Shopping Centers Today

JUL 2018

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

Issue link:

Contents of this Issue


Page 15 of 59

16 S C T / J U L Y 2 0 1 8 Member benefits N ot many stores offer customers the chance to grab a 20-pound package of steaks, a flat-panel TV and a diamond engagement ring all in one trip — and all under one roof. But that is the appeal of retail membership warehouses like Costco Wholesale, BJ's Wholesale Club and Sam's Club. Their business model: limit profitability in order to pass the savings onto the consumers and then reap the bulk of their profits from membership fees. Apparently, this is a formula for success. From 2001 to 2016, U.S. warehouse clubs' revenues grew at a compound annual growth rate of 6.2 percent, outpacing the 3 percent annual growth rate of the overall retail industry by roughly 3 percentage points, according to Deborah Weinswig, founder and CEO of Coresight Research (formerly Fung Global Retail & Technology), a retail think tank. Recent estimates hold that the sector generated nearly $191 billion in revenues last year, Weinswig says. "While sales per member drive revenue at the warehouse clubs, mem- bership fees are what expand profits," said Weinswig. "We estimate that total membership fees contributed 70 percent of the Big Three's operating income in 2016." Costco, based in Issaquah, Wash., represents about 65 percent of the U.S. market and gen- erates more than twice the revenue of its nearest competitor, Sam's Club, according to Weinswig. The same year Costco opened, Sam Walton introduced his first Sam's Club, in Midwest City, Okla. Today Sam's Club, a division of Bentonville, Ark.–based Walmart, Inc., operates nearly 600 stores across the U.S. and Puerto Rico. A basic Sam's Club membership starts at $45. With a reported 9 million members, mostly in New England and the East Coast, Westborough, Mass.–based BJ's Wholesale Club operates 210 stores across 16 states. A standard club mem- bership goes for $55 per year. "Membership models include two advantages: a stream of recurring revenue — albeit typically minor, rel- ative to their retail sales — and lock- ing in shoppers," said Weinswig. "If we look beyond the warehouse clubs, we see the lock-in effect clearly with Amazon Prime, where Prime mem- bers tend to show much higher rates of shopping at Amazon across the cat- egories, including food and fashion." Amazon Prime counts some 80 million members in the U.S. An annual membership costs $119. (A monthly membership is available too — though, given the monthly rate increase that took effect in June, these members could wind up paying $156 for the year, depending on when they have signed up relative to the increase.) The perks here include free two-day shipping; same-day delivery, in certain cases; unlimited music and video streaming; and more. A study by Consumer Intelligence Research Partners done last year found that the average Amazon Prime member spends $1,300 annually. Unlike at other clubs, these customers never have to physically venture into the warehouses to get their goods. Sears also got into the act with its Shop Your Way loyalty program, now in its ninth year. How well the online platform is doing is open to debate. Last year Evan Magliocca, a brand marketing manager at Baesman Insights & Marketing, noted on the website of marketing association Loyalty360 that he considers Shop Your Way less effective than the pro- grams of, Target and Walmart, because of its heavy reliance on an old customer base. But Sears, for its part, boasts that Shop Your Way has grown; the program has begun Membership warehouse retailers enjoy growth By Spencer Rumsey S T O R E F R O N T S W H AT T H E T E N A N T S A R E U P TO TIME OUT BRINGS BRANDED FOOD HALLS TO AMERICA 18 RENT-THE- RUNWAY VENTURES OFFLINE 19 FRED SEGAL'S SECRET TO LUXURY LONGEVITY 20 JAPANESE CHAIN SELLS SECONDHAND HIPSTER GOODS 21 BULLETIN'S JOURNEY INTO PHYSICAL RETAIL CONTINUES 21 URBAN AIR IS MORE THAN A TRAMPOLINE PARK 22 SUE'S TECH KITCHEN OFFERS POP-UP FUND AND EDUCATION 23

Articles in this issue

Links on this page

Archives of this issue

view archives of Shopping Centers Today - JUL 2018