QUOTE AND NEWS
TechCrunch  Apr 15  Comment 
 Every day there are more appliances and devices coming out that have network components. For instance, by 2017, “all Samsung televisions will be IoT devices, and in five years, all Samsung hardware will be IoT devices”. That’s a quote from...
MarketWatch  Feb 18  Comment 
Shares of BJ's Restaurants Inc. rallied in Wednesday's extended trading after the casual restaurant operator turned in better-than-expected quarterly results. BJ's reported its fourth-quarter earnings rose to $8.3 million, or 31 cents a share,...
The Hindu Business Line  Feb 9  Comment 
The precipitous fall of the stock market today in response to the Delhi Assembly exit polls projecting an AAP victory is a `knee-jerk reaction’ and it would not reshape the reform agenda of the BJ...
The Hindu Business Line  Jan 24  Comment 
Putting an end to speculations on government formation in Jammu and Kashmir, Peoples Democratic Party patron and former Chief Minister Mufti Mohammed Sayeed today said “track two” dialogue with BJ...
The Hindu Business Line  Jan 6  Comment 
A world record sixth-wicket partnership of 365 by Kane Williamson and BJ Watling, who both posted career bests, slammed the door on Sri Lanka in the second Test in Wellington today.
The Hindu Business Line  Jan 5  Comment 
Kane Williamson and BJ Watling produced an unbroken sixth wicket stand of 94 to keep New Zealand alive on the third day of the second Test against Sri Lanka in Wellington today. New Zeala...
NPR  Nov 20  Comment 
Cattle theft has been making a major comeback. A drought in the West has meant higher beef prices, making cattle an attractive target for thieves.
NPR  Nov 6  Comment 
Composer BJ Leiderman talks about writing the show's theme music and sings some of the lyrics that accompany that catchy tune.




 

BJ's Wholesale Club, Inc. (NYSE: BJ) sells food and general merchandise, including appliances and other household goods, in bulk and at heavily discounted prices. Unlike its competitors, Costco and Sam's Club, which serve small-business customers, BJ's focuses on retail shoppers and offers more grocery items as well as smaller quantities of packaged goods.

BJ's stores are concentrated in the Eastern United States, which allows the company to streamline distribution and marketing. The high concentration of stores in this geography however, can sometimes lead to cannibalization. Furthermore, BJs doesn't benefit from the same economies of scale as its larger competitors. Scale is very important in the warehouse business, because margins are extremely thin, making low costs and high volumes essential to profitability.

Business Overview

BJ's makes money by selling a wide range of food and general merchandise items, gasoline (at select BJ's locations) and from membership fees. [1]

  • Food accounted for approximately 60% of BJ’s total food and general merchandise sales in 2006. Food categories at BJ’s include frozen foods, fresh meat and dairy products, beverages, dry grocery items, fresh produce and flowers, canned goods and household paper products.
  • General merchandise, which accounted for the remaining 40%, includes casual and athletic footwear, consumer electronics, small appliances, tires, jewelry, health and beauty aids, household needs, computer software, books, greeting cards, apparel, furniture, toys and seasonal items. [2]
  • Membership Fees: BJ's had approximately 8.7 million BJ’s members (including supplemental cardholders) at the beginning of 2007. These members generally pay a $45 annual membership fee to be able to shop at BJ's. BJ’s also offers an $80 Rewards Membership program for high-frequency/high-volume members, which offers a 2% rebate, capped at $500 per year, on all purchases. [3]

BJ's revenues in 2006 grew by 7.2% over 2005. However, Operating Income was negatively impacted by lower sales and margins, especially in higher margin departments such as jewelry and furniture. The company also had more holiday season markdowns in 2006, compared to 2005.

BJ 2006 Annual Report
BJ 2006 Annual Report[4]

BJ's introduced the warehouse club concept to New England in 1984 and has expanded throughout the Eastern United States. At the beginning of 2007, BJ’s operated 172 warehouse clubs in 16 states. [5]

BJ 2006 Annual Report
BJ 2006 Annual Report[6]

Key Trends and Forces

Private Label

BJ’s private brand consumer products are generally are priced well below the top branded competing product, but still carry higher margins for the company. At the end of 2006, BJ's private brand products had achieved a sales penetration of approximately 13% of food and general merchandise sales. The company expects its private brand products to continue to represent an increasing percentage of sales over time, which may help margins. Sam's Club and Costco Wholesale (COST) have also launched their own private brands in their stores.

Dependence on new stores

BJ's has grown over the years by opening many stores on the East Coast. Since 2001, BJ’s has grown from 118 clubs to 172 clubs in 2007. Opening more stores will make it more convenient for customers to find BJ's locations and contribute to more memberships. BJ's expansion may lead to more memberships in the long run, but could immediately hurt sales of already existing BJ's clubs due to overlapping markets. If BJ's can strategically open new clubs in areas where clubs do not exist, or where the competition isn't well established, BJ's will gain market share and more memberships. On the other hand, if BJ's opens new clubs near already existing BJ's clubs, the new clubs will steal sales from old clubs, or cause cannibalization.

Market Share

The wholesale club market has two big players in Sam's Club and Costco Wholesale (COST), which have a combined 90% market share. While BJ's has remained focused on the East Coast, Costco has taken away market share from Sam's Club by opening new clubs throughout the Midwest and the South over the past years.

Competition

The wholesale club market is fiercely competitive and margins are thin. All three companies charge their members an annual membership fee.

BJ's and its Top Competitors
Retailer 2006 Sales (millions) Membership Fees Membership Sales (Mil) # of Clubs
Costco $58,963[7] $50 $1,188 504
Sam's Club $41,582[8] $40 $940 579
BJ's $8,303 $45 $176 172





Reference

  1. BJ 10k 2006, Pg 13
  2. BJ 10k 2006, Pg 4
  3. BJ 10k 2006, Pg 5
  4. BJ 10k 2006, Pg 12
  5. BJ 10k 2006, Pg 2
  6. BJ 10k 2006, Pg 2
  7. COST 10k 2006
  8. | WMT 10k 2006
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