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2002-10-26
New York, NY. Warehouse Clubs Soon to Reach Saturation Point.

Several media accounts recently suggest that warehouse clubs like Sam's and Costco and BJ's may be choking on each other, as the presence of such stores approaches market saturation. According to Chain Store Age, warehouse chains sales grew at an average annual rate of 10.5% over the past five years, but the Clubs are expected to cool off to 7.6% a year through 2006, based on a study released by Retail Forward. Roughly 66 new Club stores will go up this year (2002), which would bring the total Club count up to around 960 units nationwide.
Retail Forward projects the Clubs will hit 1,150 stores by 2006. Like Wal-Mart and Home Depot, the Clubs are expected to increase their attention on international markets. A Reuters Business Report in September indicated that the U.S. market can only support around 1,200 clubs, which gives the industry maybe three more years to grow. Some clubs are already having problems. Wal-Mart's Sam's Club, for example, showed only 3% operating profit in the May, June, July period -- a level that Wal-Mart reportedly said was "unacceptable." In August, the CEO of Sam's Club retired. BJ's also reported weak profits, changed its CEO, and said it would limit its store openings to existing markets for the next three years. BJ's currently has 139 stores, Sam's Club has 517 stores, and Costco has 290 U.S. stores. If 1,200 is the saturation point, these three leaders have only 254 more stores left to battle over, and are roughly at 80% of the saturation level. A study by the Food Marketing Institute says that warehouse shoppers are people who used to go to traditional supermarkets, so the opening of new Clubs can hardly be described as a form of economic development.

What you can do: The fact that warehouse Clubs are nearing the saturation point is good news for anti-sprawl activists. We will have fewer of these stores to beat up on. To help matters, if consumers reduced their expenditures at these Clubs, it would encourage them to scale back their expansion plans, as BJ's seems to have done in response to weakened sales. Intense competition may find the Clubs clubbing each other. Let's hope the growth rate at Sam's remains "unacceptable," which will be very acceptable news to the rest of us.










 
 
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