. Sam’s determination to take Member experience to the next level was made clear by its announcement that third-party marketing company, Shopper Events, would be running its demo programs across multiple categories under the moniker “Tastes and Tips.” In a departure from previous demo efforts, Tastes and Tips is a proprietary, branded, beyond-the-hairnets effort that promises to integrate signage, uniforms, demo stations, and product selling across Sam’s focus categories: health and wellness, food and beverage, and electronics. For a member to take a “journey” around the club—taking care of everyday needs and trying out a simple solution or two before dipping into some wow and excitement—is the sort of engagement Sam’s dreams of and, according to Ms. Hefner, it is achievable if Sam’s can execute against its “R3” premise: bringing the right message via the right media to the right Member.
Sam’s breakthrough eValues program, announced in August of last year actually achieves all three while encouraging Members to upgrade their membership to “Plus” level which, at $60 more per year, promises to offer $200 or more in savings to Members who utilize eValues. Sam’s has seen a 40% lift in Plus upgrades since launching eValues. The paperless alternative to couponing also forwards Walmart’s ongoing corporate sustainability agenda and it meets customers wherever they are: Members can access their accounts via samsclub.com and through the eValues in-store kiosks (which will shoot eValues shopping lists to member’s iPhones, Blackberries or smart phones). I’m a huge fan of the service and have found the offers to be spot-on relevant during my own Sam’s journeys through multiple categories.
Sam's was definitely out-front on this and we have noted that others are already following with their own versions. Earlier this month, Target (yes, Target again!) announced their “first ever” scannable mobile coupon program which allows guests to receive offers directly on their mobile phones. The paperless coupons can be redeemed by scanning a barcode from the phone at checkout. Interestingly, Target isn’t leveraging the sustainability angle and is simply positioning the program as being in step with its guests’ increasing reliance on mobile phones.
No Longer a Channel Set Apart
While the club channel at one time seemed to be immune to the blurring that is occurring across all others, that clearly is no longer the case. At a time when everyone from Dollar General to Walgreen is going after beauty and food, Best Buy is selling electric vehicles, Walgreen is bringing back booze, and grocery stores are taking on health and wellness, Sam’s couldn’t have picked a better time to challenge old assumptions . . . and bring the club channel into new relevance in the process!
How will other retailers respond? Will clubs become more like traditional retailers or the other way around? Share your comments and ideas!
The club channel: Hidebound? Change-resistent? I don't think so! I weighed in earlier this month on Retail Wire.