Archive for the ‘#ecommerce’ Tag

RIP Sam’s Club   Leave a comment

Sam’s Clubs around the country are being closed, proof positive — according to some of my Democratic friends, that the economy is not doing as well as people think it is.

Image result for image of sam's club closingSam’s doesn’t mean that much to me. We used to be members, but when we stopped spending on credit, we went through a couple of years where we couldn’t afford Sam’s in our budget and by the time we could afford to budget for it again, we were out of the habit of using them. We’d started buying bulk at a local feed store and we’d discovered the Internet, so Sam’s was redundant.

I do acknowledge that it will be hard for some people to lose Sam’s. Small businesses who need bulk items – cups, coffee, etc. – will feel the pinch. Big families who buy bulk. A friend of ours who is a meat connoisseur who buys his meat in primals and does his own butchering. But for our family, it really wasn’t worth the membership. And 150 people lost their jobs here locally and in a community of only 100,000 people, that’s a hit.

But why did Sam’s close? According to our newspaper here, Sam’s nationwide is restructuring and that’s a complicated story. It belongs to the same corporation that Walmart and Walgreen’s belong to. Although Sam’s has not been unprofitable, it has not been growing as fast as Walmart and the fact that about 12 of the closed locations will be turned into e-commerce distribution centers, suggests Sam’s is looking into the future. These new centers will help Sam’s Club build out its e-commerce capabilities by giving it a wider fulfillment network, potentially helping it get online orders delivered to customers faster.

Increasing its commitment to e-commerce may help Sam’s Club compete with wholesale rivals like Cosco and Boxed. E-commerce is becoming more of a focus in wholesale retail, and if Sam’s Club doesn’t invest in it, the company may get left behind. Costco is a major competitor to Sam’s Club (and there’s one in Anchorage, but not in Fairbanks), and in its most recently reported quarter, its e-commerce comparable sales jumped nearly 44% year over year. Additionally, Boxed, an e-commerce only wholesale startup, is starting to establish itself. Sam’s Club’s e-commerce gross merchandise value (GMV) has been between 20% and 29% year over year in recent quarters, Sam’s Club told Business Insider Intelligence. These new fulfillment centers may help the company strengthen this growth, as it looks to better compete in wholesale online.

Turning physical stores into distribution centers is also way for Walmart to leverage its brick-and-mortar network. Walmart has a virtually unmatched brick-and-mortar network — its CEO has estimated that it has a brick-and-mortar location within 10 miles of 90% of the US population. The retailer has made efforts to entice consumers to pickup online orders in-store, but turning underperforming stores into full-blown e-commerce distribution centers as Sam’s Club is doing is another way to take advantage of its proximity to its consumers. If Walmart, and Sam’s Club, hope to thrive online, they’ll need to offer fast delivery times to rival Amazon, and having e-commerce distribution centers close to customers should help with that.

Just as the Piggly Wiggly’s ran the full-service grocery store out of business, online e-commerce is sucking away the business of physical locations. But Amazon isn’t a monopoly yet and it is struggling with its network (hence, it’s desire to build a second HQ). If Walmart moves into ecommerce in a big way, utilizing former Sam’s Club locations as fulfillment centers, it potentially becomes a major contender against Amazon.

It sucks for Alaska because we have to pay individual shipping rather than allowing Sam’s to spread that cost in bulk, but we can still use Cosco, which is in Anchorage and has been suggesting for years that it might move to Fairbanks. They no longer have any competition here, so they just might. And, if they don’t, a local trucking company is advertising that they will be doing twice-a-month 380-mile runs with people’s personalized shopping lists. Yeah, it’s the return to the full-service grocery store.

Ultimately, Sam’s Club is an example of creative destruction. By closing many of their locations, they allow their parent company to become healthier and better able to face the changing needs of a 21st Century society. In 10 years, people will wonder why we went through all the hassle of traveling to a big warehouse to pick up stuff, wandering by stuff we don’t need, but then decide to buy, then try to fit it into our cars when we can now just make our selections online and have it delivered to our door by freight drone.

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Posted January 20, 2018 by aurorawatcherak in economics, Uncategorized

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