Every day value. It’s the straightforward promise wholesale clubs make to consumers: purchase a membership and you’ll have access to merchandise at every day low prices.
At Dedham, Mass.-based BJ’s Wholesale Club, it’s a promise that wasn’t so much forgotten as minimized. A few years ago the 177-location, 16-state club developed a Member Insight group to leverage the plethora of data BJ’s collects on its patrons in an effort to create a better member experience.
It was a sound idea, but when Member Insight began driving merchandising decisions based on individual member segments, it led BJ’s away from the wholesale club promise it makes to all its members. The company felt the full impact in 2006 with lower-than-planned sales and merchandise margins.
Herb Zarkin, named CEO in February 2007, put it plainly in the opening line of his letter to shareholders in the company’s 2006 Annual Report: “There is no question that 2006 was a difficult year for BJ’s Wholesale Club.”
But in less than two years under Zarkin and new president and COO Laura Sen, BJ’s is once again fulfilling the wholesale club promise. A three-pronged turnaround strategy has put the company back on track, enabling BJ’s to take advantage of a consumer base hungry for discounts and post month-after-month double-digit sales increases.
Back to basics
For Zarkin, becoming CEO was a return to a more active role in the company. He began his retail career with Zayre Corp., the company that founded BJ’s in 1984. After serving as president of BJ’s from 1990 until 1993 and president of BJ’s parent company Waban Inc. from 1993 to 1997, Zarkin was elected chairman of BJ’s board of directors.
Back in the chief executive’s chair, Zarkin’s first step in righting the ship was to appoint a new senior management team led by Laura Sen. Like Zarkin, Sen’s BJ’s experience dated back to the company’s founding. And also like Zarkin, Sen knew that BJ’s would get back on track by getting back to wholesale club basics.
“That was the goal, to get back to basics and get everyone in the company on the same page,” Sen said. “Our people have deep expertise in the business and have passion around it. Getting back to basics wasn’t a tough message to deliver because it really resonated with them.”
Sen set forward three basic guidelines to help reinstitute some of the fundamentals that made BJ’s a Fortune 500 company: provide every day value, generate merchandise excitement, and make the supply chain as efficient as possible. “It all starts with the promise to our members when we sell a membership,” she said. “You pay to shop with us, we should be giving you great values every day.”
The promise became difficult to fulfill when the now disbanded Member Insight team used member data to segmented the BJ’s member base into small slivers—pet owners, moms with babies, golden oldies, and on and on. The company began merchandising to each segment individually with products and promotions, adding a unnecessary levels of complexity and inefficiency. As a result, every day prices on commodities like milk, eggs, butter, and chicken, began to rise.
It’s those basics that Sen targeted first in her effort to create every day value. It took a substantial investment by BJ’s, but one Sen said was well worth the cost. “These things signal your members that BJ’s is a great place to shop. We weren’t right in this critical area before, so we made sure to make every day value the first move and get it right.”
Creating excitement
As pricing returned to every day value levels, the company simultaneously worked to create merchandise excitement. “People typically don’t like to go grocery shopping,” Sen said. “It’s our job to create merchandise excitement in all areas of the club to help make shopping an enjoyable experience.”
Pricing served as one component in that effort and selection served as the other. The company began offering a broader array of products in multiple sizes. Most notably, BJ’s began stocking more top quality organic groceries, helping consumers eat the healthy foods they want without breaking the bank.
For example, six Stonyfield Farms 10 oz. Organic Smoothies now sold at BJ’s for $6.99 typically sell at the supermarket for more than $10. “We’ve introduced new items and we’ve generated that excitement we’re looking for,” Sen said. “We take pride in being able to provide our members with additional organic and natural food selections on a regular basis.”
Efficiency engine
The secret sauce for any wholesale club is efficiency. To Sen, that means leaving no stone left unturned in the supply chain, and making sure the entire organization takes the same approach.
“There are so many efficiencies that go into the wholesale club supply chain,” she said. “We had to make sure we educated all of our newer people about those efficiencies. We had to go back to school with those people because it hadn’t been a priority and there were efficiencies out there we weren’t taking advantage of.”
Once the message was cemented inhouse, BJ’s began to reach out to all of its suppliers with the same efficiency method. The company went so far as to have a two-day offsite meeting with one vendor on efficiency in the supply chain. And it wasn’t just BJ’s preaching efficiency; the company actively engaged its vendors and worked collaboratively on mutually beneficial projects.
“The message was growth, growth, growth,” Sen said. “That’s what they want and that’s what we want, and the only way to get there is to do it together. We asked, what are your big ideas? What can we do to shorten lead times, reduce transportation costs, and lower inventories? What do you have to give, and what do we have to give?”
It was the final piece of a year’s worth of work in 2007 that led to a dramatic turnaround in 2008. The numbers tell the story in more detail: in June 2007, BJ’s generated $887 million in sales; in June 2008, that number jumped 18.8% to $1.05 billion. And with consumers flocking to wholesale clubs in record numbers, it doesn’t look like BJ’s will be slowing down anytime soon.
“We did all of this rebuilding work last year to correct ourselves—whether there was or wasn’t going to be inflation— to be able to deliver better value,” Sen said. “We’ve corrected our fundamentals, increased our selection, and gained efficiency. Our goal now is to continue to grow and create a sustainable future for our team members and shareholders.”
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