The retail world just provided another example of the importance of relevant differentiation. Sam’s Club is closing 10% of its 660 stores, as reported by Sarah Nassauer in The Wall Street Journal. Sam’s Club is the Walmart version of a bulk-item membership shopping experience. It is Walmart’s version of Costco.
Sam’s Club CEO, John Furner, states that the stores’ locations are the problem. The Sam’s Club locations were chosen in anticipation of larger affluent populations leading to increased store traffic. However, there is a deeper issue to consider, an issue that came to the forefront in 2015.
In August 2015, Ms. Nassauer, who reports on retail for The Wall Street Journal, revealed that Sam’s Club’s was concerned about its close association with Walmart reinforced with nearby locations. The 2015 CEO, Rosalind Brewer, said in an interview, “We want to be less of a Walmart.” The belief was that the close association with Walmart was an impediment to attracting more affluent membership club shoppers who are able to pay for a membership, and have the money and space to bulk up on products ranging from paper towels to plasma screen TVs. The Walmart shopper and the Costco shopper are different segments. But, Sam’s Club was unable to shake off the image of Walmart.
According to Ms. Nassauer, Sam Walton developed Sam’s Club (1983) as “a place for small business to stock up on discounted bulk items, not a Walmart clone that offers everyday deals.” However, as time passed, wherever Walmart placed a store, Sam’s Club was next door. In 2015, 200 Sam’s Club stores shared parking lots with Walmart.
Location matters. Costco places its stores in urban areas and along the nation’s coasts. Its Brookfield, CT location draws customers from wealthy northern Fairfield County, CT, as well as from parts of eastern Connecticut. It also has a store in Norwalk, CT that reaches towns such as Greenwich, CT. Costco was an early seller of organic foods, and by 2015 had over 200 organic items available.
Leadership stability has been an issue at Sam’s Club as well. Nine executives have run Sam’s Club over the past 22 years: that is one CEO every 2 – 2 1/2 years. It seems that many executives see the Sam’s Club job as a stepping-stone to a higher level in the Walmart organization.
But, it is the power of the Walmart brand essence that has affected the ability of Sam’s Club to establish itself as a brand for affluent shoppers. Even the Sam’s Club stores located in affluent areas are not attracting enough of those customers to make the store viable. Walmart’s brand essence is all about selling more for less, as its website states. By selling more for less, Walmart is able to make a difference in people’s lives. Sam’s Club lives in the Walmart brand embrace and has not been able to sufficiently differentiate its brand in a relevant manner from Walmart.
Tests of high-end Sam’s club stores have delivered mixed results. Test stores offer “individual prepared meals, pricey furniture, apparel and food, next to bulk Coca Cola. The aim is to try to attract shoppers who might also shop at Whole Foods Market.” In order to succeed, Sam’s Club is seeking new suppliers, as its current vendor roster is not able to supply these types of products.
Aside from not being able to successfully differentiate the Sam’s Club brand from its parent in a relevant manner, it is far easier to extend an upscale brand downward, than it is to take a lower scale brand and move the image upscale. Giorgio Armani created Armani X as its less expensive, less couture brand. It would have been difficult to take an Armani X brand and make it couture. When Toyota brought Lexus into the US, it kept the relationship with Toyota distant. An entire new dealership network was created.
A current example of an effort to make an affordable brand go upscale is Hyundai. The South Korean brand has decided to take its new Genesis luxury vehicle out of general Hyundai dealerships, and create a separate dealer network. Hyundai executives believe that early Genesis sales were hurt by the highly affordable image of the Hyundai brand, and its early low quality perceptions. The plan is for Genesis vehicles to be completely phased out of Hyundai dealerships.
Brands can be repositioned and reimaged and upgraded to attract a more affluent customer. But, this takes substantial resources that few can afford. For example, P&G turned Oil of Olay, a drugstore staple competing with Pond’s Cold Cream and Nivea, into a more expensive beauty and skin care brand. It differentiated the brand on the basis of science and ingredients.
On its website, the Sam’s Club mission is articulated as “At Sam’s Club, we’re committed to saving our members money on the items they buy most and surprising members with the unexpected find.” The store says it is dedicated to offering exceptional wholesale club values. The website also states: “Sam’s Club is on a mission for Savings Made Simple. Since 1983, we’ve worked to provide our members quality products at incredible values.” This is not enough to differentiate from Walmart. Walmart can make a very similar claim. And, in visiting the Sam’s Club website there is more than remarkable similarity to the Walmart website: the only difference appears to be the brand name and some of the items.
For all the talk about location, product selection, ever-changing leadership, and the economy, the truth seems to be that Sam’s Club never really differentiated its brand from Walmart. Sam’s Club never had a chance to build its brand into a Costco challenger.