The United States has exported many concepts to the rest of the world over the years: blue jeans, fast-food hamburger joints and now warehouse club stores. PriceSmart is a warehouse club based in San Diego but with no retail locations in the United States. This club concept has taken root in 13 countries in Central and South America and the Caribbean and is seeing consistent and steady growth.
PriceSmart offers an array of products, from electronics and furniture to fresh produce and baked goods, all of which can be accessed through one annual payment of a membership fee. Members recuperate this fee through their savings on purchases.
“The value proposition comes from the quality and the pricing, but also from the large sizes,” explains Frank Diaz, senior vice president of distribution and logistics. “Customers get a lot more for their money.”
PriceSmart has seen its business practically double in the last four years, according to Diaz. “We have been able to see some solid results in terms of sales and also getting solid returns on assets,” he explains. “As of July of this year, we had a 20 percent growth [in 2012]. We are very pleased.”
The latest additions to the PriceSmart family are three Clubs in Colombia, the company’s first incursion in South America, with the last one expected to open in 2013.
The company combines U.S. products and local ones. Although the items may come from different places, they all have one thing in common: quality. “What puts everything on the same playing field is the quality,” Diaz explains. “We try to get the best products for the best price available. So, we manage a limited number of items – about 2,500 – so we have a value proposition.”
To keep prices low for its - members, every aspect of the supply chain has to be evaluated to ensure maximum efficiency. The distance between PriceSmart’s distribution hub in Miami and the retail sites presents some challenges that Díaz calls “unique.”
“Traditional retailers in the U.S. will have distribution centers and depots 100 to 200 miles away from their stores,” Díaz explains. “Our average distance is 500 nautical miles, which makes movement slower and more complex.”
As many as 250 shipments leave Miami each week. “I have 13 individual countries’ requirements that I have to take into consideration, so it makes it a little interesting,” Diaz explains.
“The international trade compliance aspect of our business forces us to have a strong focus on process, accuracy and execution,” he adds. “It also forces us to have a very integrated supply chain.”
To ensure that the product is shipped in a fast, effective manner, the hub in Miami employs a cross-dock concept. PriceSmart’s vendors ship their merchandise already palletized and ready to go. “Pallets will sit in our facilities for an average of three to four days, not longer,” Diaz explains. The merchandise is shipped in containers that are delivered directly to the stores.
Diaz says PriceSmart’s distribution system is working well. “We measure what we call network performance, a plan that we establish to determine how long it’s going to take the merchandise to arrive to its destination,” he explains, “We have been in the 98 percent range on-time delivery in the last couple of years.”
It is all about organization. “When you have the right players, the right plan and the right execution, reliability comes,” Díaz explains. PriceSmart has the right team to expand its warehouse concept for many years to come.
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