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Wcf (276) December 30, 2008


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Wcf (276) December 30, 2008

  1. 1. December 30, 2008 WAREHOUSE CLUB FOCUS Volume 12, Issue 276 • Ancillary, Member Services—5. • Costco Cookbook, Almanac—9. 1 • Costco 10K Information—10. For 12 years, your best source for information about the clubs. Costco Fiscal Year Data Each year, four issues of Warehouse Club Focus concentrate on club industry data that provides additional insight and information into the operations of BJ’s, Costco and Sam’s Club. The issues appear from December to April and feature Costco’s fiscal year information in December, calendar year industry sales and location data in January and BJ’s and Sam’s fiscal year information in April. Costco’s fiscal year ends in August and BJ’s and Sam’s fiscal years end in January. Costco typically files its annual report (10K) with the Securities and Exchange Commission in November and BJ’s and Sam’s file in April. Therefore, WCF reports on fiscal year data at different times. In this issue, Costco’s fiscal year information includes detailed sales data from the most recent five years. This article contains two sections: data background and data explanation. Data Background The charts on pages two and three provide detailed fiscal year information for Costco from 2004 to 2008. Most of the information comes from Costco’s annual report (10K). However, some of the information is calculated by WCF using corporately reported data. Both charts have a column titled CAGR which represents the average annual growth rate for a particular line item from 2004 to 2008. For example, from 2004 to 2008, Costco’s merchandise sales (the first line item in the chart on page two) increased from $47.15 billion in 2004 to $70.98 billion in 2008. This represented average growth of 11% per year. There are a number of line items that do not have an annualized growth rate because the growth rate would not apply, data was not available for all five years or the data would be redundant. Data Explanation The following is an explanation of the data found in each section of the charts on pages two and three: Income (million) - The data in this section is from Costco’s income statement. The sales information includes all Costco locations, except its Mexican clubs. Costco’s Mexican locations are operated as part of a joint venture with Mexican retailer Controladora Comercial Mexicana. Costco owns 50% of the joint venture and under U.S. accounting principles, the profit or loss from joint ventures is consolidated in the “other income, expense” line of a company’s income statement. From 2004 to 2008, membership revenues exceeded net income. This is the key component of Costco’s (as well as BJ’s and Sam’s) business model that sets it apart from its retail competitors. Costco’s gross margin dollars essentially cover the company’s buying and operating expenses with membership fees, therefore, representing the bulk of its net profits. Membership revenues grew at an average rate of 12% annually which is higher than the yearly growth rate for merchandise sales (11%), operating income (9%) and net income (10%). This clearly shows that Costco’s business model of low prices on high quality merchandise is resonating with existing and potential members. Margins – This section includes merchandise, membership and overall gross margins. It also displays the percentage that SGA expenses, operating income and net income represent of merchandise sales. From 2004 to 2008, Costco’s merchandise gross margins remained within a tight 20 basis point range of 10.52% to 10.72%. Costco’s overall gross margins, when membership is included, ranged from 12.56% to 12.76%.
  2. 2. FEATURE 2 December 30, 2008 Comparable Sales – This section shows comparable sales data for domestic locations, international clubs and worldwide operations. The international comparable sales data is reported in U.S. dollars. Club Locations - The information in this area is divided into two sections. The top three line items show the total number of new clubs, the total number of locations closed and the resulting number of locations at the end of a fiscal year. The top three lines do not include Fiscal Year ends August CAGR 2008 2007 2006 2005 2004 opening data from Costco’s Mexican 11% $70,977 $63,088 $58,963 $51,862 $47,145 Merchandise Sales operation. 12% $1,506 $1,313 $1,188 $1,073 $961 Membership Fees Income (million) Total Revenue 11% $72,483 $64,400 $60,151 $52,935 $48,106 11% $63,503 $56,450 $52,745 $46,347 $42,092 Cost of Goods Sold The lower section shows year-end club 11% $6,954 $6,273 $5,732 $5,044 $4,597 SGA Other Costs 16% $58 $69 $48 $70 $32 locations by country and does include 11% $70,514 $62,792 $58,526 $51,461 $46,721 Operating Expenses Costco’s clubs in Mexico. Expansion in 9% $1,969 $1,609 $1,626 $1,474 $1,386 Operating Income 10% $1,283 $1,083 $1,103 $1,063 $882 Net Income the United Kingdom (7% annually), Merchandise Margin 0% 10.53% 10.52% 10.55% 10.63% 10.72% Mexico (7% annually), Taiwan (14% 1% 2.12% 2.08% 2.01% 2.07% 2.04% Membership Margin Margins 0% 12.65% 12.60% 12.56% 12.70% 12.76% Gross Margin annually) and Japan (19% annually) SGA vs Sales 0% 9.8% 9.9% 9.7% 9.7% 9.8% -1% 2.8% 2.5% 2.8% 2.8% 2.9% Operating Income vs Sales exceeded Costco’s 5% annual expansion -1% 1.8% 1.7% 1.9% 2.0% 1.9% Net Income vs Sales rate in the United States. Comps United States 6.0% 5.0% 7.0% 6.0% 9.0% International (US Dollars) 15.0% 9.0% 11.0% 11.0% 14.0% Company 8.0% 6.0% 8.0% 7.0% 10.0% Worldwide Detail – The sales Club Openings 34 30 28 21 20 Club Closings (includes relocations) 10 0 3 5 0 information in this section is reported in 5% 512 488 458 433 417 Club Year End Count (without Mexico) Costco’s 10K and represents fiscal year United States and Puerto Rico 5% 398 383 358 338 327 4% 75 71 68 65 63 Canada Clubs sales in the U.S., Canada and other 7% 20 19 18 16 15 United Kingdom Taiwan 14% 5 4 4 4 3 international locations, excluding Mexico. 7% 31 30 29 27 24 Mexico The percentage figures under each dollar 19% 8 6 5 5 4 Japan 5% 6 5 5 5 5 Korea amount represent the portion of total 5% 543 518 487 460 441 Worldwide Locations sales of that particular category. For $56,903 $51,532 $48,466 $43,052 $39,427 10% US Revenue 79% 80% 81% 81% 82% example, Costco’s 2008 Canadian $10,528 $8,724 $8,122 $6,728 $6,042 Canadian Revenue 15% 15% 14% 14% 13% 13% revenues at $10.53 billion represent 15% Worldwide Detail (million) $5,052 $4,144 $3,564 $3,155 $2,637 18% Other International Revenue of total company revenues. The bottom 7% 6% 6% 6% 5% $1,393 $1,217 $1,246 $1,168 $1,121 6% US Operating Income section provides operating income for 71% 76% 77% 79% 81% $420 $287 $293 $242 $215 domestic and foreign locations, excluding Canadian Operating Income 18% 21% 18% 18% 16% 16% Mexico. $156 $105 $87 $65 $50 33% Other International Operating Income 8% 7% 5% 4% 4% $15,580 $12,868 $11,685 $9,883 $8,679 Foreign Revenue (excl. Mexico) 16% United States revenues in fiscal 2008 21% 20% 19% 19% 18% $575 $392 $380 $307 $265 21% Foreign Operating Income (excl. Mexico) represented 79% of worldwide revenues 29% 24% 23% 21% 19% compared to 82% of worldwide revenues -1% 4,088 4,420 4,479 4,108 4,322 Annual Physical SKU Count 0% 4,254 4,450 4,294 4,215 4,288 Average Number of SKUs (2 Years) in fiscal 2004. As can be seen from the $13,931,876 $12,259,369 $11,865,422 $10,864,566 $9,797,363 YEARLY Sales per SKU 9% $267,921 $235,757 $228,181 $208,934 $188,411 WEEKLY Sales per SKU chart, sales growth in Canada (15% $27,864 $25,918 $26,634 $25,564 $24,072 YEARLY Sales per SKU per LOCATION 4% annually) and other international clubs $536 $498 $512 $492 $463 WEEKLY Sales per SKU per LOCATION Item Sales 11% 16.5% 13.5% 13.6% 11.7% 10.9% Ancillary Percentage (18% annually) exceeds Costco’s Merchandise Sales less Ancillary 9% $59,266 $54,548 $50,944 $45,794 $42,006 domestic sales growth rate of 10%. Also, Private Label SKUs 6% 501 527 474 411 400 4% 17.5% 17% 16% 15% 15% Private Label Percent of Sales operating income growth in Canada (18% 13% $10,372 $9,273 $8,355 $6,869 $6,301 Private Label Yearly Sales (million) annually) and other international clubs 2% $796 $715 $761 $756 $744 Private Label Weekly Sales/SKU/Club -1% 3,753 3,923 3,820 3,804 3,888 Brand SKUs (33% annually) exceeds Costco’s -1% 82.5% 83% 84% 85% 85% Brand Percent of Sales 8% $48,895 $45,275 $42,589 $38,925 $35,705 Brand Yearly Sales (million) domestic operating income growth rate of Brand Weekly Sales/SKU/Club 4% $501 $469 $481 $463 $434 6%. WCF Research, Costco Annual Reports Important Notice from HHC Publishing, Inc. All contents © 2008, HHC Publishing, Inc. All rights reserved. HHC Publishing, Inc. strictly PROHIBITS without its express written permission ALL copying, faxing and emailing of Warehouse Club Focus (WCF) to persons or companies who have not paid the annual subscription fee. WCF reserves the right to TERMINATE any subscription to those individuals or companies distributing WCF to non- subscribing individuals or companies. In this regard, HHC Publishing, Inc. uses software, Internet tools and other available means to track and monitor subscribers’ use of WCF. If you have received this issue of WCF without paying the annual subscription fee, the distributor is in violation of copyright and intellectual property laws. To sign up for an annual subscription, call us at 617-770-0102 or visit If your company is interested in learning about how to provide the information found in WCF throughout your organization call us at 617-770-0102 and ask about our corporate subscription program.
  3. 3. FEATURE 3 December 30, 2008 Item Sales - This section provides a number of data points that provide color on the sales performance of an average item at Costco. This information is calculated by WCF and does not include Mexican locations. The first figure lists the number of SKUs in a typical Costco location (this data is gathered annually in December). The next figure is the average SKU count from the past two years. The data in the next four rows is based on the average SKU count. The merchandise sales figure used for this section does not include sales from Costco’s ancillary businesses, which generated approximately $11.71 billion in Fiscal Year ends August CAGR 2008 2007 2006 2005 2004 fiscal 2008. In fiscal 2008, an average item stocked in all Costco locations 5% 500 473 446 425 407 Average Clubs Open During Year Yearly Sales per Avg Club (million) 5% $142 $133 $132 $122 $116 generated annual sales of $13.9 million. Yearly WW Sales/Club (Annual Report) 4% $137 $130 $127 $120 $115 Yearly U.S. Sales per Club (Annual Report) n/a $132 $130 $124 $121 That same item generated weekly sales Sales Data 4% $3.9 $3.4 $3.6 $3.5 $3.4 Yearly Operating Income per Club (million) 5% $2.7 $2.6 $2.5 $2.3 $2.2 Avg Weekly Sales per Club (million) per location of $536. 4% $75.7 $65.4 $70.2 $66.7 $65.5 Avg Weekly Operating Inc./Club (thousand) 6% 77,106 72,779 68,180 63,940 61,299 Total Square Footage (thousand) 1% 142 141 140 139 139 Avg Square Foot per Club (thousand) The next section of the chart provides 5% $976 $920 $920 $862 $813 Sales per Square Foot estimated sales information for private 3% $27 $23 $25 $24 $24 Operating Income per Square Foot 45% $1,686 $1,240 $880 $542 $377 Annual Web Site Sales (million) label and branded merchandise. In 7% 137,000 127,000 119,000 110,000 103,000 Total Employees (excluding Mexico) Employ December, 2008, Costco stocked 501 Merchandise Sales per Employee 3% $518,084 $496,753 $495,489 $471,473 $457,718 Operating Profit per Employee 2% $14,371 $12,666 $13,661 $13,400 $13,454 private label products, primarily under the Mexico Division Employees 9,000 9,000 8,000 8,000 n/a Kirkland Signature brand. Those 22% 23% 24% 25% 25% Sundries Data From 20% 19% 19% 19% 20% Food Sales % products represented 17.5% of sales with Costco's 19% 21% 20% 20% 20% Hardlines Annual 10% 11% 12% 12% 13% Softlines a typical private label product generating Reports 12% 12% 11% 11% 11% Fresh Food $796 in sales per week per location. 17% 14% 14% 13% 11% Ancillary 8% $5,039 $4,879 $4,561 $4,015 $3,643 Inventory (million) Balance Sheet 2% 12.8 12.0 12.3 12.1 12.1 Inventory Turnover per Year Conversely, branded merchandise Days in Gross Inventory 28.5 30.5 29.7 30.2 30.3 represents 82.5% of Costco’s 4% $9.7 $9.7 $9.4 $8.8 $8.4 Inventory per Club (million) 10% $5,225 $5,125 $4,581 $4,214 $3,600 Accounts Payable (million) merchandise sales with a typical branded A/P vs Inventory Percent 104% 103% 103% 102% 96% product generating $501 in sales per Business Renewal 92% 92% 92% 92% 92% Group Renewal 86% 85% 85% 84% 84% week per location. In developing and 4% 5,600 5,400 5,200 5,100 4,800 Paid Business (thousand) introducing private label products, Costco 4% 4,050 3,800 3,600 3,500 3,495 Paid Supplemental Business (thousand) Paid Consumer (thousand) 8% 20,200 18,600 17,300 16,200 15,000 clearly focuses on high volume Membership Free Supplemental Consumer (thousand) 6% 23,650 22,600 21,600 20,500 19,074 Total Cardholders (thousand) 6% 53,500 50,400 47,700 45,300 42,369 categories and merchandise. n/a 2,800 2,700 2,600 n/a n/a Mexican Cardholders (thousand) n/a 56,300 53,100 50,300 n/a n/a Worldwide Cardholders (thousand) 24% 7,630 6,331 5,200 4,300 3,270 Executive Members (thousand) Sales Data – The information in this 17% 26% 23% 20% 17% 14% Executive Members (% of paid members) n/a 57% 52% 45% n/a n/a Executive Members (% of sales) section provides assorted data, including 1% 107,000 106,554 107,071 106,588 104,101 Average Cardholders per Club the average size of a Costco location, as 4% $1,327 $1,252 $1,236 $1,145 $1,113 Average Annual Sales per Cardholder 6% $28 $26 $25 $24 $23 Average Annual Member Fees/Cardholder reported in the company’s 10K, the 5% 451 429 401 374 368 Pharmacy Ancillary Business yearly sales and operating income per 5% 496 472 442 414 405 Optical One-Hour Photo 5% 504 480 450 423 414 club, weekly sales per club and sales and Food Court 5% 506 482 452 427 418 Hearing Aid 15% 274 237 196 168 155 operating income per square foot. -9% 7 8 9 10 10 Print and Copy Centers 9% 307 279 250 225 218 Gas Stations 23% $11,711 $8,540 $8,019 $6,068 $5,139 Total Sales (thousand) A typical Costco location generates Merchandise Sales 13% 7% 14% 10% 13% average annual sales of $137 million. Membership Revenue 15% 10% 11% 12% 13% Growth Rates SGA 11% 9% 14% 10% 12% Based on an average club size of Cost of Goods 12% 7% 14% 10% 13% 142,000 square feet, in fiscal 2008, the Gross Margin 0% 0% -1% 0% 0% Operating Income 22% -1% 10% 6% 20% typical Costco location generated sales Total Membership 6% 6% 5% 7% 2% Warehouse Count 5% 6% 6% 4% 6% of $976 per square foot. This represents Return on Equity 14% 13% 12% 12% 12% an annual increase of 5% since 2004. Return on Assets 6% 6% 6% 6% 6% Financial 12% $67.06 $61.75 $47.35 $43.12 $42.05 Stock Closing Price Costco’s online business increased an Price/Earnings Ratio 23 26 21 20 23 average of 45% annually from $377 Market Capitalization (millions) $29,791 $28,259 $22,744 $21,217 $20,289 Current Ratio 1.1 1.1 1.1 1.2 1.2 million in 2004 to $1.7 billion in 2008. WCF Research, Costco Annual Reports
  4. 4. FEATURE 4 December 30, 2008 Employees – This section shows the number of employees that Costco reports in its 10K and the sales and operating profits per employee. Sales Percentage – The department sales percentage figures in this section are reported by Costco in its 10K. During the fiscal 2004 to 2008 time period, the penetration for sundries decreased from 25% to 22% and the penetration for softlines decreased from 13% to 10% while the penetration for fresh foods increased from 11% to 12% and the penetration for ancillary increased from 11% to 17%. Balance Sheet - This section provides relevant balance sheet information, including company-wide and club location year-end inventory, inventory turnover per year, days in gross inventory and accounts payable data. Costco ended its 2008 fiscal year with $5.04 billion in inventory, which represented $9.7 million per club. In 2008, Costco turned its inventory 12.8 times per year. The days in gross inventory figure represents the average inventory that a club has on hand for a given period of time. Costco’s 2008 figure of 28.5 days states that Costco’s average club inventory of $9.7 million was sold in 28.5 days. Membership – This section provides information about Costco’s renewal rates and the number of Costco members. Costco reported the number of paid business and group members in its 10K report. WCF estimated the number of paid supplemental business members and free supplemental consumer members. The end result is that Costco had approximately 53.5 million cardholders at the end of its 2008 fiscal year. Included in that total are 7.6 million executive members. These members pay a $100 annual membership fee and account for 26% of paid members and 57% of overall sales. The average Costco cardholder spends $1,327 annually. Ancillary Business – This section shows the number of locations that operate a particular ancillary business. Costco’s ancillary revenues grew an average of 23% annually from $5.14 billion in fiscal 2004 to $11.71 billion in fiscal 2008. Growth Rates – This section provides year-over-year growth rates for merchandise sales, membership revenues, SGA expenses, cost of goods, gross margin, operating income, total cardholders and total club locations. Financial – This section provides key financial ratios including return on equity (measures return on each dollar invested by shareholders), return on assets (measure return on each dollar invested in assets), price/earnings ratio (provides comparable business valuation measure), market capitalization (measure market value of the business) and current ratio (measures financial soundness by comparing short term assets and liabilities).
  5. 5. FEATURE 5 December 30, 2008 Ancillary Businesses and Member Services The concept of paid membership is critical to the success of BJ’s, Costco and Sam’s Club. The paid membership program provides each club with a revenue stream that in most years is equal to its net income. The paid membership format is designed to reinforce member loyalty and the perception that a bargain is being offered with lower prices. Paid membership also discourages the casual shopper, who generally purchase fewer products, thereby reducing the average transaction and making the clubs less efficient. Club membership revenue strength and strong renewal rates (92% for Costco business, 86% for Costco consumer, 87% for BJ’s business and 82% for BJ’s consumer) are not solely due to the money members save by buying merchandise at BJ’s, Costco and Sam’s Club. The clubs continually try to enhance non-merchandise businesses and services that provide additional reasons for members to renew their club membership. This article provides an overview of those in- club ancillary businesses and out-of-the-box member service programs. Ancillary Business Costco Sam's BJ's In-Club Ancillary Businesses Banking x x Car Wash x x Communication Kiosks x x x Computer Center x In-club ancillary businesses operate inside the club locations or on the Electric Vehicle Charging Stations x property and create a one-stop shopping experience that helps to increase Food Court x x x Food Manufacturing x member shopping frequency and loyalty. The chart on the right provides a Gasoline Stations x x x Greeting Cards x list of the ancillary businesses operated by BJ’s, Costco and Sam’s Club as Hearing Aid x x well as fiscal year ancillary sales estimates. Muffler and Brake Service x One-Hour Photo x x Optical x x x Please note that Costco’s ancillary business sales represent fiscal 2008 data Paint x Pharmacy x x ending August, 2008. Sam’s and BJ’s ancillary business sales represent Photo Service x Print and Copy Centers x x fiscal year data ending January, 2008 and do not include strong gasoline Propane x sales that occurred after their fiscal years ended. The first issue of WCF in Tire Center x x x Total Ancillary 14 11 10 2009 will include up-to-date ancillary business sales estimates for the 2008 Fiscal Merchandise Sales $70,977 $44,357 $8,815 calendar year period. The following is information about some of the in-club Fiscal Ancillary $11,711 $5,145 $661 Penetration 16.5% 11.6% 7.5% ancillary businesses operated by BJ’s, Costco and Sam’s Club. WCF Research, Club Web Sites, Club Annual Reports. Car Wash – Costco and Sam’s Club are the only clubs that operate a car wash business. Sam’s Club opened its first car wash in December, 2003 in Chandler, Arizona. Sam’s operates both tunnel and in-bay automatic carwash facilities. Costco’s first carwash was opened in Seattle, Washington. Costco uses a conveyer exterior car wash unit. Computer Center – In its Tukwila, Washington location, Costco operates a computer center. The facility was located next to the print and copy center and offered the following computer services: upgrades, diagnostics and repairs, backups and virus removal. Food Court – Price Club, which created the club industry with its first location in San Diego, California in 1976, originated the industry’s food court concept. The following story explains how the first hot dog stand was created. While working at Price Club, Richard Libenson, who was primarily responsible for creating the warehouse club merchandising concept, and another Price Club executive, visited the first location, a converted airplane hanger, before it was opened. Over a period of time, they mapped out the merchandising strategy that they would use when the club was opened. During that time, they recounted where they grew up. Libenson grew up near New York City and remembered a hot dog vendor in the area who sold the best tasting hot dogs he ever had. The other executive grew up in New England and caddied at a local golf course called the Blue Hill Country Club. He remembered how much he liked the kosher hot dogs that were sold at the golf club. The idea was born to have a hot dog cart with an umbrella stationed outside the club. Approximately two years later, Price Club struck a deal with Hebrew National to sell hot dogs at Price Club locations. Since that time, the concept has been developed and enhanced by each club operator, but each one still sells hot dogs. Gasoline Stations – The gasoline business provides the club industry with three primary benefits. First, club gasoline stations offer another reason for members to renew. According to an April 14, 2008 article in Supermarket News, Sandy Skrovan, senior vice president at TNS Retail Forward, said, “In a survey, a third of Sam’s Club members said they would renew their membership just to get the discount on gasoline.” Secondly, gasoline stations produce incremental sales. Initially, members who purchase gasoline tend to also buy daily SKUs like milk, bread and eggs inside the location. However, purchase patterns change as members begin to plan their shopping trips to include both gasoline and other purchases inside the club location increasing shopping frequency and average transactions.
  6. 6. FEATURE 6 December 30, 2008 Third, the gasoline business reinforces the value proposition Membership and Services Costco Sam's BJ's offered by BJ’s, Costco and Sam’s Club. Whether gasoline Consumer Membership $50 $40 $45 Business Membership $50 $35 $45 prices are rising or falling, the clubs will almost always offer a Premium Membership $100 $100 $80 Business Renewal Rates 92% n/a 87% value compared to local gasoline station competitors. In Consumer Renewal Rates 86% n/a 82% general, club gasoline stations tend to be very busy. Since Total Cardholders 53,500,000 47,286,000 8,774,000 Premium Members 7,630,000 n/a n/a the clubs sell so much gasoline, they buy product at current Average Cardholders per Club 107,000 80,830 50,281 Average Annual Sales per Cardholder $1,327 $938 $1,005 market prices. In the case of falling gasoline prices, the clubs Average Membership Fee per Cardholder $28 $22 $22 experience higher gross margins. Local competitors may be 401K Plans x Commercial Insurance x x selling gasoline at prices based on older, higher priced Conferencing, Communication Solutions x Business product. The clubs will be selling gasoline based on new, Credit Card Processing x x x Export Sales x x x lower priced product. In a falling price situation, the clubs Payroll Processing x Printing Service - Kinkos x can make their full margin and still be the market leader. Shipping Service - Fedex x Small Business Dental Insurance x (CA, HI, OR, WA) Small Business Health Insurance x (CA, HI, OR, WA) x In the case of rising gasoline prices, the clubs experience Web Site Design, Hosting x x Total Business Services 9 7 2 lower gross margins. Local competitors may be selling Boat Buying x x x Brinks Home Security x gasoline at prices based on older, lower priced product, while Custom Built Sheds x the clubs are selling gasoline based on newer, higher priced Electronic Installation x x Healthcare Discounts, Medical Savings x product. To stay competitive, the clubs match or beat the Home Equity Financing x Homeowner, Renter Insurance x x x Home prices of the local competitors even in times of rising prices. Identity Guard x Individual and Family Dental x (CA) Individual and Family Health Insurance x (CA) Muffler and Brake Service – BJ’s is the only club to offer Medicare Part D/Prescription Discount x x Mortgage Service x muffler and brake service in some of its locations. The Online Tickets x x business is split between two operators, Tuffy Auto Service Pet Insurance x Real Estate Agent Service x based in Pennsylvania and Monro Muffler Brake based in ShareBuilder Online Investing x Total Home Services 12 6 5 New York. Both companies lease space from BJ’s, install 2% Reward x x x Automobile Financing, Refinancing x x x tires purchased at BJ’s and offer auto services to non-BJ’s Automobile Insurance x x x members. Automobile Sales x x x Home, Business Car Rental x x x Check Printing x x Computer Service x Out-of-the-Box Member Services Embroidery x (Canada) x x Home Improvement/Kiosk Program x x Life Insurance x (Canada) x These member services are primarily “out-of-the-box” Mexico Travel Auto Insurance x High Yield Money Market Accounts, CDs x programs, which means although they can be marketed in a Recycling x Roadside Assistance x x club location or on a club web site, the actual transaction and Service Agreements/Extended Warranty x x service will occur at the member’s business or residence. Travel x x x Visa (BJ's), American Express (Costco) x x Total Home, Business Services 15 12 10 Total Member Services 36 25 17 The chart on the left includes current membership rates, the As of January, 2009. WCF Research, Company Web Sites. Some Membership Data is Estimated. number of paid, supplemental and free cardholders (some of the data is estimated), the average number of cardholders at each location, the average sales and membership fees per cardholder and a current list of each club’s member services. The following is information about some of the member services offered by BJ’s, Costco and Sam’s Club. Brinks Home Security – BJ’s has partnered with Brinks to offer members a discounted security system for their home. BJ’s members who purchase a Brinks system are eligible for a reduced installation fee of $49, free installation of a second keypad and a $50 BJ’s gift card ($100 gift card for its higher priced rewards members). Business Communication Solutions – Costco and Accessline Communications offers two types of business communication products: a voice-over-internet-protocol (VoIP) digital phone system and a suite of communication services for companies who already own a phone system. The VoIP system includes a fully featured phone system, one desk phone, unlimited local calling and 3,000 monthly long distance minutes, at no cost, for the first year. The phone system features include more than 50 options such as call waiting, call forwarding, call holding, music on hold, mailboxes and comfort noise. The discounted suite of communication services include: conference calling, a toll free number, a web-based fax service, a virtual receptionist that directs calls and takes messages, a follow-me service that forwards messages and a fully featured voice mail system. Business Health and Dental Insurance – Costco executive small business members in Washington, Hawaii, California and Oregon are eligible for Costco’s affordably priced comprehensive health care and dental plan. Members can choose from a wide range of primary care physicians, as well as a varied package of benefits. Plan administrators differ by state.
  7. 7. FEATURE 7 December 30, 2008 Co-Branded Visa Card and BJ’s Bucks – The co-branded Visa/BJ’s credit card offers members a faster way to earn purchase rewards called BJ’s Bucks. Members who use the card at BJ’s receive two points for every dollar spent on eligible items. Members who use the card elsewhere receive one point for every dollar spent on eligible items. Members automatically receive 1,000 bonus points after their first purchase. For every 2,000 points a member accumulates, BJ’s will automatically send a $20 gift certificate to be used only at BJ’s. Members will also be able to use the card as their BJ’s membership and will be able to use Visa’s contactless payment system called Visa payWave. Custom Built Sheds – In a partnership with Quality Outdoor Structures, BJ’s offers members customized sheds that include the following extra options at no additional cost: soffit vents, single-hung window, 7/12 roof pitch and a 4.5-foot wide double door. Pricing includes delivery and on-site installation. The program includes a financing option as well as a 25-year warranty. This service is not offered in all states. Home Improvement – BJ’s offers a home improvement service from the Home Service Store ®. The program is marketed via kiosks inside club locations and on the company’s web site. The service offers a free in-home consultation and estimate, project guidance and assurances that the work will be completed by a trained, certified professional. Interior work includes kitchen and bathroom revitalization, carpeting, flooring and basement finishing. Exterior work includes decks and fences, siding, windows and doors, roofing and gutter systems. Identity Protection – Costco and Identity Guard offer two programs that help members protect their identity. Both programs, CREDITPROTECTX3 and Total Protection, offer credit bureau monitoring and a credit report that provides information compiled from Equifax ®, Experian ® and TransUnion ®. However, CREDITPROTECTX3 also includes a monthly credit report and Total Protection also includes a quarterly credit update, Internet surveillance and public records report and monitoring. Mexican Auto Travel Insurance – For business and consumer members traveling to Mexico, Costco offers discounted automobile insurance rates through Bonita West Mexico Insurance Services. Executive members receive discounts that are greater than those for non-executive members. Insurance can be purchased online and the program includes term lengths of one day to a full year, a choice of limits for medical coverage and liability, comprehensive and collision insurance up to $60,000 and options including collision, total theft, bodily injury, property damage, medical expenses, legal defense and travel assistance.
  8. 8. FEATURE 8 December 30, 2008 Pet Insurance – In a partnership with Insurance Answer Center, Sam’s members are eligible for a 5% discount on their annual pet insurance premium. The program enables members to take their pet to any veterinarian nationwide. Payroll Processing – The program is administered by Intuit Payroll Services. Costco business members can process their entire payroll using one of three services: Intuit online payroll, QuickBooks ® payroll assist where the user cuts payroll checks and Intuit specialists handle tax deposits and filings and QuickBooks ® enhanced payroll where the user manages payroll, tax deposits and filings. Service Agreements – Sam’s and NEW offer members a no deductible, no hidden fee extended service/warranty program. The program begins when the manufacturer warranty ends and covers items powered by batteries, fuel, electricity and mechanical power. The program also covers watches and jewelry. According to a March 4, 2008 press release, NEW was named “Supplier of the Year” by Sam’s member benefits unit. NEW has been offering extended service plans and product support to Sam’s Club members since 1991. Shipping and Printing Services – Sam’s partnered with FedEx to offer business members a new printing and shipping service. Sam’s Club members are eligible to receive up to a 21% discount on select FedEx express services, up to a 15% discount on select FedEx ground services and up to a 20% discount on select FedEx Kinko’s printing services. Travel – Expedia is Sam’s exclusive provider of travel bookings. Sam’s Club members using the company’s online travel service will access Expedia’s assortment of vacation packages, flights, hotels, rental cars, cruises, attractions and services. Sam’s vice president of membership card and services strategy said, “At Sam’s Club, our sole purpose is to provide our members the best product and service at the best price. This partnership with Expedia allows us to achieve that objective and to also provide our members the best selection and world class customer service for travel and entertainment booking. This is a winning solution for all parties and most importantly … Sam’s Club wins by deepening our ability to meet our member needs and Expedia wins by expanding its customer base.” CLUB NEWS Sam’s Club Honest Tea’s Sustainable Package Packaging Design – December, 2008 Honest Beverages has been manufacturing and selling organic tea since 1998 and by 2002, it was the best selling bottled tea brand in the natural food channel. Sam’s Club was selling a 24-count variety package of Honest Kids organic drinks (an Honest Beverages product line). The product packaging included three eight-count cartons shrink wrapped together. Sam’s Club wanted a more sustainable, environmentally-friendly and shelf-appealing package and Honest Beverages turned to Georgia-Pacific and its design subsidiary, Color-Box. Seth Goldman, chief executive officer of Honest Tea, said, “If you do it right, you should be able to make the package more attractive and sustainable. We took a big step back to look at packaging.” Georgia-Pacific and Color-Box analyzed Honest Beverages’ entire supply chain including design, material optimization, shelf impact, line productivity, material handling and distribution. The new package features a “litho-laminated B flute box” and six-color aqueous exterior. The new 24-count box is 41% lighter, made with 35% post-consumer waste and the box handle is made with 45% post consumer waste. Sam’s Sustainable Symbol Company Web Site – December, 2008 Sam’s Club created a symbol (see picture below on the left) that identifies products that are environmentally-friendly. The symbol will appear on products that have been recognized by a third party organization or have taken steps to be better for the environment but do not have a certifying organization available for their product or industry. Sam’s web site states, “When you see this symbol on a Sam’s Club product, it means that product has taken a step toward being more environmentally responsible in the way it was created, processed and/or distributed.” The third party sustainable organizations include: Fair Trade Certified, Marine Stewardship Council, Aquaculture Certification Council, Energy Star Certified, USDA Organic Certified, Sam’s—Sustainable Symbol Forest Stewardship Council, WaterSense Certified and Carbon Neutral Certified.
  9. 9. CLUB NEWS 9 December 30, 2008 Costco Wholesale Costco’s Household Almanac and Cookbook WCF Research – December, 2008 2008 Household Almanac – Costco recently released the second edition of its Household Almanac. The book replaces the annual Vendor Collection book. In the publisher section, Ginnie Roeglin, senior vice president of ecommerce and publishing at Costco, said, “Brought to you through the support of our valued vendors, the Almanac offers tips, how-to’s and information on hundreds of topics related to the products you can find at Costco.” The 2008 Household Almanac can be viewed online by clicking The Costco Connection link at the bottom of Costco’s web site, The book includes eleven chapters: sight and sound, guide to computing, the HDTV guide, office basics, home project planner, home essentials, bed, bath and laundry, travel and education, auto and garage, for your health and tips on nutrition. The following are observations from the book: Sight and Sound – This chapter includes a guide to storing and using digital photos, ten essential tips on taking great digital photographs (sponsored by Canon), options for using an iPod in a car (sponsored by Belkin) and a section explaining what Bluetooth technology is about (sponsored by Motorola). Office Basics – This chapter includes primers about choosing the correct office chair (sponsored by True Designs), surveillance techniques to protect your business and home (sponsored by Lorex) and the benefits of printing labels (sponsored by Avery Dennison). Auto and Garage – This chapter includes articles about car battery basics (sponsored by Kirkland Signature), jump starting a dead battery, an overview of motor oil (sponsored by Chevron), ideas to spruce up a garage (sponsored by Whalen Storage) and tire care tips. For Your Health – This chapter includes articles about the sun and your skin (sponsored by Olay), the healing power of oats (sponsored by Aveeno), skin care made simple (sponsored by Borghese), the perfect home haircut (sponsored by Conair), your teeth and your overall health (sponsored by Sonicare) and choosing the right diaper (sponsored by Kirkland Signature). Full Page Advertisements – The Household Almanac includes a number of full page advertisements from Michelin (tires), Sony (electronics), Dust-Off (compressed gas duster), Sealy (mattresses), Sharp (electronics) and Nature Made (vitamins). 2008 Costco Cookbook – The seventh edition of Costco’s cookbook is called In the Kitchen: The Costco Way. In the publisher section, Roeglin said, “We’ve asked suppliers to develop recipes that showcase their products that we sell at Costco. We have also included recipes from many of our favorite celebrity chefs such as Sandra Lee, Martha Stewart, Ina Gartner and Paula Deen.” In the Kitchen: The Costco Way can be viewed online by clicking The Costco Connection link at the bottom of Costco’s web site, The 2008 edition includes 278 recipes (compared to 287 in the 2007 edition). There are nine recipe categories: health dishes (27 recipes), breakfast (12 recipes), appetizers (24 recipes), salads and soups (29 recipes), side dishes (14 recipes), chef’s choice (31 recipes) entrees (88 recipes), desserts (45 recipes) and beverages (eight recipes). The following are observations from the book: Health Dishes – This section includes recipes such as citrus herb roasted chicken by Coleman Organic, citrus walnut pasta salad by the California Walnut Commission, fruit kabobs with cinnamon cream by Divine Flavor and peach shortcake by Fowler Packing. Side Dishes – This section offers recipes including four-herb Parisian carrot salad by Grimmway Farms, vegetable stir fry by Kirkland Signature and Gourmet Dining, artichoke jalapeno potato pancakes by Reser’s Fine Foods, bacon and green bean casserole deluxe by Kirkland Signature and Hormel and scalloped potatoes by Tillamook. Entrees – This section includes recipes such as Sunday dinner pot roast by McCormick, mini meatloaf burgers by Heinz, marinated grilled salmon with sautéed oranges by Sunkist, dilled salmon cakes by Quaker, honey mustard salmon by Hellmann’s, killer salmon by Monster Energy drink, baked ziti by New York Style Sausage Company and king crab fettuccine by Harbor Seafood. Desserts – This section includes recipes such as fruitables orange passion pudding delight by Apple & Eve, apple and pear crispy by Chelan Fresh, chocolate peanut butter mousse pie by Eagle Brand and Jif, peanut butter oatmeal cookies by Skippy and easy Oreo truffles by Kraft Foods.
  10. 10. OBSERVATIONS 10 December 30, 2008 WCF’s business is the warehouse club industry. To that end, WCF is constantly accumulating information about the industry via phone conversations, warehouse visits, industry publications and manufacturer meetings. This section is WCF’s attempt to disseminate that information to the club industry in an ethical and protective manner. On page nine of the December 16, 2008 issue of Warehouse Club Focus, the Email address for Matt Delly of ∗ Cleveland Research was incorrectly typed. The correct Email address is: According to a December 9, 2008 press release, Costco named Jeff Raikes to its board of directors. Raikes is chief ∗ executive officer of the Bill and Melinda Gates Foundation. Previously, Raikes was a senior member of Microsoft’s executive team and spent 25 years at the software company. Jeff Brotman, chairman of the board of directors, said, “We are very pleased to welcome Jeff as a new member of our board. Not only does Jeff bring over 25 years of private sector experience, he also brings his reputation as a trusted and respected leader.” According to a December 24, 2008 report from Shanghai Business Daily, Sam’s Club will open its fourth location in ∗ China in 2009. The location will be in Shanghai’s Pudong district. According to a December 24, 2008 press release from Newswire Today, Costco locations in the Midwest stock a ∗ four-ounce pre-sliced package of Iberico de bellota ham that is imported from Spain. Iberico de bellota ham is manufactured by Embutidos Fermin who received USDA import approval a year ago. The ham is produced by feeding Iberico pigs acorns and the result is a high-end healthy product used by upscale restaurants and gourmet stores. According to a December 24, 2008 report from Ireland’s Fermanagh Herald, in 2009, Sam’s will begin selling a ∗ oakwood smoked cheddar cheese from Fivemiletown Creamery, which is located in Northern Ireland. Shawn Baldwin, vice president of merchandising at Sam’s Club, said, “This Irish cheddar is one of the best gourmet cheeses available, and we continue to see increasing demand from our members in the United States for fine foods like this to be incorporated into other dishes or as an appetizer.” According to Costco’s 2008 annual report, the average Costco location generated annual sales of $137 million or ∗ $2.6 million per week. Costco had two locations with sales exceeding $300 million annually, 11 locations approaching $300 million in sales annually and 52 locations exceeding $200 million in sales annually. According to Costco’s 2008 annual report, Costco’s six-unit business center operation is performing well and the ∗ company is evaluating growth opportunities in several metropolitan markets. According to Costco’s 2008 annual report, fiscal 2008 web site sales were $1.7 billion and the company expects its ∗ online business to grow to $5.0 billion in the next several years. Costco’s web site,, is selling two-package sell units of four Kirkland Signature private label snack ∗ SKUs. The price points include shipping and handling. The items include two 4-pound bags of trail mix for $24.99, two 3-pound bags of whole almonds for $26.99, two 2.5-pound jars of whole fancy grade cashews for $34.99 and two 2.5-pound jars of extra fancy grade mixed nuts for $32.99. BJ’s announced the election of Christine Courmoyer to its board of directors. Courmoyer is president and chief ∗ executive officer of Picis, Inc., a Massachusetts-based provider of software solutions for automating hospital documentation and business practices. Herbert Zarkin, chairman of the board of directors, said, “Chris brings a wealth of experience in information technology and will be a tremendous asset to BJ’s management team as we move forward in our multi-year plan to upgrade and replace many of our technology reporting systems.” Warehouse Club Focus (ISSN: 1533-6816) is published twice a month by HHC Publishing, Inc. The annual subscription rate for twenty -four issues is $479 (payable in U.S. currency) and delivery can be by mail or email. HHC Publishing, Inc. accepts Visa, MasterCard and American Express credit card payments. Subscription requests should be sent to HHC Publishing, PO Box 9138, Foxboro, MA, 02035-9138. You may also email (, call (617-770-0102) or fax (617-479-4961) your subscription request. The information in Warehouse Club Focus is based on sources believed to be reliable and, while extensive efforts are made to assure its accuracy, no guarantee can be made. The opinions expressed are merely the opinions of Warehouse Club Focus and those opinions do not necessarily reflect the opinions of the companies covered by the publication. Warehouse Club Focus is not endorsed or supported by the companies covered in the publication nor is any product endorsement implied. Copyright 1997 – 2008, HHC Publishing, Inc.