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Wholesale Success?

Ethan Chernofsky
March 5, 2020
Wholesale Success?

The wholesale sector is among the most interesting in retail with one of the industry’s steadiest performers, a recovering giant and Walmart’s own entry into the mix. 

So we decided to dive in and check in on the offline performance for Costco, BJ’s Wholesale Club and Sam’s Club.

The Strong Keeps Growing Stronger

In a retail ecosystem where many are struggling, it constantly feels like Costco can do no wrong. The brand has seen stable visit growth with every month in 2019 outperforming the same month in 2018. The trajectory reached a peak in December 2019 when visits grew 19.9% above the baseline for the period from January 2017 to January 2020. This was a strong improvement from December 2018 when visits were 16.9% above. 

And the traffic growth has continued into 2020 where January visits were 1.9% above the baseline for the same period compared to 2.0% below in 2019 or 6.7% below in January 2018.

The growth is all the more impressive considering it followed a slight downturn between 2017 and 2018 when visits dropped 1.2% year-over-year. Between 2018 and 2019 however, visits grew 5.5% overall, a significant increase for a brand that is already driving massive visits nationwide.

Sam’s Club and BJ’s Wholesale 

Sam’s Club is the next biggest player in the space, and while the brand faced struggles in recent years, a turnaround seems to be in full bloom. Between 2017 and 2018, the company saw visits decline by 3.9%, but between 2018 and 2019 there was annual growth of 2.2%. This strength has carried into 2020, where January visits were up year-over-year.

Yet, the brand that has yet to turn around the decline from 2017 to 2018 is BJ’s. Following a 3.7% decline in foot traffic between those years, there was a 4.5% decline between overall annual traffic from 2018 to 2019. 

Is Reach the Key?

The first answer to why this may be, is reach from a store count perspective. Looking at overall visits for each of the three brands nationwide shows a dominant force in Costco. But, Costco has nearly 800 stores compared to almost 600 for Sam’s Club and just over 200 for BJ’s.

Yet, while this difference has a huge impact on the overall number of visits, it shouldn’t impact trajectory. 

The second element of reach, the actual True Trade Area of a store, is about how each location serves to grab as much market as possible. Here too, it seems as though Costco has a significantly more effective pull. 

We analyzed several areas where Costco (green), BJ’s (blue) and Sam’s Club (red) locations sat nearby, alongside areas where only two of the players were in the same vicinity and found several patterns. Firstly, when looking at a Pennsylvania location where all three exist in close proximity, found that site selection can have a major impact. The Costco location has a True Trade Area more than 12 square miles larger than those of the BJ’s and Sam’s Club locations. Giving it a much larger reach as the closest option for a wider audience.

When put in head-to-head competition with a BJ’s (blue) in South Florida, Costco (red) again comes ahead with a True Trade Area that is nearly double in size. The positioning here is key because it demonstrates the opportunity that Costco gives itself. By limiting close proximity competition, Costco is able to more effectively grab a larger breadth of the market. This is especially critical for wholesale retail where shoppers tend to visit less often, but purchase more on each visit.

Limit Head to Head and Grow Trade Area

The interesting factor here is that in cases where Sam’s Club or BJ’s performed comparably or better than Costco, the True Trade Area overlap was limited and the sizes were more equivalent.

This speaks to the critical nature of site selection in the wholesale space. Where other brands depend on regular visits and thus prioritize location proximity, wholesale brands can actually be negatively impacted by being too close to one audience, if it limits access to another. The unique characteristics of wholesale retail create a demand for a wide reach, one that other brands will need to replicate should any have a chance of unseating Costco from the wholesale throne.

Check back in with the blog to see how these wholesale giants perform throughout 2020.

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