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Warehouse clubs are a hit
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February 21, 2000: 10:24 a.m. ET
Consumers prove they're willing to buy in bulk quantities to save big bucks
By Rob Lenihan
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NEW YORK (CNNfn) - If you wake up some morning with an insatiable desire for 50 pounds of bologna, maybe a warehouse club membership is the thing for you.
OK, we're exaggerating. Warehouse clubs, which offer members discounts on brand name and private label items, don't expect you to buy that much of anything. But the big three — Costco Companies Inc. (COSTCO: Research, Estimates), Sam's Club, a subsidiary of Wal-Mart Stores Inc. (WMT: Research, Estimates) and BJ's Wholesale Club Inc. (BJ: Research, Estimates) — can offer big savings on books, jewelry and gasoline.
Estimates vary widely, but industry analysts say warehouse club members can save about 25 percent annually over retail shopping. Club memberships for households are $35 annually at each of the big three players, but experts say consumers should check each club to see exactly what they're getting for their money.
For those looking for online alternatives to the warehouses, Priceline.com (PCLN: Research, Estimates) allows members to submit their own bids for groceries with a dozen chains and about 1,200 stores in Philadelphia and parts of New York, New Jersey and Connecticut. The service is slated to go national by summer. A Consumer Reports sample shopping list came up with a 43 percent discount off store-priced items.
Other Web-based grocers include Peapod.com and netgrocer.com, which deliver goods to your door.
Numbers game
Some say warehouse clubs are on their way out, squeezed by competition from online discount retailers and small families who have neither the need nor the room to handle mass quantities of groceries and household supplies.
"I think if you know your prices you can get good prices there," said Audrey Guskey, a consumer trends expert and professor of marketing at Duquesne University, "but it takes a bit more effort. I think, though, that they've had their day in the sun."
Others say "bologna!" to that, noting that the warehouse club industry has grown at an average rate of 11.2 percent per year, compared with retail's 4.9 percent growth track.
Overall, 1999 was a very good year for the industry, with sales up 12.8 percent from the previous year, according to Warehouse Club Focus, an industry publication.
"They are more popular than they once were," said Sally Wallick, retail analysts with Legg Mason in Baltimore. "They are gaining market share. I think consumers have gotten it — they recognize value. If they've got a hook to get someone in there, they've got a very good chance of making that person a member for life."
Wallick said the good times came after some bloodletting. The industry struggled after a period of rapid growth and there was consolidation. Now, Wallick said, the companies that survived truly understand the business.
"I'm a convert, and I wasn't necessarily an easy one," said Wallick, who shop's at BJ's. "What I've found is that it not only saves me money, it saves me a lot of time. It's a very easy shopping trip. I'm convinced it saves me trips to the supermarket."
No Frills
If you're looking for swanky atmosphere and luscious décor, keep on driving till you hit the mall. Warehouse clubs want to keep the overhead down, so fancy curtains and fine carpeting don't even enter into the equation. Ditto with most advertising — it costs too much money.
"A club believes the way to make money is buy in volume and to sell through it quickly," said Keith Promisel, sales and marketing director at Warehouse Club Focus. "When you buy a membership, you're not looking at 100 different items. You're looking at the best products priced aggressively. You're trusting the buyers to make those decisions for you. That's why you buy a membership anyhow."
Promisel said warehouse clubs also can deliver large blocks of customers for co-branding deals. In November, for example, American Express Co. (AXP: Research, Estimates) and Costco launched two new credit cards exclusively for Costco members.
Julie Somers, a spokeswoman for BJ's, said the club's average household customer is typically an upper middle-class family with a house and a car. They usually visit the club one or two times a month. The average business members, such as restaurants, day care centers and gas stations, visit the clubs two to three times per month.
And club buying does not always mean bulk buying. Somers said that, yes, there are indeed major jumbo cans of all kinds of stuff, but members can also buy multi-packs — six or eight packages of the same product designed to make storage and consumption a little easier.
Analysts do not see a serious online threat from the likes of Priceline.com and others. Costco has an e-commerce site, while BJ's has an informational Web address, and Sam's Club site promises members a "new way to shop."
"We've cultivated a member base of loyal customers who come to us for all their needs," Somers said. "I think they enjoy the excitement of shopping in the club. It's one-stop shopping." 
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