This Costco rival is booming

This Costco rival is booming

This Costco rival is booming

Walmart-owned Sam’s Club is cementing itself as an undervalued jewel inside of the world’s largest retailer.

All it took was 38 years in existence (first store opened by Walmart founder Sam Walton in 1983 in Midwest City, Oklahoma) and a health pandemic. The chain — which often goes overlooked by Walmart (WMT) investors and plays a backseat in the hearts of Americans to rival Costco (COST) — is coming off an eye-opening year as shoppers made fewer trips to stories but bulked up the size of their baskets when they did visit.

Sam’s Club saw net sales rise 8.7% year-over-year to $63.9 billion in 2020. Operating profits surged 16.1% to $1.9 billion. Both the growth rate in sales and operating profits for Sam’s Club were the best showings out of Walmart’s business segments. The retailer — operating 600 clubs in the U.S. and Puerto Rico —signed up six times more members last year than in previous years. Renewal rates in 2020 improved by 400 basis points, Sam’s Club CEO Kathryn McLay said on an earnings conference call.

The momentum continued into the holiday quarter, too.

Fourth quarter same-store sales rose 10.8% (outpacing Walmart’s U.S.’s 8.6% increase). E-commerce sales spiked 42%. Membership income gained 12.9%, the strongest growth in six years.

“We are confident that we have the right offer to keep these members and attract even more, while working the model to grow profits,” McLay said.

From 2015 to 2019, the quickest pace of same-store sales growth for Sam’s Club came in 2018 at 3.8%. In 2020, same-store sales growth was 11.8%.

‘Right moves for sustained long-term growth’

Why Sam’s Club has hit its stride after years of lagging behind Costco’s sales growth reflects a few things, beyond solely pandemic-related shopping.

First, the company is adding more nationally recognized brands to its aisles playing up private label merchandise for years as a way to boost profits. Last year, Sam’s said it added 200 national brands to its assortment — headlined by Beyond Meat burgers, Casper mattresses and Kola beverages.

Meanwhile, the chain’s tech advancements (Sam’s has always served as a tech testing ground for Walmart) are finally being appreciated by shoppers amidst the pandemic.

Sam’s Club launched its Scan & Go feature in 2016, which allows shoppers to scan their items, put them in the basket, and then quickly checkout and leave. Scan & Go was extended to the retailer’s gas stations in the fall — essentially this is a form of contactless payment at the gas pump, as seen in this video.

“This launch significantly boosted adoption. Many members tried Scan & Go Fuel sparking use of the tool in the club as well,” pointed out McLay.

Back in June, Sam’s joined the curbside pickup movement with a launch of its own. McLay said curbside orders went on to increase “triple digits” last year.

Shopping carts in a corral in the parking lot of a Sam's Club store in Concord, N.H., Friday, Feb. 23, 2018. (AP Photo/Charles Krupa)

Shopping carts in a corral in the parking lot of a Sam's Club store in Concord, N.H., Friday, Feb. 23, 2018. (AP Photo/Charles Krupa)

Shopping carts in a corral in the parking lot of a Sam’s Club store in Concord, N.H., Friday, Feb. 23, 2018. (AP Photo/Charles Krupa)

Next on the docket for Sam’s — refreshing the look of the chain at half its locations this year. About 56 remodels were done in 2020.

The efforts and financial uptick at Sam’s is finally getting some attention on Wall Street.

“Sam’s Club is making the right moves for sustained long-term growth,” wrote Jefferies analyst Stephanie Wissink in a note. “Sam’s Club is capitalizing on COVID-related tailwinds driving customers to seek out larger pack sizes and make fewer trips by improving its assortment and overall value proposition in the attractive club channel.”

Wissink is particularly keen on Sam’s Club skewing its merchandise assortment to four-person households that earn more than $100,000 in income annually.

That said, Costco (with its 558 stores in U.S. and Puerto Rico) is no slouch and Sam’s Club will have its work cut out for it in keeping its new members post-pandemic. Similar to Sam’s Club, Costco has seen an impressive run in sales and membership growth rates during the health crisis. For the 22-weeks ended Jan. 31, Costco’s same-store sales increased 13.8%. E-commerce sales were up 79.5%. Costco’s membership income rose 7% for the quarter ended Nov. 22. Renewal rates stood at an impressive 91%.

“Sam’s is a big business for us and it has strong momentum,” Walmart CEO Doug McMillon said on the earnings call.

Indeed it is, and now the bar is set even higher for Sam’s Club after its comeback in 2020.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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