Channel Report: Club Stores

Club stores have become a strong force in many markets, grabbing customers who used to shop more often at supermarkets or mass merchants. However, the products on display -- and the merchandising used to promote those products -- are significantly different in this channel. Knowing how to maximize the channel's strengths, and understanding the customer, can produce a great relationship between brand marketers and retailers."Club stores are looking to distinguish themselves with consumers," says Alison Chaltas, principal at Interscope LLC, a Southport, CT-based retail consulting firm. The stores, which grew out of the home office/small business segment where businesspeople were buying products in bulk to save money, have now "grown to become a consumer destination," she says. "Each has undergone varying degrees of development to reach the consumer, but they're all going after that market in a big way, and American consumers have fallen in love with the club-shopping experience."Two Mindsets PredominateThere are two mindsets that bring shoppers into these stores, Chaltas explains. The first is the stock-up approach, which has pulled business from supermarkets. "The clubs promote high-consumption items and make themselves into the primary destination for those items." As a result, they create mass displays for these items at the front of the store, and they also work with suppliers to create unique packaging formats that fit their stock-up philosophy. "Stock-up," though, doesn't necessarily mean "gigantic," Chaltas stresses."The goal for stock-up sizes of packages is to create efficient pieces that deliver value -- but they're not so large that the customer stays out of the store," she explains. Bread, for instance, might be wrapped with two regular-sized loaves in one package, which amounts to an approximate one-week supply for a family. "The goal is to find the right size for fresh and high-frequency products." This approach has been working, notes Ted Taft, partner in Meridian Consulting, Westport, CT. Sales statistics indicate that 60% of sales at Costco come from food-related items. "That's phenomenal," he says. "Food drives shopping trips and brings in families." He also says Wal-Mart Supercenters are doing large business in food and prescriptions."The overall trend is to create a retail melting pot. Club stores are well-positioned to take a large portion of the consumer shopping basket," says Taft. He points to Nielsen statistics showing the gradual decline in trips to the supermarket, from 72 per year in 2003 to 69 in 2004, a trend that has continued for years. "Their loss is the club store's gain, as well," he says. "Club stores can use many of the same displays that food stores use, but there's an opportunity in club stores to do more than can be done in a store with a smaller footprint."The second shopper mindset is what Chaltas calls the "treasure hunt" mentality, which keeps customers surprised on every trip -- and willing to walk down another aisle to see what's new. That "surprise factor" is a key ingredient for clubs, agrees Taft. "Customers are open to being surprised at these stores. They are looking for new stuff, so it's a perfect fit to take advantage of that inquisitive nature of the shoppers," he says.Store TheaterAnother club store approach is to showcase high-ticket items that change frequently -- pianos, hot tubs, artwork. "You can't miss them," Taft says. "There's a 'theater' feeling to the presentation." That is often highlighted by demonstrations or sampling programs, he notes. "The demonstrations are the gasoline that fuels the food engine," he explains. "They also help to get the customers down the aisles further. The stores are so big, they have to pull people in. Demonstrations get good results and add to the atmosphere. They act like human signage."The theater effect is enhanced by the stores' layout, which includes a gigantic power aisle or central space that allows for unique display pieces. Many stores assemble large products, such as swing sets or Christmas trees, which catch the eye and help create a party impact by drawing in kids and parents. "It's not that club stores have more or less merchandising than other channels," Chaltas says. "It's that they do their displays in an entirely different way. A club store is one large display." Taft agrees. "You won't find these kinds of things at the 7-Eleven," he says. "They don't have the space, and that's not their business model."The "treasure hunt" atmosphere is encouraged by creating unique packaging concepts for products, Chaltas says. "The goal is to match core consumables with general-merchandise products, such as coffee packaged with a coffee pot or candy with a candy jar. It creates a custom SKU that can move in and out quickly before another one shows up." Shifting products quickly keeps customers returning to see what's new and entices them to buy, since the special item may not be there on their next visit.Diverse Customer Base"There's no question that the club store has a wide variety of customers visiting," says Todd Desrosiers, marketing manager for Samsonite in Warren, RI. "You can see that walking through the parking lot and seeing the cars parked there. They definitely are taking away business from other channels.""The consumer is viewed differently, as are the consumer purchase patterns," says Brian Jackson, customer development manager for the club channel at Bayer Corp., Morristown, NJ. "Because each purchase is a bigger commitment, we have to do our very best to communicate the features and benefits of our products."The customer typically is better informed than in other channels -- and is looking for even more information, says RoseMary McDaniel, senior merchandising service coordinator at Bayer. "We used to do a lot of collateral material to meet their need for information, but we're doing fewer pieces now, because stores thought the brochures ended up on the floor and became clutter. So now we put the information into graphics on packages rather than treat it as takeaway material."Indeed, signage takes a different tack in club stores, marketers say. "Price-point signs in club stores are generally larger," says Jackson. "This allows the retailer to spell out the product name and to provide price/pill information." The club's need to have displays stay within the space allotted, so they can quickly be changed as one sells down, changes the marketers' approach to signage, adds Christian Keator, manager of packaging engineering for BIC Consumer Products USA in Milford, CT. "Club specifications call out graphic panels within the cube of the display and don't allow headers or shelf talkers."Pallets RuleClub stores focus on programs that enhance flexibility and allow for quickly changing and moving displays -- in other words, pallet-sized display programs. "The pallet footprint is the key," says Chaltas. "It's a larger size than other channels use, and it helps keep programs consistent. They want to be able to pull out pallets and replace them quickly or store them in the overhead bays." Because of a focus on pallets, marketers try to find unique approaches to fitting every apple- and orange-style product display to a standard pallet size. "Our programs are confined to pallet programs in the club stores," says Samsonite's Desrosiers. "We put as much onto the pallets as we can, which has become a fairly efficient and cost-effective way for the club stores to merchandise products. It would be great to get other communication into the stores, like some other product fixturing, but we're limited by our space allocation -- and fixturing would take up space."Adds Bayer's Jackson, "In general, P-O-P is more limited to the pallet display skirt, and we ensure that our brand message is impactfully represented on the pallet display. Because of the size of a pallet display, it can be more visually impactful than a display in a conventional retail outlet."In some cases, those pallets carry more than one product, he adds. "Our most successful approach to the display business in club stores is with mixed-pallet displays. Because not all club SKUs do enough volume to warrant a single-SKU display, this approach allows us to secure several pallet programs throughout the year." One approach has been to offer SKUs that offer different needs but complement each other, such as One-A-Day Men's and Women's vitamins, he explains.Indeed, fitting the appropriate amount of product into a pallet-sized display sometimes requires ingenuity, says McDaniel. "Some trays fit beautifully onto a pallet, and others need some work," she says. "In some cases, the clubs want us to move the filler pieces to some other location within the pallet. Their goal is to take the pallet into the store, take off the shroud and go to the floor with it." Some chains don't like mixed-pallet units in which products of different heights require fillers to even out the overall height, she notes. Yet stability has become a key ingredient for programs, especially at Sam's Club, she says, which has taken a different approach to its pallet displays. In other clubs, the typical false-bottom pallet programs are used, in which the product is elevated to waist-height on extenders and supported by the pallet on the ground and the trays at the top. This reduces weight while providing the proper sight lines for the products. At Sam's Club, however, more stability is required, so that retailer often requests an "easy-skirt" format. This design features trays of product sitting directly on top of the pallet when it's shipped, along with a kit of pieces shrink-wrapped on top. When the pallet is prepared for the floor, a specific number of empty pallets is stacked beneath it to achieve the appropriate height for the display. Then the kit's skirt, which fits that height, is wrapped around the solid unit. "They like that approach because it provides a sturdier display that holds up better," McDaniel says. When the display sells down, the pallets are moved to the back room. "The displays look the same as a false-bottom version, but it takes a different approach."Durability is CriticalMuch as with large warehouse stores, especially home centers, displays can take a beating as forklifts and other handling equipment move around them. Says McDaniel, "The displays need to be sturdy and have some heft to them to stand up to the store environment."Dealing with sell-down also is a key design consideration for club pallet programs. "We plan our pallet displays so they can use the club trays, so they'll fit on either the shelf or the pallet," says McDaniel. "That way, as the pallet sells down, the trays can be moved to the shelf easily." BIC also takes that approach, notes Keator. "Pallet displays are built for disassembly, which enables a club store to remove the top layer of trays. This allows for maximum package and product visibility in addition to placing the last few trays on the store shelf if needed."Keep it SimpleMaking programs simple to execute is more important in this channel than in others, marketers note, because the display options are fairly limited. Although clubs can incorporate any of the programs used in smaller-sized channels, they tend to focus on a few types that fit their format. Bayer, for instance, uses either pallets or gravity-feed shelf displays. "Club stores take programs that have the volume they want," McDaniel explains. "We use dispensers when we have a product that's at an in-between size that doesn't warrant a pallet, but for which the buyer wants to do something more than set it on the shelf." The gravity-feed design, she says, "provides more impact and a visual message, especially for a new product that you want to highlight but for which you don't have enough volume history to create a pallet."BIC, meanwhile, uses countertop displays for its small, impulse-oriented products. "Our choices are limited to counter or pallet displays, built to their specifications," says Keator. "Counter displays are usually designed for the flexibility to go on the club shelf or to be stacked on a pallet display."A recent example is a 42-count countertop unit for its BIC Comfort 3 triple-blade shavers, packed in six seven-count clamshells in a clear-plastic folding carton. The package included an insert card to communicate the brand and product features. "The clear box and inner clamshells created a premium essence with excellent product visibility and offered six convenient packs," he says. "This allowed the retailer to place shavers in six different locations."The display used a simple shelf tray designed to maximize the package visibility, with the capability to be stacked on a pallet display. The pallet display had a false bottom with a graphic panel to promote the product. "The 25 club-store test achieved excellent sell-through that led to a rollout at other club stores," he says.SKU vs. PackMaking shippers and pallets bright and eye-catching is more important in this channel than creating attractive packaging, notes Interscope's Chaltas. "The SKU level is less important, while the case look is more important than in other channels," she says. "As consumers shop the aisles, they're not looking at the bottle, they're looking at the case pack.""Club stores definitely want bright, eye-catching graphics that sell the product," says McDaniel. Bayer, though, goes beyond appearance to make the displays easier to shop. For some of its mixed-pallet displays, for instance, the company ensures graphics are used on all four sides, and it typically will try to match the graphic on the skirt beneath the trays to the product directly above. "It's not an absolute, but it's something we aim for," she says. "We often use split panels, too, depending on what products are featured. It's not life or death, but it's a goal."Clubs are DemandingClub stores are perhaps the most specific and demanding of channels, marketers agree. "We work very closely with club customers on our design and graphics because they have definite ideas about what they want," says McDaniel. "Other channels are less specific and allow our headquarters group to work out programs, but clubs want to know what the display will do and what it will say. Wal-Mart can be demanding, but the club channel can be really rigid. They can be very specific about their needs." The specifics go beyond sizes, heights and materials to include messages and formats, notes Samsonite's Desrosiers. "One chain wanted to approve our collateral material and artwork in advance, and they wanted us to do some things that went against our brand standards," he says. "We balked at that, because we want to maintain our own identity and consistency in messages throughout our programs."The good news about this specificity is that if programs meet the club's standards, they probably will be accepted -- and go up in the store. "As long as the program is on a pallet and its assembly is self-explanatory, it will go in," says Samsonite's Desrosiers. "Mass merchants are more restrictive about accepting programs." Adds BIC's Keator, "Club stores are open to innovation and creating packages and displays to maximize consumer takeaway. This is accomplished through different materials, color and graphics that create excitement for quality and value." Adds Bayer's Jackson, "Generally, club stores do a good job with the display logistics. Execution levels in club stores are higher than in other channels. We have found that our club customers are pretty receptive to display programs, as long as you've got the volume." Indeed, P-O-P Times' recent supplier survey found that club stores scored high for execution, with Costco receiving the highest marks of any retailer. But it also received the second-highest score (after Wal-Mart) for demanding that suppliers adhere to their specifications. Working more closely with club stores in order to find out what works best for their needs will become an imperative in the future, say those interviewed for this story. "Club stores are our number-two market, behind mass merchants," says Bayer's McDaniel. "They definitely are growing in importance." Samsonite's Desrosiers agrees: "They're a pretty large segment now, and they are continually growing.""There is room for more stores in many markets," says Chaltas, and she envisions existing stores growing by adding more fresh produce and weekly staples that draw customers back for more regular shopping. She also sees more experimentation going on within categories. "The experimentation is not just with products, but also with services," she says. BJ's stores in New England, for example, are selling home heating oil, while many of the chains offer large jewelry departments. "There are categories that you wouldn't believe they would consider," she says. "But if the customers want it, and they have the space -- and they do -- why not?"

Channel Report: Club Stores

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