Founded in 1976 in San Diego, California by Sol Price, the warehouse club industry has evolved over the years to include five operators, BJ’s, Costco, Cost-U-Less, PriceSmart and Sam's Club. The one concept that sets the $209.9 billion warehouse club industry apart from other retail channels is the fact that customers pay to shop.
In return for that membership fee, the warehouse clubs provide members with a host of benefits:
- Low Prices - Gross margins are generally 8% to 14%.
- High Quality - The clubs stock high-quality products at a value.
- One Stop Shopping - BJ’s, Costco, Cost-U-Less, PriceSmart and Sam's Club are confident that they can merchandise and sell any type of product in any category as long as it is packaged and merchandised correctly.
- Unique, Rotating Merchandise - The warehouse clubs constantly rotate big-ticket, high-end or unique merchandise into their locations creating a “treasure hunt” atmosphere where members never know what to expect.
- Member Services - BJ’s, Costco, Cost-U-Less, PriceSmart and Sam's Club offer their members access to an assortment of business and consumer services at a discount.
- Specialty Businesses – These businesses include one-hour photo finishing, optical shops, hearing aid centers, pharmacies, snack shops, gasoline stations, cellular phone sales, travel kiosks and bank branches.
The warehouse clubs are able to offer their members all the benefits, features and services listed above because of their unique buying, merchandising and operating philosophies:
- Limited Selection - A full size club stocks 3,800 to 7,000 items, allowing the warehouse clubs to maximize efficiencies in product distribution, handling, stocking and merchandising.
- Low Prices - Buyers negotiate lower costs due to the volume that the clubs generate. The low prices help to increase sales, which increases inventory turnover and enables the buyers to further negotiate lower costs and further reduce the retail prices.
- National Brands - BJ’s, Costco, Cost-U-Less, PriceSmart and Sam's Club primarily stock brand-name products that do not require promotion through advertising.
- Private Label - BJ's, Costco, PriceSmart and Sam's Club supplement their national brand assortment with a growing number of private label merchandise offering club buyers higher margins and, in some cases, better quality than competing national brands.
- Paid Membership - The paid membership program provides each warehouse club with a revenue source that in most years is equal to its net income.
- Wholesale Packaging - The clubs have found that larger packages work very well for consumers and studies have shown that consumers who purchase larger-sized packages are more likely to consume those products quicker than if they had purchased smaller packages.
- Intelligent Loss of Sales - The warehouse clubs will only stock items that they can provide to their members at a significant savings. If a manufacturer prices an item too high or requires that the item be sold at the manufacturer’s suggested retail price, a club will not stock the item.
- Rapid Inventory Turnover - Generally, the warehouse clubs are able to sell a product before they have to pay the manufacturer for it. This enables the warehouse clubs to finance their inventory from working capital.
- Distribution - BJ’s, Costco, Cost-U-Less, PriceSmart and Sam's Club accomplish cost-efficient distribution through the use of cross-dock distribution centers which enables the warehouse clubs to reduce inventory, increase inventory turnover, reduce transportation costs, improve product quality and increase responsiveness to changing market conditions.