BJ's Wholesale Club Inc.

One hundred twenty eight ounces of baked beans, 120 ounces of ketchup, 35 pounds of dog food, 76 ounces of cereal, 44 ounces of chocolate, one tennis bracelet, two cell phones and 800 Q-tips is a tall order, but it’s an average family’s shopping list at BJ’s Wholesale Club Inc.

In a country that subscribes to a bigger-is-better philosophy, BJ’s also illustrates that bigger can be cheaper. BJ’s currently operates more than 145 clubs and three crossdock distribution centers, serving members in 16 states.

“BJ’s Wholesale Club introduced the warehouse club concept to the northeastern United States in the mid-1980s,” explains CEO Mike Wedge. “Since then, the chain has expanded its operations from Maine to Florida, as well as the state of Ohio.”

The company says its mission is “to provide its members with high-quality, brand-name merchandise at prices that are significantly lower than the prices found at supermarkets, super centers, department stores, drug stores and specialty retail operations.” In 2001, BJ’s reported that it sold:

  • One bag of popcorn per second; in fact Golden Valley plants produced 72 million ears of corn just for BJ’s.
  • Enough Tidy Cat cat litter to fill Fenway Park 4 inches deep.
  • Enough catfish to feed every person in Wyoming one pound of catfish every day for an entire year.
  • Enough bags of gourmet coffee that when stacked would reach the summit of Mount Everest eight times.
  • More than 121,000 gallons of salad dressing – enough to fill more than six 20,000-gallon swimming pools.
Demographic Break Down

Wholesale clubs have two types of members: small business operators and consumer members. While competing clubs consider small business operators to be their primary members, BJ’s is more focused on the retail customer.

This approach is apparent in BJ’s merchandising, club operations and real estate strategy. BJ’s consumer members, or Inner Circle members, may make up as much as 90 percent of a club’s membership in the Southeast clubs. Overall, however, Inner Circle members make up about 75 percent of total membership.

BJ’s defines prototypical Inner Circle members as homeowners with higher-than-average income for the market areas where they live. Inner Circle members also, for the most part, have one or two children living at home, two cars and multiple credit cards.

Its business-operator members make up approximately 25 percent of membership and are generally owner/operators of small businesses. BJ’s serves a significant percentage of business- customers, especially in the Northeast. “We have a very loyal and strong business base, but it is a smaller portion of our business in the southern clubs,”Wedge explains.

A business customer will select a club based on convenience, brands and variety of products,Wedge explains, and BJ’s caters to those needs in its markets through its more-than-average SKUs and private labels. “On overlapping business items, the three top-competing clubs watch each other’s prices closely; they are within pennies of each other,”Wedge adds.

Both Inner Circle members and business members benefit from a customer-friendly shopping experience, BJ’s explains. “To create an exciting shopping experience, BJ’s resets its mix of products at the front of the club about eight or nine times per year with seasonal goods,” the company states. BJ’s also says it is the only major warehouse club operator to accept manufacturers’ coupons.

In pricing, BJ’s has improved its position against competitors by lowering prices for dairy and improving the quality of its produce and bakery departments without raising prices. “Having the right prices on these items helps us to take market share away from less efficient retail channels, particularly supermarkets,” Wedge explains. “We are also invested in providing better value to members by improving quality while holding the line on prices.”

Wholesale Difference

As BJ's explains, "Warehouse clubs offer a narrow assortment of brand name food and general merchandise items within a wide range of product categories.”However, in order to achieve high sales volume, merchandise selections are typically limited to brand-name items that are leaders in their categories.

Wedge says it is difficult for supermarkets, department stores and drug stores to meet the low prices BJ’s can provide. BJ’s eliminates handling costs that multi-step distribution channels traditionally employ by “purchasing full truckloads of merchandise directly from manufacturers and by storing merchandise on the sales floor rather than in central warehouses,” Wedge explains. This allows BJ’s to offer prices 30 to 40 percent lower than supermarkets and drug stores.

High sales volumes and rapid inventory turnover enable BJ’s to generate cash from the sale of a large percentage of its inventory before paying merchandise vendors. Therefore, a large portion of the inventory is financed through vendor payment terms, as opposed to working capital.

Even with fewer product options than other channels of distribution, BJ’s says it offers approximately 6,500 products – as opposed to the 4,000 products that competing wholesale clubs, such as Sam’s and Costco, offer.

While food and consumables account for about 60 percent of its sales, BJ’s other product categories include: health and beauty, housewares, seasonal products, videos, CDs, DVDs, books, magazines, greeting cards, jewelry and watches, cameras, film, photo development, batteries, furniture, office supplies, electronics, appliances, computers and software, clothing, children’s products, tires and automotive supplies, hardware, sporting goods and toys.

The wider selection of merchandise appeals to the consumers’ preference for choice. The clubs sell premium quality kitchen goods, pet accessories, greeting cards and magazines, which BJ’s says are often not available at other wholesale clubs.

BJ’s has consumer convenience in mind in its packaging. “In most of our food and consumables categories, we offer smaller package sizes that are easier to carry home and store,” the company explains.

Diverging from the competition in its operating model gives BJ’s a leading advantage. The company says it implements “merchandising strategies that emphasize a customer-friendly shopping experience.”

To create an exciting shopping experience, BJ’s says it continually changes its mix of products and general merchandise items. Carrying a larger selection than its competitors allows the company to re-merchandise more often.

Specialty Business Breakdown

BJ's operates numberous specialty services. While many of its services are store-run, its optical, photo finishing and cell phone departments are operated by third parties, the company says.

BJ’s reported its first-quarter 2003 sales increased by a total of 15.7 percent, while comparable club sales increased by 5.7 percent. Gasoline sales made up 4.7 percent of the comparable club sales increase.

“BJ’s results for the first quarter reflect the substantial investments we are making in our business to reinvigorate sales,” Wedge said. “On a comparable club basis, food sales increased by 3.2 percent for the first quarter. This improved trend in food sales indicates to us that our investments in quality and pricing are beginning to yield positive results.”

The company says it plans to continue expanding its gas station services, as well as testing new markets for pharmacy operation.

BJ’s expects its private label products to continue to represent an increasing percentage of total sales in future reports. Last year, products sold under the private label achieved a sales penetration of about 5 percent on an annual basis, the company states.

One for All

Club members can complete several errands in one trip to BJ’s. In order to provide a multitude of services, BJ’s says it leases outside operators that work in conjunction with BJ’s to provide a complete range of services to members.

The vast array of in-club services include: a tire center, an optical department, a communication center, ATM, lottery purchase station, food court, ice cream counter, pharmacy, gas station and gazebo relaxation areas.

Members can also take advantage of BJ’s vacation program, real estate services, car rental service, healthcare savings network, Brink’s home security, auto program and embroidered apparel services. Additionally, pre-paid phone cards, mail order checks and labels, merchant payment processing, payroll services and long distance services are available.

“The ‘treasure hunt’ is a big part of wholesale club shopping and BJ’s offers a wide assortment of club-priced luxury goods,” says Wedge. Printers, home theaters, digital cameras, flat panel monitors, sports watches and treadmills are some of the treasures members will find at BJ’s.

Additionally, BJ’s jewelry counter sells 14 Kt diamond rings, bracelets, necklaces and earrings. Pearl, onyx and sapphire are some stones members can select from when browsing the counter. BJ’s says it has made strides to enhance its collection to deliver even greater value to members.

“I’ve bought beautiful necklaces for my nieces at BJ’s,” says club member Janine Fox. “The great prices and quality of the jewelry make it a terrific gift. If you look in my own jewelry box, you’ll see some nice earrings from BJ’s – a little present I couldn’t resist getting for myself.”

Clear Deals

Other than precious gifts, BJ's provides members with valuable products and services for their health.

BJ’s Optical offers members Profile brand lenses, ultra-light lenses, CrystalVision lenses, plastic lenses and continuum computer lenses at prices significantly lower than other retail distributors.

Profile brand lenses are 36 percent lighter, 28 percent thinner, 47 percent flatter and 10 times more impact resistant than regular plastic lenses.

CrystalVision lenses are 25.7 percent clearer than any surfaced lens, boast a 92 percent light transmission and offer scratch-resistant coating.

Continuum computer lenses are designed for computer use and multifocal prescriptions.

Cole National Corp. operates BJ’s Optical in more than 130 clubs. “Trained opticians assist BJ’s value-oriented customers in choosing their eyewear from BJ’s high-quality, value-priced selection,” Cole National states.

Rolling into Savings

When incorporating the tire center into its clubs, BJ's selected VAC Service Corp. as its long-term service partner to provide members road-hazard coverage for tires mounted and installed at its stores.

“VAC Service Corp. has been BJ’s partner for more than a decade, and we are delighted to announce this new program which will extend our partnership and bring new dimension in service to BJ’s customers throughout the eastern United States,” said Jim Tucker, CEO of VAC, in a 2002 statement.

However, VAC was selected only after BJ’s carefully reviewed proposals from numerous third-party vendors and found that VAC had the best plan. “VAC worked with us to customize our current wheel deal, putting together the most comprehensive program for our members that will now include road hazard coverage, while allowing a seamless transaction process at the club level,” said BJ’s Manager of Automotive Services Paul Paquette. “Of course, after partnering with them for more than a decade now, VAC has earned a high level of confidence and trust from BJ’s,” he added.

Deals to Unwind

In addition to the tire center, Wedge explains that the vacation program is one of the most well-received specialty programs that BJ’s offers. “Essentially, the program is a fully functioning Web site of www.bjsvacations.com,” he says. “We operate in the same format as the site does. We’re not a travel agency. We don’t sell airline tickets, but we sell vacation packages.” Wedge likens the service to a co-op; by taking the members’ buying power, BJ’s can negotiate exceptional deals and vacation packages for its members.

“We get very sharp values, good rates and put that in front of our members,” he explains. “The power of our members is an aggregate of demand, and BJ’s acts as the advocate.”

Connecting Values

BJ's has also brought wireless services to its clubs. This year, the company signed an exclusive multi-year agreement with Wireless Retain Inc. to sell wireless phone, satellite television and broadband services at all clubs. Wireless Retail holds the responsibility of hiring, training and managing all of its staff, as well as offering advice on purchasing products and services through its partnerships with service providers.

“We selected Wireless Retail as our exclusive partner for subscriber- based consumer electronics products and services because of the company’s experience and expertise in the industry,” Wedge says. “Wireless Retail has demonstrated a successful track record for providing superior customer service, easy access to the nation’s leading carriers and service providers, and the best designed store fixtures.”

Wireless Retail partnered with Design Forum, an Ohio-based design firm, to develop a store-within-a store prototype. Unlike traditional kiosks, Wireless Retail’s position within the clubs features open access and product displays that encourage customers to interact with the sales representatives, learn about service options and test the products.

“Wireless Retail’s business model is consistent with what we want to offer our members: a value-driven, member-friendly, convenient shopping experience that offers a broad assortment of high-quality, brand-name products and services,” Wedge relates.

Wireless Retails’ POS system captures its sales in real-time, which Wedge explains provides increased accuracy in tracking and reporting.

These capabilities identify and address the needs of BJ’s members, he adds.

“We’re extremely pleased to partner with BJ’s in creating a next-generation retail environment,” says Wireless Retail’s President and CEO Dan McMahan.

“When fully deployed, each BJ’s location will feature a stateof- the art retail venue, highly trained sales consultants and a first-class offering of subscription-based consumer electronics products and services,” he adds.

Club News

In the September issue of BJ's Journal, members were updated on numerous promotions and community outreach efforts:

  • BJ’s partnered with the Dana-Farber Cancer Institute, a leading facility in breast cancer research, treatment and prevention, to raise money for its women’s cancer program. BJ’s donated its own corporate gift, as well as worked with vendors to raise additional funds.
  • On Oct. 25, BJ’s will host a “Heart of Gold Hero Bags” project in celebration of Make A Difference Day. During this event, children are invited to decorate and fill bags with thank you cards, gifts and necessities to donate to men and women in the military.
  • BJ’s is also working in conjunction with KUDOS brand snack bars to sponsor a college scholarship sweepstakes. In addition to one recipient of a $10,000 college scholarship, one first prize winner from each club will receive a $25 gift card.
  • With BJ’s rewards membership, members will be offered 5 percent back on qualifying purchases. This rate is higher than the previous 2 percent reward.
Definition of Value

"We've done a lot of research on our membership - whether it’s through the traditional member intercept process or through focus groups,” Wedge says. “One of the things we’ve worked at achieving is becoming a member-centric organization.”

To ensure that merchandise is in line with customers’ needs, BJ’s says it employs regional buyers. “[The buyers] are responsible for tailoring the product selection in individual warehouse clubs to the regional and ethnic tastes of the local market,” the company explains. The company also uses checkout data to gauge and respond to member preferences.

But even with all that data and analysis, BJ’s does not presume to define value for its members. “We’ve discovered that the members determine what value means,” Wedge says. “Sometimes value means the absolute lowest price on an item. Sometimes it’s a conveniently arranged shopping aisle. Sometimes it’s clearly marked aisles, or the ease of store navigation or self-checkout service. We let them tell us.”

Following that philosophy, BJ’s gives its members choices so they can select the best value for themselves. As an example, Wedge points to salmon. “We sell a three-pound package of salmon for $3.99, which is the same as our competitors,”Wedge says. “But, some members wouldn’t buy it because it’s too much for one dinner, and they don’t like to freeze seafood. So, we decided to offer a smaller package and charge a bit more to cover the cost of packaging.”

BJ’s charges $4.49 for a smaller package of salmon, which Wedge maintains is still a better value than what a supermarket can offer because of price and because members do not deal with wasted food or freezing. Members can choose whether price or convenience is the primary value.

In other areas, such as pet food, BJ’s offers consumer-friendly sizes. “Many members could not lift the 40-pound bag of dog food we sell,”Wedge notes. “And they were willing to pay a bit more for a 10- or 20-pound bag. After listening to our members, we began offering more of conveniently packaged items.” Because BJ’s is the No. 3 player in the warehouse market, it must counter the industry trends, Wedge explains. “When all the other clubs are offering bigger and bigger sizes, we’re listening to our members.”

Private-Label Value

Some mebers value rock-bottom prices above all. For the price-savvy member, BJ’s private brands – sold under the Berkley & Jensen, Executive Choice and Rozzano labels – deliver the greatest savings to consumers. The products under these labels typically sell at 20 percent less than comparable brand items and are equal or superior in value. Wedge says, “We increased our penetration of private-label items to 5 percent of sales, up from 4 percent in 2001, ending 2002 with approximately 400 products.”

The Berkley & Jensen line has recently been expanded and is gaining recognition among shoppers. BJ’s introduced a new product to the infant care line – the Berkley & Jensen brand powdered infant formula, says Public Relations Manager Kim Walker Borst. The formula, enhanced with DHA and ARA nutrients, is important for brain and retina development in babies up to one year old.

Other new products in the Berkley & Jensen line have been introduced in the health and beauty department: cold and flu soft gels, cough suppressant, pink bismuth stomach relief and natural fiber laxative are all available. BJ’s says its Berkley & Jensen products are topshelf quality. “Items are continually tested at independent laboratories to ensure consistent, superior quality,” Borst explains.

Such standards have earned the brand recognition. Berkley & Jensen brand infant formula and baby wipes will now bear the Good Housekeeping seal, Borst says.

“The seal, America’s most trusted consumer icon, can only be earned by products that pass the review of the Good Housekeeping Institute,” she adds. Borst emphasizes that even with additional products and quality assurance efforts, the Berkley & Jensen brand still delivers value.

“The cost savings between branded and private label are tremendous,” she says. “Costs are kept down on Berkley & Jensen products by doing very little advertising. Additionally, BJ’s clubs maintain a ‘no frills’ atmosphere with cement floors, steel racks and pallets to keep costs low.”

In addition to Berkley & Jensen products, BJ’s introduced five new brands: Rozzano Italian foods, Wellsley Farms prepared foods, LivingHome housewares, Willow Lane furniture and Portsmouth Shores seasonal furniture,Wedge states.

From its efforts, BJ’s expects its corporate brands to account for 7 percent of total sales this year, and strive toward a longterm goal of 10 percent of total sales.

Quality Concern

Whether convenience or price is a member's priority, BJ’s ensures that customers don’t have to skimp on quality. “The demographics of the wholesale clubs are high-income members,” Wedge says. “They demand quality, and we make sure we provide it.”

While some vendors want to continue to distribute through higher priced channels of distribution, a growing trend recognizes that warehouse clubs are a mutually beneficial form of distribution, according to Wedge.

“Some vendors do make it challenging to source their goods, but more and more people are realizing the appeal of warehouse clubs,” he notes.

Sony and Panasonic electronics are some of the brand names Wedge cites as appearing on BJ’s warehouse floor. In men’s apparel, BJ’s members will find such brands as Nautica, Ralph Lauren and Izod.

“We have buyers in New York that try to establish a direct-buy relationship with our vendors,”Wedge explains. “Our challenge is to tell the vendor community, ‘We have a very affluent customer base and they want a great price that we can deliver beyond any other form of distribution. Let’s expend their collective buying power to benefit you and the consumers.’ We’re slowly seeing more progress in that area,”Wedge relates.

Member Rewards

BJ's has shifted from its traditional membership-acquisition approach to growth toward a focus on increasing sales from existing customers, Wedge says. “Through a complete upgrade of our customer relationship management system, we expect to more thoroughly mine the extensive data we have on our members’ purchase activity to develop targeted promotions that drive sales.”

High-volume members will receive premium-level membership,“ Rewards Membership,” that delivers a 2 percent rebate on purchases worth up to $500 per year. Annual membership at the premium level is $75, only $35 above the standard membership annual fee.

BJ’s says it carefully considers its members when implementing new programs and operations. The company says it is dedicated to improving its service to best meet members’ needs; its programs and operating initiatives reflect that dedication. Since BJ’s research indicates its customers carry a variety of credit cards, the clubs accept MasterCard and Visa on a chainwide basis. Additionally, BJ’s honors manufacturers’ coupons so customers can reap further savings.

Such strategies have shown solid results: In 2002, renewal rates for Inner Circle members were 83 percent, while business members renewed at 87 percent.

This year, BJ’s intends to retain renewal rates by accepting government-issued child tax credit checks as payment. Beginning July 25, 2003, members were able to use checks as currency or cash them at the membership services desk. “BJ’s recognizes our success is due to loyal members, so we would like to extend this convenience to show our appreciation for their continued patronage,” Wedge says. “Members who have been counting on this check to make a special, one-time purchase like a television, vacation or computer know they’ll get even more for their money at BJ’s.”

In addition, the company this year introduced its online rebate program. Rebate offers will be clearly marked on products, and a BJ’s rebate receipt will print out along with the regular receipt. Members can then log on to http://rebates.bjs.com to submit their rebate. A check will arrive in four to six weeks.

“BJ’s is excited about offering our members a quicker, more efficient way to get their money back,” says Ed Beevers, senior vice president of general merchandise. “We’re saving members time through this improved rebate system while saving them money on a wide range of products that include rebates.”

Growth Model

"During the second half of 2002, BJ's management team carried out a strategic review of the company’s competitive position and prospects for future growth and profitability,” the company reports. “Our findings led us to conclude that we needed to take action to protect our leadership position in established markets and to achieve better sales results in areas where BJ’s is less well known.”

“When we look at new markets, we look for communities with above-average income and a high percentage of homeownership,” Wedge outlines.

Homeowners constitute the majority of BJ’s retail members because storage space must be considered when purchasing in bulk, he adds.

“We also look for a reasonable separation from the competition,” Wedge continues. “We don’t want to be across the street, but we certainly don’t mind being in the same town.”

Other information BJ’s factors into its decision to break into a new market include the data it derives from its software models. “We select various sites and gauge the traffic network, how far we are from our target customers and the driving times at peak hours,” he notes.

“We also model expansion strategies from our previously established clubs,”Wedge continues. “We note analogous characteristics and historical trends from other clubs and really do a good job of modeling the sales and profit potential.”

However,Wedge points out that BJ’s strategy for the next few years is to grow within existing geographic footprints. “We’re in the process of building out our new Cleveland and Atlanta markets,” he says. “And we will continue to fill in the gaps in our more established areas.”

Cluster Strategy

"We believe that there is still abundant expansion opportunity in our established BJ’s markets where we achieve our highest returns,”Wedge summarizes. “Our plan for at least the next two years is to confine our club openings to these markets and to our newer markets in the Southeast.”

This method will allow the company to achieve the critical mass of club locations to generate efficiencies in distribution, advertising and management,Wedge says.

BJ’s cluster approach to clubs also enables the company to build its name recognition and maximize management support, distribution and marketing activities. “Overall, we believe that the warehouse club business has an awful lot of room to grow,” Wedge says. “And, we are encouraged at how close we can put our clubs together.”

This approach does not divide the pie, so to speak, but rather expands the pie,Wedge says. “We take share from our competition and from less efficient forms of retail, not our own existing clubs,” he stresses. “The closer our members live in relation to the clubs, the more frequently they visit. From every bit of research, we see that members love shopping at the clubs.”

With a continued emphasis on competitive pricing, merchandise quality and targeting inventory, BJ’s hopes to see gains in the coming year. “We’re growing our core business,”Wedge says. BJ’s says its strategy of operating a higher density of clubs per market than its competitors “leverages [its] investments in logistics, store operations and marketing, and increases visibility and name recognition.”

In the last three years, BJ’s has grown its square footage by about 10 percent per year. Since 1993, BJ’s has opened up to 13 clubs per year. Average full-sized club sales have grown every year, from $46.7 million in 1993 to $56.0 million of the same stores in 2002, the company cites. In the first year, a new store can expect to average between $29.7 and $42.9 million in yearly sales, depending on the population density of the area.

Warehouse Logistics

BJ's buys most of its merchandiser from manufacturers for shipment either to a BJ’s cross-dock facility or directly to BJ’s clubs. This eliminates distributors’ commissions and the costs of storing merchandise in central distribution facilities, the company explains.

BJ’s also works closely with manufacturers to minimize merchandise handling. “Most merchandise is pre-marked by the manufacturer so that it does not require ticketing at the club,” BJ’s explains. Merchandise is displayed on pallets, eliminating the need for additional stocking labor. Racks above the sales floor can hold back-up merchandise.

High sales volumes and rapid inventory turnover enable BJ’s to generate cash from the sale of a large percentage of its inventory before paying merchandise vendors. Therefore, the company explains, a large portion of the inventory is financed through vendor payment terms, as opposed to working capital.

Although BJ’s clubs deliver savings, opening a new store comes with several major expenses. Construction costs for a full-size store range from $5 million to $7 million. Depending on the location, land acquisition can cost more than $3 million. Investing in fixtures, equipment and inventory all factor into BJ’s pre-opening costs, the company explains.

BJ’s warehouses average 111,000 square feet and are laid out in “big box” style. Smaller clubs, averaging 69,000 square feet, are designed to serve markets with a smaller population, the company explains.

Located in freestanding locations and shopping centers, BJ’s clubs require eight to 11 acres of land. The average size of a BJ’s club is approximately 10 to 20 percent smaller than competing wholesale clubs, which allows BJ’s break-even point to remain one of the lowest in the industry, the company says.

The smaller layout reduces site development and construction costs, as well as offers the company greater flexibility in site selection.

BJ’s connects this point to one of its customer service objectives: to position its clubs in areas that are convenient to residential shoppers.

Reduced operating costs and spatial needs also allow BJ’s to have a higher density of clubs per market than its competition. “This strategy leverages our investments in logistics, store operations and marketing, and increases visibility and name recognition,” the company relates.

In 2002, BJ’s began to address its clubs’ layout. “This year, we refurbished a total of 30 clubs in 2003 by upgrading club décor, relocating our expanded health and beauty aids department to the front of the club, and improving our presentation in a number of fresh food departments including deli, produce and bakery,” Wedge says.

“We are also looking at renovating or relocating some of our older clubs,” he adds.

Cross-Dock Facilities

The crux of BJ's efficiencies lies in its cross-dock facilities. “The cornerstone of BJ’s low cost structure is its highly efficient logistics system,” the company says. “Approximately 70 percent of our merchandise is received, routed and shipped to the clubs through three cross-dock distribution centers, generally within a 24-hour time period.”

Through BJ’s three cross-dock facilities – located in Franklin, Mass.; Florence, N.J.; and its newest in Jacksonville, Fla. – purchases are cycled through, truckload quantity shipments are assessed and then allocated to individual clubs on the same day. Wedge explains that a cross-dock distribution center is vastly different from a warehouse. “We have T-shaped buildings with inbound and outbound doors on opposite sites,” he describes. “We split the merchandise onto pallets, load up the trucks and move them out to the clubs that day.”

He boasts that the distribution centers begin and end the day empty. “Goods received one morning are out for sale in our clubs the next day,” he comments. “There is no inventory storage at the distribution centers. We keep a just-in-time flow moving through the docks. It’s like an airline hub.”

The centers are equipped with state-of-the-art technology, including an electronic data interchange, linked to the key vendors. “This speeds up the replenishment process,”Wedge says. “We also just implemented a new inventory management system that allows our inventory specialists to forecast demands and seasonal curves to get the inventory at the right place at the right time.”

BJ’s uses a highly integrated network, from its point-of-sale registers to its vendors’ headquarters,Wedge explains. “Crossdocks are much more efficient than a warehouse distribution center.”

However, as efficient as BJ’s has made its process, if the crossdocks are located too far from clubs, the trucks’ travel time will foil the next day’s shipment arrival.

Situational Centers

Such concern explains the conveniently situation centers. The Haines Industrial Business Center, located in Florence, N.J, is home to one of BJ’s three distribution centers.

Strategically positioned between Burlington and Florence Township – and 40 minutes north of the center of Philadelphia – the distribution center is well positioned to service BJ’s 15 New Jersey locations, 31 New York locations and 11 Pennsylvania locations.

According to Whitesell Construction Co., the builder, the industrial center is designed with state-of-the-art warehousing and distribution facilities from 80,000 square feet and up. BJ’s facility totals more than 300,000 total square feet. “Whitesell buildings under construction at the Haines Industrial Center have been designed to accommodate the manufacturing, warehousing, distribution or light assembly operations of the world’s most widely recognized corporate entities,” Whitesell says.

The Haines Center enjoys access to the Northeast’s interstate highway system, allowing BJ’s to efficiently deliver its shipments to clubs in the region.

“Regularly scheduled rail service and direct access to New Jersey/Pennsylvania turnpike connector give [BJ’s distribution center] unimpeded connections to the nation’s interstate highway system and its national rail network,” Whitesell says. Additionally, metropolitan New York and New England are within hours of the facility.

The newest 480,000-square-foot distribution center is located in Jacksonville, and became operational in April 2003. The Jacksonville Economic Development Commission literally paved the way for BJ’s by funding a $3.9 million road improvement project.

In 2001, the city received a $1.3 million loan and sought an additional $2 million state road grant. The rest of the project was funded by Castco Southeast developers.

“We did a regional search for the distribution center,” said Drew Smith, executive vice president of Castco. The company looked into sites in North and South Carolina, Georgia and Florida before settling on Jacksonville.

BJ’s says it expects the site could eventually grow to 1.5 million square feet.

A Look Back

In the 2002 annual report to shareholders, Wedge summarized the company’s progress and set goals for the future.

“We opened 13 clubs, entering the Atlanta market with four new prototype clubs,” Wedge said. “Other new clubs in 2002 included three in New York, two in North Carolina, and one each in Virginia, Maryland, New Jersey and New Hampshire.”

Also in 2002, 13 new gas stations were added, bringing discount fuel service to nearly half of the chain. Clubs that have added the gas stations report that members have been lining up to take advantage of the service.

Pursuing new markets, four Atlanta clubs and three Massachusetts clubs tested pharmacy services.

“During the second half of 2002, BJ’s senior management team performed a comprehensive strategic analysis of the company’s current position within the warehouse club industry, as well as its sales and earning prospects for the future,” Wedge said. “On the basis of that analysis, we affirmed our commitment to a business model based, in part, on the following longterm objectives:

  • To achieve annual comparable club sales growth of three to five percent.
  • To grow square footage by up to 10 percent annually.
  • To increase earnings per share at a compounded annual percentage growth rate in the range of 10 to 15 percent.”

Wedge says that to support these objectives, BJ’s has “made new investments in merchandising, marketing, technology and club appearance that will continue throughout 2003.”

Spin-off Store

BJ's bright outlook had its roots in an unprofitable parent company. BJ’s story begins with a Mass.-company called Zayre Corp., founded in 1956. The company began as a discount department store, adding TJ Maxx stores to its profile in the ‘70s. In another cost-saving concept, Zayre began pioneering the concept of wholesale club shopping in the Northeast, and opened its first club BJ’s, in Medford, Mass., in 1984.

Zayre’s slipping department store sales led Ames department stores to buy the company in 1988, while TJX took ownership of TJ Maxx and BJ’s. However, BJ’s did not remain under TJX’s wing for long; in 1989, BJ’s and Zayre’s HomeBase stores were merged into Waban Inc., a Natick, Mass.-based company.

This shift led the way to BJ’s expansion in markets further east, the company says. BJ’s began to focus on consumer members, adding products and new departments – and reaped the benefits of solid growth.

Not only was BJ’s expected to experience stock growth and expansion, the clubs were gaining recognition as formidable competitors in the market, analysts at AG Edward & Sons Inc. explained in 1997.

BJ’s strong growth led to yet another change: In 1997, BJ’s Wholesale Club Inc. became a separate entity from Waban. “It’s proven out of the box that this was the right thing to do,” said Don Spindel, retail analyst with Edward & Sons, just after the separation. “BJ’s had been the fastest-growing component of Waban. Uncoupled from Waban, BJ’s has the potential to grow its earnings at 15 percent or greater.”

Gone West

Echoing its commitment to expand, BJ’s ventured west in 2002. The company opened locations in the Atlanta market, with plans to expand toward Texas.

“Atlanta represented a gap in our coverage between Florida and the Northeast,” says George Drummey, senior vice president and director of real estate and development. To support expansion, BJ’s built its third distribution center in Jacksonville, Fla., which currently employs more than 200 people.

However, according to Wayne Hood, analyst with Prudential Securities, warehouse clubs may be reaching their limit. “Our analysis points to an increasing number of three-player markets, reduced or peaking new store productivity, discounted or eliminated membership fees, more openings in existing markets to protect market share and peaking margins over the next several years,” he stated in a 2002 report.

Drummey, however, notes that expansion is in BJ’s future. The company says it is committed to growth, both through acquisitions and organically.

Community Business

The company says it remains committed to giving back to local neighborhoods.

“BJ’s strongly believes in our commitment to be responsible corporate citizens in the communities we serve,” says Borst.

“In addition to supporting the United Way by contributing thousands of dollars each year, BJ’s has implemented three highly successful programs with the goal of supporting local schools and helping students learn the importance of community service.”

To that end, BJ’s has worked with Adopt-A-School to form comprehensive relationships with local students, faculty, parents and administrators. Local BJ’s clubs provide fundraising assistance, product donations, volunteer support and awards programs to schools within the community.

BJ’s efforts with Adopt-A-School have been recognized by America’s Promise, an organization founded by Colin Powell and dedicated to building the nation’s youth.

Students Making a Road to Service (S.M.A.R.T.S) is BJ’s community program designed to work hand-in-hand with Adopt-ASchool initiatives. “Every spring, BJ’s challenges its Adopt-ASchool partners to make a difference by taking on a community project,” Borst says.

Each school receives $200 worth of products from BJ’s to use in its service project. From cleaning up a community park, delivering goods to a homeless shelter or holding a fundraiser, BJ’s encourages its Adopt-A-School students to reach out to the community. A monetary award is granted to participating schools upon completion of its community service endeavor, Borst adds.

BJ’s Buddies, another program dedicated to empowering children, is a series of community-oriented projects. BJ’s hosts the events, open to all children in the community, by providing ideas and materials for a service activity. BJ’s guides the project, which takes place at a BJ’s club or in the community.

“BJ’s has been involved with numerous schools and thousands of kids in hundreds of community service projects,” Borst reports.

Thinking Outside of the Box

One instance of partnerships BJ's forges with the communities where it operates is a program called Belonging Boxes at Franklin Elementary School in Brockton, Mass.

For 2002-2003, the Stoughton BJ’s Wholesale Club adopted Franklin and awarded the school with $1,000. The program was designed to benefit foster children in the community during times of transition.

As part of the initiative, the school children decorated shoeboxes with colorful construction paper and artistic designs. Inside the boxes, the children collected donated toiletries and comfort items like Beanie Babies and toys to be given to foster children in their state. Each box also contained an empty photo album for the foster children to fill in and a handwritten letter from the student who decorated their box.

Once filled and decorated, BJ’s employees distributed the boxes to foster children through the state Department of Social Services. “The look on the foster children’s faces when they get these boxes is wonderful,” BJ’s Marketing Manager Stephen Webb told 60 Franklin School third graders when he came to pick up their boxes. “You gave them your love in these boxes and they will know that.

“Knowing that someone cares about you makes a difference in your life, and for some of these children, you are the person who cares about them. That’s what life is all about – helping each other. Sometimes the littlest thing means the most.”

The goal was for the students to realize that not everyone is as well off and fortunate as they are, said Kathryn Redden, a third grade teaching assistant at the Franklin School.

“They are called ‘Belonging Boxes’ because when the foster children need to go from home to home, they don’t always get to take things with them,” Redden said. “These boxes belong to them and them alone; they can take them wherever they go. I’m sure it would be hard for an 11-year-old to say to a stranger, ‘Can you buy me this or that,’ and now they won’t have to, they’ll have what they need in the box.”

Environmental Savings

BJ's dedication to its surrounding communities extends to its support of environmentally beneficial programs. Since 1998, the company has been an Energy Star partner – an EPA-backed program aiming to help businesses and individuals protect the environment through energy efficiency programs. EPA notes that last year alone, with the help of Energy Star, the United States saved enough energy to power 15 million homes and avoided greenhouse gas emissions equivalent to those from 14 million cars, while also saving $7 billion.

Founded in 1992, EPA first used Energy Star as a voluntary labeling program to identify and promote energy-efficient products to reduce greenhouse emissions. Since then, the organization has partnered with more than 7,000 private and public sector companies to provide technical information and tools to enable businesses to form best management practices. Energy Star often partners with businesses, such as BJ’s, to form a strategic approach to energy management. The organization has found that this not only measures energy performance, but also improves a company’s bottom line.

“Over the past decade, Energy Star has been a driving force behind the more widespread use of such technological innovations as LED traffic lights, efficient fluorescent lighting, power management systems for office equipment and low standby energy use,” the organization says.

BJ’s is among the companies that have implemented such environmentally sensitive innovations. Its first major project was established in 1999, when it created the largest solar facility in Pennsylvania. Partnering with Green Mountain Energy and Sun Power Electric, BJ’s installed 1,400 solar panels on the roof of its Conshohocken, Pa., location. This 43kW solar array now produces 50,000 kWh of clean electricity each year, and will continue doing so for 20 years.

“Pennsylvanians who have chosen to buy electricity featuring renewable resources can congratulate themselves because they are making new cleaner energy a reality in the commonwealth,” said Kevin Hartley, chief marketing officer for Green Mountain, in a statement. “Pennsylvania is one of the first two states in which we offer cleaner electricity. Making electricity is the largest industrial sources of air pollution, and our customers have taken advantage of the opportunity provided by electric choice to help fight air pollution and protect the planet.”

BJ’s solar array was the first source of new renewable energy in Pennsylvania and was built as a result of Green Mountain’s push for cleaner power in the state. Green Mountain is a marketer of cleaner electricity generated from wind, small-scale hydro, biomass and/or geothermal means. The company notes that all of Green Mountain’s energy blends are dramatically cleaner than traditional Pennsylvania power.

“Through our partnership with Green Mountain, we’re turning BJ’s rooftop into a carpet of clean energy, combining advanced technology and customer demand to meet the global environmental challenge,” said Steve Cowell, president of Sun Power Electric, in a statement. “This large scale project will help to lower Photovoltaic’s (PV) cost and expand the opportunity to generate clean PV power.”

BJ’s was interested in offering its rooftops for this project to show its continuous commitment to quality, especially toward the environment. “We’re pleased to participate in this effort to create clean energy,” said Richard Andelman, BJ’s energy systems manager, in a statement. “By using our rooftops as a location for solar electric generating facilities, we are putting latent space to use for a great purpose.”

BJ’s also participated in the building of the first solar electric facility under New Jersey’s Clean Energy Program in 2002. Again partnering with Green Mountain and Sun Power Electric, the rooftop of BJ’s in Deptford, N.J., was equipped with 1,330 solar electric panels; a special public education display at the store’s entrance was also built.

This is a 52-kilowatt system, and comprises an array of 2-foot by 4-foot solar electric panels, taking up more than 12,000 square feet on the store roof, which the company equates to being enough to fill the Phillies’ infield at Veterans Stadium. “Sun Power is proud to play a role in New Jersey’s competitive energy market by working with Green Mountain Energy Co. and BJ’s Wholesale Club to build this new solar plant,” Cowell said. “This project demonstrates how energy choice can begin to change the way power is made, and stimulate partnerships that help the environment.”

At the entrance of the store, an electronic display unit features a real-time readout of the accumulated carbon dioxide emissions avoided by the solar panels. Carbon dioxide is a greenhouse gas that contributes to global warming.

In total, BJ’s has now installed hundreds of solar panels on the roofs of its clubs throughout New York, Massachusetts, Rhode Island, Pennsylvania and New Jersey. The company notes that it has also reduced energy use and prevented air pollution emissions through the voluntary installation of energyefficient lighting and building technologies. Because of such measures, the EPA named BJ’s an Energy Star Partner of the Year in 2002. “BJ’s investments in energy-efficient lighting and building technologies result in an annual cost savings of approximately $5.8 million or 73 kWh in reduced energy consumption,” the company says.

Digital Operations

When it comes to efficiency - environmental or operational – there isn’t an industry that couldn’t use more of it in its day-to-day functions. To enhance operational efficiency, in April 2002, BJ’s implemented several enterprise mobility solutions from Symbol Technologies Inc. Installing a chain-wide wireless local area network (WLAN) allowed BJ’s to better manage its inventory and price verification, the company says.

Additionally, a wireless voice-over IP (VOIP) phone system integrated with the WLAN provides store managers the ability to improve customer service and in-store efficiencies. “We want our [store] managers on the floor and not sitting behind a desk,” Tom McMahon, vice president and manager of system services, said.

To optimize employees’ time for tasks and customer servicing, wireless scales, connected to the store’s price file via the WLAN, allow further flexibility and improved management of in-store operations. “Symbol is providing a complete mobile solution that equates to enhanced customer service for BJ’s Wholesale Club shoppers,” McMahon said at the time of the upgrades. “[We’ve put] in place a wireless network tied to mobile wireless scanning computers and wireless Internet telephony that allows us to consider and implement future wireless applications to capture and manage information from anywhere in the store.”

After Symbol completed the rollout of the first phase of its VOIP technology, BJ’s converged its wireless data and VOIP technologies to streamline the entire communication process, from management down to the customer, McMahon added.

Richard Bravman, Symbol’s president and COO, calls BJ’s a pioneering retailer that Symbol has developed solutions with for many years. He added that the technology BJ’s has implemented has yielded a payoff for its customers.

“For BJ’s Wholesale, this solution serves as an excellent management tool,” he said at the time of phase-one rollout. “Not only are managers capable of instant communication with fellow store associates, they can communicate with customers calling from outside the club as well.

The installation of both voice over IP and wireless technologies at BJ’s marks a big step for Symbol in the retail arena, and also attests to the growing importance of wireless and synchronized communication in this market.”

Symbol’s bar code scanning is also at work throughout BJ’s. Symbol cordless bar code scanners are used at the club’s point of sale to capture UPC checkout information on large, heavy or bulky items, as well as in the backroom, for speedy and accurate receiving as merchandise is delivered and accepted. Symbol VS 4000 imagers serve double duty for new member registration photo-capture and to read bar codes for returns or refunds.

The company performs further analysis on sales data, which is reviewed on a daily basis to forecast product orders. Details are important when dealing with large quantities of products; therefore, BJ’s detailed purchasing data enables the buying staff and store managers to track changes in the members’ buying behavior with increased accuracy.

Also, detailed shrinkage information allows management to quickly identify security problems and formulate action plans.

It’s a Mystery

To ensure that its customer service remains top-of-the- line, BJ’s worked with Customer Perspectives, a company offering mystery shop services. According to Customer Perspectives, “customer relationship management recognizes that customers are the foundation of a business’ success and that good customer service is the key to those customers. Satisfied customers will tell an average of five people about their positive experiences in your stores; conversely, dissatisfied customers will tell an average of 10 people about their bad experiences.”

Identifying and correcting customer service issues allows BJ’s to remain competitive. By employing secret shopping services, BJ’s can assess training needs, incentive programs, management operations and receive recommendations for service improvements.

“The information we have received in these reports has been instrumental in identifying those clubs whose training efforts have been successful and those that have not,” BJ’s says. “We have also been able to specifically pinpoint which areas of training need to be strengthened, which are working well. While BJ’s no longer works with Customer Perspectives, the services and information provided enabled BJ’s to accurately assess its members’ shopping experiences.

Do It Yourself

Customers also are reaping the benefits of BJ's technological advancements.

According to the company, BJ’s was the first warehouse club operator to use scanning devices that work in conjunction with electronic point-of-sale terminals. BJ’s is also equipped with state-of-the art register printers.

This technology “enhances the efficiency of the checkout process,” the company says. “[We have also] implemented a new inventory replenishment system and installed self-checkout technology in 40 clubs.”

With BJ’s self-checkout option – an automated checkout machine (ACM) provided by Productivity Solutions Inc. (PSI) – members can scan their items without a cashier present and pay with cash, credit card or debit card. While the service is still being testing, Wedge sees its benefit. “Based on the ACM’s proven capability to handle ‘warehouse-sized’ orders, we [selected] the ACM to [operate] the self-checkout option for our members,” he states. “Self-checkout provides another convenience for our members while reinforcing our low-price image.”

Before selecting PSI as its ACM provider, BJ’s surveyed multiple vendors. “We rated each self-checkout vendor on 47 distinct factors, including customer usage, ease of use, reliability and security,” Wedge explained. “PSI rated higher or equal in 44 of 47 [criteria]. Selecting PSI was the right choice for us. More importantly, our club members will now have a choice to use a fast, convenient, easy-to-use self-checkout option every time they shop at BJ’s.”

The ACM modular product line is designed in both conveyorbased scan and self-checkout solutions. The patented conveyorbased lane design features a full-color, touch-sensitive instruction screen for a customer friendly way to ring up orders. Additionally, customers can opt for the full-size order lane or express lane when ready to check out. This demonstrates ACM’s flexibility in a variety of retail environments, PSI noted.

“BJ’s is a leader in leveraging cutting-edge technology in the warehouse club format,” Bruce Failing, CEO of PSI, said. “The ACM’s ease of use, multi-faceted security features, proven performance and reliability makes it an ideal choice for BJ’s.”

This year, BJ’s plans to increase technology initiatives by 50 percent with an additional 20 self-checkout lanes, a new warehouse management system for cross-dock operations, and upgrades to labor scheduling software and membership feedback programs. “All [of these initiatives] are geared toward creating operating leverage and improving our members’ shopping experience,”Wedge says.

Industry Trend or Turning Point?

BJ's has introduced its self-checkout service to select locations, as have other grocery retailers. Katy Wolfrom from Business Solutions magazine’s May 2001 issue broke down the appeal of the self-checkout service and forecasts the impact it will have on the industry.

In 1996, Optimal Robotics introduced its self-checkout system to the supermarket industry,Wolfrom reports. In 2001, the company installed more than 1,000 of its systems nationwide. It seems that this trend will continue.

“Americans have become accustomed to serving themselves,” Wolfrom says. “We enjoy the convenience of banking at the ATM and filling up at gas stations where we can pay at the pump. People get frustrated when they have to wait in line.” The American do-it-yourself culture seems to lend itself to self-checkout service. However, the industry did not embrace the technology with open arms.

“When self-checkout systems were introduced, the industry was skeptical,” said Elliot Brenhouse, senior vice president and general manager of Optimal Robotics in Business Solutions. “Stores wanted to see how customers would react to it.” As supermarkets were experimenting with the service, Optimal Robotics continued installing terminals in more than 42 states.

Wolfram credits this surge in popularity to the customers’ desire to have control over their purchase. “Today’s consumers are given more and more opportunities to be in control of their transactions,” she notes. “In fact, they are demanding it.”

BJ’s ACM provider, PSI, also reported similar findings. In its research, PSI discovered one-third of customers chose the store based on self-checkout availability. Nearly 50 percent of consumers surveyed use ACMs regularly, and 20 percent use ACMs exclusively. Consumers described ACMs as faster, easier and more convenient than conventional lanes, according to PSI, and said it improves overall shopping experience.

Strength in Numbers

While BJ's must benchmark against the competition, the warehouse club industry has proven to be resilient. Two years ago, during a severe sales slump, warehouse clubs remained strong.

According to Business Week’s July 2001 issue, “With most retailers enduring the worst sales drought in a decade, [warehouse] clubs are still packing them in. The clubs’well-honed formula of ultra-low prices and surprise deals on selected upscale merchandise is helping [the clubs] steal business from just about every other retailing segment.”

Yet, a stable market is not encouraging the leaders in the industry to rest easy. Now the clubs are seeking to press their advantage and pursue expansion and renovation plans, Business Week reported.

On the Horizon

Last year, David Becker, Vice President and portfolio manager and Northern Oak Capital Management Inc., outlined BJ’s position in the market and its direction for the future. He noted that BJ’s is in a fast-growing sector and can continue to flourish through its geographic reach and private label brand. Its stable business model and strong cash flows make it appealing for investors.

“This sector is stealing market share from traditional retailers as consumers are more attracted to low prices in the slowing economy,” Becker reported.

He estimates BJ’s will achieve a rate of earnings growth in the mid-teens this year and next, as well as a strong free cash flow which will enable it to continue the share buy-back program. “It also has a very low debt level,” Becker continued, “which is comforting at a time like this.”

Battle of the Buck

Adding to the company's enviable position, BJ's has strategically avoided the price war between other wholesale clubs by focusing on its individual members, according to the company. “We had our best two months of the year while our competitors were battling it out for price leadership,” Wedge explained. “Not that we feel complacent, but we do feel good that our best numbers have been developed while that was going on.”

Instead of recruiting membership from small-business customers as its competitors do, BJ’s devotes its energies to retail customers and thereby avoids the wholesale battlefield. Additionally, only about 20 percent of BJ’s merchandise overlaps with competing clubs,Wedge noted.

Also faring well for BJ’s, its store-improvement efforts are nearly complete and only slight year-over-year increases in costs are expected, the company reports. Inventory has remained well controlled as the company enters the fall and holiday season.

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