Warehouse Clubs: The Retail Giants That Thrive on Bulk and Bargains

In an American retail landscape dominated by big-box stores and e-commerce giants, a unique breed of retailer continues to capture the hearts (and wallets) of consumers: the warehouse club. These retail establishments, operating on a membership-only basis, have carved a successful niche by offering a wide array of grocery products and general merchandise, from apparel to appliances.

For an annual fee, shoppers gain access to a treasure trove of bulk-sized goods, often at prices that make traditional retailers wince. This model isn’t just about discounts; it’s a carefully crafted strategy built on high sales volumes, rapid inventory turnover, and a curated selection of brand-name leaders and private label offerings.

The warehouse clubs are often considered as just another big-box store. However, the membership model is a key differentiator, setting these clubs apart from the non-membership supercenter format.

What Makes Warehouse Clubs Tick?

Several core characteristics define the warehouse club experience:

• The Membership Advantage: A paid membership is the golden ticket to shopping at these clubs. Basic memberships typically cost between $45 and $60 annually, with premium tiers offering even more perks. This recurring revenue stream not only provides stability but also cultivates a sense of loyalty among members.
• Bulk and Bargains: The clubs’ value proposition is crystal clear: offer products in bulk, and offer them at a discount. This attracts both individual households and small businesses looking to maximize their purchasing power. In fact, warehouse club pricing can be significantly lower than traditional retailers—up to 50% less, and up to 25% less than non-club big-box stores.
• From Groceries to Gadgets: While their roots lie in groceries, warehouse clubs have evolved into one-stop shops. Today, members can find everything from fresh produce and packaged foods to electronics, furniture, and even gasoline.
• The Warehouse Experience: Stepping into a warehouse club is a distinct experience. The stores are designed for efficiency, with large, no-frills buildings, palletized displays, and high racking. This operational efficiency translates to lower overhead costs.
• The Thrill of the Hunt: Warehouse clubs are masters of merchandising. A constantly changing assortment, limited-time offers, and unexpected finds create a “treasure hunt” atmosphere, driving impulse buys and repeat visits.
• Serving Two Masters: Warehouse clubs cater to a diverse clientele, serving both individual households and small businesses.

The U.S. warehouse club channel has demonstrated robust growth over the years, with a compounded annual growth rate (CAGR) of 6% since 2007 This growth is attributed to factors such as the expansion of club locations, an increase in membership numbers (including the uptake of higher-tier memberships), the broadening of product and service selections, and significant expansion in e-commerce.

Sam’s Club: Navigating Opportunity and Competition

Sam’s club, a major player in the industry, accounts for approximately 13% of total revenue of its parent Walmart. But it is considered a critical source of innovation and leadership within the company. The current CEO of Walmart US, John Furner and Walmart, Inc were past CEOs of Sam’s Club business unit. The warehouse club industry represents a critical opportunity for the company. Warehouse clubs are known for serving a discerning customer group with higher disposable income and a value-oriented purchase behavior. A liberal return policy with few restrictions, a common place in warehouse clubs, also means the Sam’s Club has a more accurate read on customers’ preferences.

However, Sam’s club, in spite of having as many store locations, trails its primary rival Costco in the industry. Costco operates 615 warehouse locations across the US in 2024 compared to Sam’s club’s 599 locations. Costco’s total revenue from its US operations for 2024 was about 184 billion whereas Sam’s Club’s revenue was about 86 billion. This translates to a sales productivity of about $ 144 million per store for Sam’s club compared to $300 millions for Costco for the year of 2024. Costco’s warehouses are mostly larger and generate more sales, partly due to its greater mix of bigger-ticket discretionary goods (e.g., jewelry and furniture), whereas grocery and consumables contribute to about 66% of sales for Sam’s club. The comparable store sales growth for Sam’s club was 4.7%. This marginally trails behind Costco’s 5% growth.

The growth and profitability in the industry is strongly tied to the volume of paid membership the warehouse clubs can attract. Costco, the industry leader, has a renewal rate of about 93%. This implies that the Sam’s club should not just focus on being a better alternative for Costco’s current members but also potential paid members for all the players in the industry.

To thrive in this competitive landscape, Sam’s Club, like its rivals, must deeply understand its customer base and cater to their evolving needs and preferences. What exactly do these members want, and what drives their willingness to pay for a warehouse club membership?

Understanding the Warehouse Club Customer

See the Year in the Life descriptions of the Rodriguez family, John and Maria, and Alex for a rich understanding of the warehouse club member. By examining their commonalities and differences, we can gain valuable insights into what drives their willingness to pay for a warehouse club membership.

A Year in the Life: Warehouse Club Members

To truly understand the warehouse club phenomenon, it’s essential to step into the shoes of its members. These aren’t just shoppers; they’re individuals with diverse needs, families, and life events that shape their purchasing decisions. Let’s take a peek into a year in the life of a few typical members:

The Rodriguez Family: Value and Volume

The Rodriguez family, a vibrant household of five, lives in a suburban area of Phoenix, Arizona.

• Family Composition: Parents, Luis and Sofia, have three children: 16-year-old Mateo, 12-year-old Isabella, and 8-year-old Leo.
• Occupation and Income: Luis works as a construction foreman, while Sofia is a teacher at a local elementary school. Their combined household income falls within warehouse clubs’ target demographic of $75,000 to $125,000 per year. This places them firmly in the middle-income bracket, where value and careful budgeting are important.
• Lifestyle and Values: The Rodriguezes are a close-knit, active family. They value spending time together, community involvement, and providing a good education for their children. They are also value-oriented and prioritize getting the most for their money.
• Tech-Savviness: Both parents are comfortable with technology, using smartphones for communication, online shopping, and managing household tasks. The children are digitally native.
• Typical Shopping Habits: The Rodriguezes are planners. Sofia creates a weekly meal plan, and they make a shopping list before heading to the store. They appreciate the convenience of buying in bulk to reduce the frequency of shopping trips. They utilize online shopping for specific items or when time is short.
• A Year in Their Life:
  • Winter (January - March):
    • The Rodriguezes focus on indoor activities. They purchase board games, craft supplies, and movie snacks in bulk at their warehouse club for family game nights.
    • Luis uses his warehouse club membership to buy materials for small home improvement projects, taking advantage of discounted prices on items like paint and tools.
    • They take advantage of post-holiday sales at their warehouse club to purchase new clothes for the kids.
  • Spring (April - June):
    • As the weather warms, they buy outdoor essentials like gardening supplies, grilling equipment, and sports equipment.
    • They prepare for family gatherings, such as birthday parties and Mother’s Day celebrations, purchasing food, beverages, and decorations.
    • Luis buys mulch for their yard.
  • Summer (July - September):
    • Summer is their time for family vacations and outdoor fun. They purchase travel necessities, pool supplies, and bulk groceries for road trips.
    • They stock up on snacks and drinks for summer gatherings and barbecues.
    • The Rodriguezes take advantage of photo services to print their vacation photos.
  • Fall (October - December):
    • The Rodriguez family prepares for back-to-school by purchasing school supplies, clothes, and lunchbox staples at their warehouse club.
    • They buy Halloween candy and decorations at a discount.
    • As the holiday season approaches, they purchase gifts, holiday decorations, and ingredients for their traditional family dinner at the warehouse club.

John and Maria: New Empty Nesters

John and Maria are a married couple in their early 60s who recently became empty nesters when their youngest child left for college. They live in a comfortable two-story home in a suburban neighborhood of Tampa, Florida.

• Occupations and Income: John is a retired engineer who now enjoys part-time consulting work. Maria is a registered nurse at a local hospital. Their combined income provides them with financial stability and disposable income, placing them in the higher-income demographic.
• Lifestyle and Values: John and Maria value their newfound freedom and enjoy an active lifestyle. They prioritize travel, hobbies, and spending time with friends. They are also health-conscious and value quality and convenience.
• Tech-Savviness: Both are comfortable with technology, using it to manage their finances, stay connected with family, and for entertainment. They are open to adopting new technologies that enhance their lives.
• Typical Shopping Habits: Now that their children are grown, John and Maria’s shopping habits have shifted. They still appreciate buying some items in bulk but focus more on fresh foods, high-quality ingredients, and items for their hobbies and travel. They utilize online shopping for convenience and to research products.
• A Year in Their Life:
  • Winter (January - March):
    • John and Maria plan a warm-weather getaway. They purchase travel essentials like luggage, sunscreen, and travel-sized toiletries at the warehouse club.
    • They focus on healthy eating after the holidays, buying fresh produce, vitamins, and supplements in bulk.
    • John pursues his hobby of woodworking, purchasing lumber and hardware at discounted prices.
  • Spring (April - June):
    • They tackle home improvement projects, such as painting and minor renovations, purchasing supplies and tools at the club.
    • Maria focuses on gardening, buying plants, mulch, and outdoor décor.
    • They host small gatherings with friends, purchasing wine, gourmet cheeses, and appetizers at the club.
  • Summer (July - September):
    • John and Maria travel, purchasing snacks and travel necessities before their trips.
    • They enjoy outdoor activities, buying items like beach chairs, coolers, and picnic supplies.
    • They may purchase a new grill or patio furniture at a significant discount.
  • Fall (October - December):
    • John and Maria prepare for the holidays, purchasing decorations, gifts, and entertaining essentials.
    • They focus on healthy habits before the holiday indulgences, buying vitamins and fitness equipment.
    • They utilize the club’s optical center for their annual eye exams and purchase new glasses.

Alex: Gen Z Saver

Alex is a 22-year-old college student living off-campus with three roommates near the University of Pittsburgh.

• Demographics: He represents the growing Gen Z demographic that is showing increased interest in warehouse clubs.
• Lifestyle and Values: Alex is budget-conscious, tech-savvy, and values convenience and social experiences. He relies on his phone for communication, information, and managing his life. He is also environmentally conscious and prefers brands that align with his values.
• Education and Income: Alex works part-time at a coffee shop to supplement his income. His income is limited, making cost-saving measures essential.
• Typical Shopping Habits: Alex and his roommates pool their resources to buy groceries and household essentials in bulk, splitting the costs to make them more affordable. They appreciate the convenience of shopping together and often make it a social activity. They are open to private label brands to maximize savings.
• A Year in Their Life:
  • Winter (January - March):
    • Alex and his roommates focus on affordable meal options, buying frozen foods, pasta, and sauces in bulk.
    • They stock up on cleaning supplies and paper products to maintain a clean living environment.
    • They purchase discounted electronics, like a new TV or gaming console, splitting the cost for their shared apartment.
  • Spring (April - June):
    • As the weather warms, they buy snacks and drinks in bulk for outdoor gatherings and picnics.
    • They purchase affordable party supplies for events like graduation celebrations.
    • Alex utilizes the club’s tire services for his car, taking advantage of member discounts.
  • Summer (July - September):
    • Alex and his roommates buy in bulk for summer road trips, including snacks, drinks, and travel-sized essentials.
    • They take advantage of summer sales on items like fans, storage containers, and small furniture items for their apartment.
    • They purchase sunscreen and other personal care items in bulk for the summer.
  • Fall (October - December):
    • Alex and his roommates prepare for the school year by purchasing school supplies, coffee, and snacks to keep them fueled for late-night study sessions.
    • They buy decorations and host affordable watch parties for football games.
    • They purchase holiday-themed food and drinks for gatherings with friends.

The primary customer segment can be characterized as traditional households, often with multiple family members across different age groups. For this segment, several key priorities are evident. Value for money is a core driver. These customers seek to maximize their purchasing power by buying in bulk and taking advantage of discounts. They are willing to pay a membership fee to access these savings. Shopping decisions are often deeply intertwined with family and household needs, including feeding a family, stocking up on essentials, and preparing for events and celebrations. Convenience is also prized; customers appreciate the ease of one-stop shopping and access to a variety of goods and services in a single location. While value is paramount, quality remains important, with customers seeking both national brands and high-quality private label options. It’s also clear that their needs are not static but vary based on life stage, such as families with kids or empty nesters.

Gen Z represents an important emerging customer segment for warehouse clubs. Like traditional households, Gen Z members are value-conscious and seek ways to save money on groceries and essentials. They also appreciate the convenience of bulk buying and one-stop shopping. However, Gen Z members are typically younger, more tech-savvy, and often have different living arrangements, such as with roommates or in smaller households. Their shopping habits may be influenced by social trends, sustainability concerns, and a desire for unique experiences.

While both traditional households and Gen Z prioritize value, their expressions of value may differ. Traditional households may focus on maximizing savings for the entire family, while Gen Z might emphasize value for shared living expenses or specific lifestyle choices. Gen Z is drawn to lower per-unit costs and the ability to divide bulk purchases, highlighting a value proposition centered on affordability and shared expenses. Both segments value convenience, However, Gen Z’s expectations for convenience may differ due to their digital-native lifestyle. The concept of convenience isn’t limited to the ability to pick up groceries, fill up gas, and change tires in one location. It also includes the ability to transition seamlessly between digital and physical experiences. Both segments seek quality, but their perceptions of quality may be influenced by different factors. Traditional households might prioritize trusted brands and product reliability, while Gen Z may value sustainable sourcing, ethical production, and unique product attributes.

These similarities and differences have important implications. Traditional households with families have needs centered around raising children, managing household tasks, and celebrating family events. This translates to bulk purchases of groceries, school supplies, home goods, and seasonal items. Gen Z, often in the early stages of adulthood, may prioritize affordability for shared living spaces, convenience for on-the-go lifestyles, and products that align with their social values. Traditional households may have established shopping routines and brand preferences, while Gen Z is more likely to be influenced by social media, online reviews, and peer recommendations. Gen Z is more likely to split bulk grocery purchases with friends, neighbors, roommates, and family, according to a survey by Advantage Solutions. Gen Z is digitally native and expects a seamless integration of technology into the shopping experience. This includes mobile apps, online ordering, personalized recommendations, and social media engagement.

Meeting Customer Needs: Value and Convenience in the Warehouse Club Industry

In the fiercely competitive warehouse club industry, Costco and Sam’s Club both recognize that delivering exceptional value and convenience is not just important—it’s essential for attracting and retaining members. Both companies employ a range of strategies to meet these key customer needs.

Both Costco and Sam’s Club utilize a membership model, offering access to a wide array of goods and services at discounted prices. This model allows them to operate on a high-volume, low-margin strategy, providing significant savings to price-conscious consumers. Both clubs also focus on bulk purchasing, offering a wide product assortment, including private label brands, to cater to diverse customer needs. They are also expanding their omnichannel capabilities, integrating digital platforms with their physical stores to enhance convenience through online shopping, pickup, and delivery options.

Costco, the market leader, emjoys significant competitive advantages over Sam’s Club. Sam’s Club aims to distinguish itself in the warehouse club business through several unique strategies aimed at enhancing convenience and reinforcing the perception of value within its physical store environments.

Costco’s Advantage

“Costco, formerly PriceCostco, was formed by the merger of Price Club and Costco. Price Club’s first store opened in San Diego in 1976, while Costco’s began in Seattle in 1983. Operating in high-income areas along the West Coast and offering premium products became core to the company’s identity. Although not a retail pioneer, Costco is a leader in the warehouse club model. Its strategic early location choices and investment in the Kirkland private label brand, despite initial skepticism towards private labels, have created a sustainable competitive advantage.

Costco’s customer base boasts the highest average annual income among warehouse club retailers (between $100,000 and $125,000). This has significant ripple effects. Premium brands and vendors seeking to build reputations for upscale products prefer to partner with Costco. Consequently, high-disposable-income customers favor Costco memberships for access to these premium offerings. This creates a positive feedback loop. Costco benefits from a greater number of vendors offering free food samples at their own expense. Similarly, consumer durable goods vendors often provide on-site sales staff, a testament to Costco’s substantial per-warehouse investment ($300 million) compared to Sam’s Club ($144 million). Adding to Sam’s Club’s challenges, its parent company Walmart’s everyday-low-price image negatively impacts its brand perception, deterring both high-end vendors and affluent potential members.

Costco strategically employs unique loss leaders, most notably the $1.50 hot dog and $4.99 rotisserie chicken. These offerings provide significant value to customers, enabling affordable family meals and versatile ingredients. The appeal extends to Costco’s exclusive Kirkland brand, which offers a wide range of food products, from coffee beans to pizzas. This brand loyalty contributes to Costco’s impressive 93% membership renewal rate. Over 300 of Costco’s approximately 4,000 SKUs are Kirkland branded, many manufactured in the same facilities as national brands and enjoying positive reviews from customers and independent sources like Consumer Reports. In contrast, Sam’s Club previously offered 20 store brands, only consolidating them under the Member’s Mark brand in 2017 to mirror Costco’s Kirkland strategy.”

Technological Innovation: Driving Convenience and Efficiency

Sam’s Club is making significant strides in leveraging technology to transform the in-store shopping journey. The company’s widely adopted Scan & Go feature within the Sam’s Club mobile app has become a signature element of its convenience strategy. Members can use their smartphones to scan items as they shop and complete their purchases, bypassing traditional checkout lines and minimizing wait times.

Building upon this foundation, Sam’s Club has introduced “easy exit” technology, a cutting-edge system that utilizes computer vision and artificial intelligence (AI) to streamline the departure process. Members who use Scan & Go can simply exit the club after completing their transaction on their phones, without the need for manual receipt checks. This frictionless exit is a significant differentiator, enhancing member satisfaction and saving valuable time.

Sam’s Club is also deploying robots within its physical locations to automate routine tasks. These robots handle tasks such as monitoring inventory levels, verifying prices, and maintaining store cleanliness. By automating these functions, Sam’s Club frees up its associates to focus on providing direct member assistance and enhancing the overall shopping experience.

Furthermore, Sam’s Club is empowering its employees with app-based tools designed to improve efficiency and customer service. One notable example is the voice-enabled “Ask Sam” application, which enables staff members to quickly locate items, answer member questions, and provide more efficient assistance.

Omnichannel Integration: Blurring the Lines Between Physical and Digital

Sam’s Club is strategically focused on creating a seamless omnichannel experience that integrates its e-commerce operations with its physical clubs. The company has implemented curbside pickup at all of its locations, providing members with a convenient and contactless way to receive their online orders. Recognizing the growing demand for this service, Sam’s Club is even designing its new stores with dedicated space to optimize curbside pickup and delivery operations.

In addition to curbside pickup, Sam’s Club offers ship-from-club and delivery-from-club options. These services allow members to purchase items while in the store and have them shipped directly to their homes, providing added convenience, particularly for bulky or hard-to-transport items. This integration of online and offline channels enhances the overall member experience and provides greater flexibility.

Sam’s Club is also focused on enhancing the digital experience through its mobile app and online platform. Members can access personalized promotions, digitally add coupons to their membership cards, and track their annual savings. The Sam’s Club app also features ExpressPay, enabling members to make in-club purchases with their phones.

Supply Chain Innovation: Enhancing Efficiency and Responsiveness

Sam’s Club is strategically innovating its supply chain to enhance speed, efficiency, and alignment with its omnichannel strategy. The company is making significant investments in expanding and modernizing its fulfillment network. Sam’s Club has announced plans to open new, highly automated fulfillment centers and upgrade existing facilities to increase capacity and streamline operations.

A key focus of Sam’s Club’s supply chain strategy is to “shrink the average distance between its supply-chain facilities and its stores and members.” By strategically locating its fulfillment centers closer to its member base, Sam’s Club aims to enhance delivery speed, reduce shipping costs, and improve overall responsiveness.

To further enhance its delivery capabilities, Sam’s Club leverages Walmart’s GoLocal delivery platform for same-day delivery to customers living near a store. This collaboration enables Sam’s Club to offer rapid delivery options without having to build a completely separate infrastructure.

Sam’s Club is also leveraging technology to optimize inventory management. The company is deploying artificial intelligence (AI) to help associates manage inventory more effectively, improve forecasting, and reduce instances of out-of-stock items.

Member’s Mark: Redefining the Private Label Experience

Sam’s Club is taking a unique approach to its private label brand, Member’s Mark. The company is actively engaging members in the product development process through its “My Member’s Mark” community. This initiative allows members to provide direct feedback on potential new products, influencing aspects such as flavor, design, and quality. This co-creation model fosters a sense of ownership and strengthens member loyalty.

Sam’s Club emphasizes agility and responsiveness in its product development, enabling it to quickly adapt to member feedback and introduce new items. The company is also focused on positioning Member’s Mark as a high-quality brand offered at a “disruptive value,” benchmarking itself against national brands and setting high standards for ingredients and sourcing. Sam’s Club decision to primarily work with smaller, often unnamed suppliers specializing in private labels, bolsters its emphasis on market agility and member co-creation initiatives

Sam’s Club is also strategically expanding Member’s Mark beyond traditional grocery items into lifestyle categories. The company’s ambition is to evolve Member’s Mark into a well-respected “lifestyle brand” that offers a wide range of high-quality products that resonate with members’ broader needs and preferences.

Decision Prompt:

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Conclusion: Sam’s Club’s Uphill Climb in a Costco-Dominated Market

In the fiercely competitive warehouse club sector, Sam’s Club is pursuing a clear strategy to differentiate itself. While maintaining the core value proposition of low prices on bulk goods, the company is investing heavily in technological innovation to enhance convenience, building a robust omnichannel experience, and reimagining its private label brand.

Through initiatives like “easy exit” technology, curbside pickup, and the member co-creation of Member’s Mark products, Sam’s Club is focused on meeting the evolving needs and expectations of its members.

However, Sam’s Club faces a formidable challenge: Costco’s established dominance. Costco is the clear market leader, consistently demonstrating superior performance in key metrics such as sales productivity, member satisfaction, and growth. Sam’s Club’s efforts to gain ground require not only strategic innovation but also the ability to effectively capture market share from a well-entrenched competitor. The company’s strategic moves aim to not only compete on price but also to create a more seamless, engaging, and valuable shopping experience, positioning Sam’s Club for continued growth and enhanced member loyalty – critical factors in its pursuit of closing the gap with the industry leader.