Sam’s Club has begun the fiscal year with conflicting, yet ultimately encouraging, results. For context, this quarter marks the first time Sam’s Club’s results can be directly compared versus the prior year without adjusting for closures since the retailer shuttered 63 clubs in the U.S. and Puerto Rico in early 2018. In Q1 FY2020, Sam’s Club’s sales rose 0.6% excluding gas and comps were near-stagnant at 0.3%. Yet these figures don’t capture the whole picture.
Let’s look at three elements that explain the broader strokes of where Sam’s Club stands in Q1 2020.
Over a year ago, Sam’s Club decided to gradually reduce the number of clubs that sold tobacco products in order to better establish itself as a health and wellness destination. That intentional drawdown has contributed a multiple percentage point headwind to sales and comps in any given quarter. For Q1, comps growth would have been as high as 3.0% excluding tobacco. Furthermore, this headwind is likely to be exacerbated as Sam’s Club and Walmart have placed further restrictions on what tobacco products can be sold and who can buy them.
Sam’s Club’s 0.3% aggregate comp growth masks a distinct performance profile. As Sam’s Club deemphasizes tobacco, invests in pricing, and expands private label; Q1 ticket is actually down 4.4%. However, 4.7% traffic growth means shoppers are signing up and visiting their club or Samsclub.com more frequently. This quarter, Walmart and Sam’s Club have begun including eCommerce purchases as a part of traffic growth, now re-termed “transactions.” eCommerce continued its strong momentum by growing 28% for the quarter.
Streamlining the club experience
Sam’s Club continues to learn from its small format, tech-enabled club in Dallas, and some pilot features are making their way to other club locations. For instance, Scan & Go has now been incorporated into the larger Sam’s Club app. In addition, Sam’s Club is developing new Scan & Go visual scanning technology that can identify a product at a glance and forego the need to scan a barcode. Sam’s believes that streamlining the shopper experience, both online and in-club, can be a growth driver even if it limits some opportunity to engage shoppers in club for longer periods. Better to retain a shopper and lose some basket volume versus losing a shopper altogether if they prefer to shop elsewhere.
Staying true to the club model
Sam’s Club remains committed to the club fundamentals that are driving its success. As new openings have stopped for the near future, Sam’s Club must make its existing footprint more productive, especially now that gains from reduced cannibalization from club closings have been anniversaried. To that end, focusing on a more curated and edited assortment, investing in price, and granting more autonomy and responsibility to associates are all moves that help make the physical trip more relevant. Sam’s Club is encouraging its shoppers to shop their local club more frequently and for longer durations because they’ll enjoy the experience, not because it’s a necessary chore.
Sam’s Club is content with its Q1 performance; its uneven path is the necessary, short-term output of its strategic direction. And there are reasons to be optimistic: member signups, renewals, and upgrades are all performing well. Nevertheless, there are some short term watch-outs on the horizon: calendar shifts are unfavorable for Q2 and an unpredictable trade war between the U.S. and China could dampen the retailer’s ability to effectively source low cost goods.