Posted on: Sunday, June 22, 2003

Warehouse club stores climbing social ladder

By Lorrie Grant
USA Today

There was a time when folks went to warehouse stores mainly because they wanted to stock up on lots of stuff as cheaply as possible.

How to explain Bonnie and Bill Royle? The couple from Tucson routinely hit the local Costco warehouse club — but not for quantity. "We find things there that we don't find in regular grocery stores," says Bonnie, 59, a pension-plan administrator, "like frozen creme brulee and onion soup bread bowls."

The war of warehouse clubs appears to be ratcheting up — as in upscale.

The clubs are in an unlikely tug of war for the mind-set — and the credit cards — of consumers who wouldn't, at first blush, appear to be warehouse club regulars.

But these days, the comfortable to the well-to-do are one more target for the fiercely competitive major club chains — Costco Wholesale, Sam's Club and BJ's Wholesale Club.

In their relentless struggle to win in the $70 billion business, they are going head-to-head, chasing a range of consumer niches. They're also taking on the discounters. And they're entering a new world of higher real estate costs to expand into city centers and tonier suburban areas: Another 70 or so club stores are due by year's end.

What an evolution for what began largely as an experiment.

Clubs were once dismissed as caverns bulging with everyday items. However, they've expanded their selection to include higher-end products, such as fragrances by Jean Paul Gaultier, audio systems by Bose, crystal by Waterford and Swarovski, and Goodyear tires.

But where the rubber really meets the road is in trying to outmaneuver the largest retailer in the world: Wal-Mart. The discount giant owns Sam's Club and has thrown its buying power and inventory management expertise behind it. Sam's Club is looking to bump Costco from its perch as the top-shelf warehouse club.

Sam's Club and Costco compete head to head in markets nationwide, including Hawai'i. Small businesses represent about 35 percent of the members at each, and fresh food is the dominant category. They both rank among the top 10 U.S. supermarkets.

Saving money is behind the ongoing consumer shift to buying groceries at clubs, which snatched $46.6 billion, or 7 percent, from the $682.3 billion grocery industry last year, up from 5 percent the year before. Each club chain has tried to stake out its own niche.

Together, the growth of sales at these clubs has outpaced even that of discount stores such as Wal-Mart, Target and Kmart.

Bargain-minded consumers have increasingly discovered that good deals at the discount stores might be even better deals at warehouse clubs.