Naylon Consulting Group

Sam’s is testing what could be one of the most significant advancements in the warehouse club business for improving member service, reducing shrink and lowering payroll costs. Congratulations to Sam’s Club and best wishes for a successful test and rollout.

Despite their similarities, a typical Costco will sell nearly twice as much as typical Sam’s Club ($275M/year compared to $145M/year). Why is that? Their buildings and parking lots are about the same size; they carry a similar mix of categories and number of items; they have both been in the wholesale membership warehouse club business for over 35 years; their membership fees are almost the same price; they both operate internationally; and the list could go on. Overall, when these direct competitors go head-to-head, Costco generally wins—in a big way. If Sam Walton were alive today, you can bet he would be on a mission to thoroughly understand the differences in their performance. Sam Walton’s first retail store was not a Walmart or Sam’s Club, it was a Ben Franklin variety store that he franchised. Located in a small town directly across the street from another variety store that sold twice as much as his own store, Sam set aggressive sales goals and, to reach them, he would have to increase market share by gaining customers from other stores—starting with his competitor from across the street. Sam studied his competitor’s business so thoroughly that it was said he knew it better than they did. Sam began sourcing merchandise directly, circumventing the purchasing from Butler Brothers, the franchisor of his store. He would hook up a trailer to his pickup truck and drive to the manufacturers’ facility to pick up the merchandise. The lower acquisition costs allowed him to reduce his prices and attract customers from towns several hours away. After three years Sam’s Ben Franklin store had tripled its sales and was the fastest growing store in the chain. There were many other things Sam did to grow the business, such as offering the store managers equity (in their store) which motivated them by knowing they would have a share of the store’s profits. Sam went on to open another 15 Ben Franklins across three states before opening his first Walmart in 1962 at age 44. 1962 also saw the opening of Kmart and that would become Walmart’s main competitor for the next several decades. Sam studied Kmart with a passion, spending countless hours on Kmart’s sales floor. Sam claimed that he had spent more time in Kmart than any of the Kmart corporate leadership team. How does this tie back to Costco’s sales per club dominance of Sam’s Club? (Continue reading below)

Despite their similarities, a typical Costco will sell nearly twice as much as typical Sam’s Club ($275M/year compared to $145M/year). Why is that? Their buildings and parking lots are about the same size; they carry a similar mix of categories and number of items; they have both been in the wholesale membership warehouse club business for over 35 years; their membership fees are almost the same price; they both operate internationally; and the list could go on. Overall, when these direct competitors go head-to-head, Costco generally wins—in a big way. If Sam Walton were alive today, you can bet he would be on a mission to thoroughly understand the differences in their performance. Sam Walton’s first retail store was not a Walmart or Sam’s Club, it was a Ben Franklin variety store that he franchised. Located in a small town directly across the street from another variety store that sold twice as much as his own store, Sam set aggressive sales goals and, to reach them, he would have to increase market share by gaining customers from other stores—starting with his competitor from across the street. Sam studied his competitor’s business so thoroughly that it was said he knew it better than they did. Sam began sourcing merchandise directly, circumventing the purchasing from Butler Brothers, the franchisor of his store. He would hook up a trailer to his pickup truck and drive to the manufacturers’ facility to pick up the merchandise. The lower acquisition costs allowed him to reduce his prices and attract customers from towns several hours away. After three years Sam’s Ben Franklin store had tripled its sales and was the fastest growing store in the chain. There were many other things Sam did to grow the business, such as offering the store managers equity (in their store) which motivated them by knowing they would have a share of the store’s profits. Sam went on to open another 15 Ben Franklins across three states before opening his first Walmart in 1962 at age 44. 1962 also saw the opening of Kmart and that would become Walmart’s main competitor for the next several decades. Sam studied Kmart with a passion, spending countless hours on Kmart’s sales floor. Sam claimed that he had spent more time in Kmart than any of the Kmart corporate leadership team. How does this tie back to Costco’s sales per club dominance of Sam’s Club? (Continue reading below)

Jim Sinegal, who was the Co-Founder and CEO of Costco for over 25 years until retiring at age 76, was a supremely talented merchant and operator. He was innrovative, highly competitive, and committed to a simple (but effective) set of beliefs rooted in doing the right thing for all stakeholders. During his career as CEO, he had a burning desire to expand the company and accelerate growth but always in a responsible way. In just eight years Sinegal, alongside Co-Founder and Chairman of the Board Jeff Brotman, had grown Costco to the same size as Price Club which had started eight years earlier. Price Club’s growth was tied to the real estate as Price Club placed high emphasis on owning the land and achieving good returns on the real estate investment. Brotman and Sinegal were more comfortable leasing sites to accelerate expansion and the economy of scale from the higher sales of the core business. Sinegal believed the most important thing a leader should do is teach and develop future leaders. Sinegal showed this as his succesor as CEO was at the time a 25 year Costco veteran, Craig Jelinek. Jelinek led Costco for 11 years growing the company from $90 Billion in annual revenue to over $240 Billion. Costco's new CEO, Ron Vachris, has been with Costco for over 35 years and all indications are that the core business philosophies and culture will not change. This is a remarkable achievement and has positioned Costco with very skilled and high-quality leadership throughout the organization and a “talent bench” to draw from to fuel growth without compromising standards.Because of this, Costco has grown to the number 3 global retailer with nearly all promotions at all levels are from within. Please follow us as we post from our series on "30 years of the Warehouse Club Industry".

Jim Sinegal, who was the Co-Founder and CEO of Costco for over 25 years until retiring at age 76, was a supremely talented merchant and operator. He was innrovative, highly competitive, and committed to a simple (but effective) set of beliefs rooted in doing the right thing for all stakeholders. During his career as CEO, he had a burning desire to expand the company and accelerate growth but always in a responsible way. In just eight years Sinegal, alongside Co-Founder and Chairman of the Board Jeff Brotman, had grown Costco to the same size as Price Club which had started eight years earlier. Price Club’s growth was tied to the real estate as Price Club placed high emphasis on owning the land and achieving good returns on the real estate investment. Brotman and Sinegal were more comfortable leasing sites to accelerate expansion and the economy of scale from the higher sales of the core business. Sinegal believed the most important thing a leader should do is teach and develop future leaders. Sinegal showed this as his succesor as CEO was at the time a 25 year Costco veteran, Craig Jelinek. Jelinek led Costco for 11 years growing the company from $90 Billion in annual revenue to over $240 Billion. Costco's new CEO, Ron Vachris, has been with Costco for over 35 years and all indications are that the core business philosophies and culture will not change. This is a remarkable achievement and has positioned Costco with very skilled and high-quality leadership throughout the organization and a “talent bench” to draw from to fuel growth without compromising standards.Because of this, Costco has grown to the number 3 global retailer with nearly all promotions at all levels are from within. Please follow us as we post from our series on "30 years of the Warehouse Club Industry".

Over the upcoming months we will be bringing you the core areas of the of the Wholesale Warehouse Club Industry in our new series called "30 Years of Wholesale Warehouse Clubs". We'll look into how the overall industry, as well as how each of the club operators, has adapted, evolved and innovated to ensure their continued success and opportunities for growth. We'll cover the following areas: Leadership 💼 • Merchandising 🛒 • Membership 🪪 • Operations 📊 • Facilities 🚪 • Financials 💵 • Secrets to Success 🔑 Please follow us to ensure you're notified of each new post.

"The Game of Clubs" Costco, Sam's Club and BJ's all have been competing in the wholesale warehouse club Industry for close to 40 years and for most people those are the names they recognize. But for their first 10 years there were two other companies competing. PACE Wholesale Club headquarted in Denver, and owned by K Mart and by 1992 had grown to 80 locations. Price Club, headquartered in San Diego, and which was the company that pioneered this industry in 1976. By 1984 when the other four companies were just getting started Price Club already had over 25 locations, many of which were doing extremely high volumes. In 1993 Costco and Price Club merged. Sol Price who co-founded Price Club with his son Robert, had in the 1950's previously founded and led a large discount retailer called FedMart. Sam Walton studied FedMart as he was developing his plans to start Walmart and credits Sol with many of the concepts he used in Walmart. Many Executives and Senior Managers that were instrumental in starting both Price Club and Costco came from FedMart including Jim Sinegal who worked for Sol at Fed Mart for 20 years. Sinegal went on to co-found Costco and was the CEO for over 25 years. Craig Jelinek, Costco's recently retired CEO, also got his start in FedMart. The key impetus behind the Costco/Price Club merger was that Sam’s Club had acquired over 80 PACE locations from Kmart which immediately doubled their size and, for the time being, made them by far the largest wholesale warehouse club operator. BJ’s, also a division of a large discount department store chain in the Northeast, had been methodically adding locations on the US East Coast. Costco and Price Club, nearly the same size and sharing many of the same core principles decided to join forces to maintain leadership in this rapidly growing industry. Jim Sinegal became the CEO and within a few years all of the Price Club locations were renamed Costco and the headquarters was consolidated in Seattle. Costco, Sam’s Club, and BJ’s have been growing and competing in many markets throughout the US East Coast with nearly every location having at least one competing wholesale warehouse club— often several—in its trade area. Costco and Sam’s Club have also gone toe-to-toe in most of the remaining parts of the country and extending on to Mexico, Puerto Rico, and China. Costco is the only one of the four operating in Canada as Sam’s Club left that market in 2009, only 5 years after opening there. While the first 10 years saw a lot of activity with new players, acquistions, mergers and de-mergers these past 30 years have been quiet in that regard. Follow us to ensure you're notified as we continue in our series, Thirty Years of Wholesale Warehouse Clubs.

Over the upcoming months we will be bringing you the core areas of the of the Wholesale Warehouse Club Industry in our new series called "30 Years of Wholesale Warehouse Clubs". We'll look into how the overall industry, as well as how each of the club operators, has adapted, evolved and innovated to ensure their continued success and opportunities for growth. We'll cover the following areas: Leadership 💼 • Merchandising 🛒 • Membership 🪪 • Operations 📊 • Facilities 🚪 • Financials 💵 • Secrets to Success 🔑 Please follow us to ensure you're notified of each new post.

Warren Buffett, who has amassed a net worth far north of $100 billion, is likely the most popular and successful investor of all time. He is the Chairman of Berkshire Hathaway and someone most people have heard of. Charlie Munger, who passed away yesterday at 99 years old, was Buffett's partner of over 60 years. He was not quite as well-known, but is certainly on the "Mount Rushmore" of investors. Together they spent decades analyzing thousands of companies and business models. Munger's favorite business model was the Membership Warehouse Club and his favorite company was Costco. He was a Board Member of Costco since 1997 and personally held shares worth over $110 million—which he said he would never sell. Since Munger joined the Costco Board, their stock is up over 4,000%. On a recent podcast episode of "Acquired", he talked about the fundamentals of the club business that Costco executed on so well and he simply said when it comes to Costco he's "an addict". #charliemunger #costco #berkshirehathaway

Do you ever wonder why wholesale warehouse clubs like Costco consistently display high-value items like fine wine and computers right on the sales floor? It's because frictionless shopping drives sales. Customers (members) at these clubs have easier access to products, leading to increased sales. What lessons can traditional retailers draw from this? • Wholesale warehouse clubs maintain low shrink rates due to factors like limited SKUs, larger pack sizes, and efficient distribution centers. This streamlined approach allows for quicker identification of shrink issues and minimal losses. • The loyalty of members is a driving force behind wholesale warehouse clubs' low shrinkage rates. These clubs limit access to dedicated members who are less likely to shoplift and more likely to report suspicious activities. • Well-paid teams play a crucial role in minimizing internal fraud and preventing it. A dedicated workforce can make all the difference in achieving world-class inventory control results. Could investing in your employees be the missing link in your loss prevention strategy? #Retail #Strategy #Economics #Costco #TeamBuilding