It's easy to forget that both Walmart and Sam's Club started with one man and his five-and-dime
store.
They've become juggernauts of today's retail landscape, and when Sam's Club opened in 1983,
it was designed to be a one-stop shop for business owners.
Today, they're a no-frills warehouse that's become as handy for families as for businesses.
After all, who doesn't love a place where you can go and stock up on a year's worth
of toilet paper and pickles in the same trip?
But in spite of Walmart's domination of America's retail world, Sam's Club has been in trouble
for a while, with failing sales going back to at least 2015.
Their struggles went public in January of 2018, when some Sam's Club stores across the
country didn't open for the day - or ever again.
What's really going on here?
Small business let them down
Sam's Club was originally founded to target small business owners, and yes, those are
the same small businesses Walmart has damaged so badly.
In a weird twist of cosmic karma, the purchasing habits of those same people have ultimately
put a hurt on Sam's.
The Motley Fool says as of 2015, about a third of Sam's Club memberships were held by small
business owners.
That's a huge percentage, and with that group not spending the amount of money Sam's had
expected, that created a cash flow problem for the warehouse giant.
And there's another problem.
Not only were small business owners not buying as much as Sam's thought they would, but when
they did buy, it was mostly products for their home and personal use.
That completely skewed Sam's targets, their numbers, and their bottom line.
Competition with... themselves
Everyone knows Sam's Club is Walmart's sister company, and sibling rivalry has ended up
being a massive problem for them.
At the time Sam's announced they were going to be closing about 10 percent of their locations,
they had 660 stores in the US.
Of those, 200 of them shared a parking lot with Walmart - which, of course, doesn't require
customers buy a membership.
Since there's a huge amount of merchandise that's on the shelves at both Walmart and
Sam's Club, there are a lot of customers that opt to just run into Walmart instead of fussing
over Sam's, their lines, and their memberships.
That's all helped make their own sister company one of their biggest competitors, and that's
just not good business.
Fulfillment center
Amazon is now doing to Sam's Club what Sam's Club and Walmart once did to Pop's hardware
store and Mom's five-and-dime.
So in order to stay competitive in the online market, 12 of their Sam's Club stores are
being turned into e-commerce fulfillment centers that will act just like Amazon's.
The goal is to try to compete with their insanely fast delivery service, and that's no small
challenge.
The first fulfillment center, located in Memphis, Tennessee, will double as a testing ground
as they find their feet, and it's a huge decision that's reflective of the industry.
An online shopping platform can make or break a business, especially in an era when consumers
are extraordinarily demanding.
Keeping up with Costco
Costco has been a near-constant thorn in Sam's side, and if you're wondering how much Sam's
has been hurt by their rival, consider this: 52 of the 63 locations Sam's Club closed in
2018 were ones that had a Costco within 10 miles.
Costco's numbers have continued to rise while Sam's struggles, and Sam's Club CEO John Furner
says there's a few reasons why.
He says their biggest issue is their lack of focus, as he says they've spent too much
time chasing too many things.
They tried to cater to high-end customers, small business owners, lower-income families…
the whole deal, while Costco was quietly sitting back and stealing customers.
"I am total Costco, love Costco."
So now, Sam's Club has cut their losses along with all their stores in Washington state
- the home of Costco.
Retail analysts found that's not a coincidence, and bottom line?
By cutting stores in high-competition areas, they can compete elsewhere.
Choosing customers carefully
Part of Sam's Club's financial problems stem from a bigger problem - the country's economy.
According to industry analysts at The Motley Fool, most Sam's Club customers come from
middle- and lower-income brackets.
When the economy goes bad or other disasters happen, they're the ones that feel it the
most and they're the ones cutting back on spending the most.
So it makes sense that many Sam's Club stores catering to lower-income areas in the U.S.
are among those that have closed in recent years.
But the Waltons appear to have a remedy.
The Wall Street Journal reported in January 2018 that remaining stores are being revamped
to target a new group: families with an income of between $75,000 and $125,000."
Sam's Club CEO John Furner noted that the goal was to "transform the business," and
added they needed to focus on locations more accessible to the more resilient, higher-income
brackets they were going to be targeting if they wanted to turn business around.
Sam's Club is continuing to move forward, but there might be more major changes on the
horizon.