Channel Report: Club Stores

It's a proven shopper magnet: Throw open the doors to a 200,000-square-foot warehouse stocked with odds and ends and tell consumers to go at it. The treasure hunt appeal of finding a Coach purse or Waterford crystal -- on sale -- among bulk quantities of toilet paper, organic food and power washers has made the club store channel a powerful voice in the retail game.More than 100 million club store members across the United States helped ring up $58.96 billion in net sales for Costco in 2006, a 13.7% increase from 2005 figures; Sam's Club pulled in 12.2% of parent company Wal-Mart's $316 billion sales revenue in 2006; BJ's Wholesale Club saw a 5% sales increase from previous holiday seasons in December 2006 alone. Doug Bennett of ACNielsen, Schaumburg, IL, told attendees at the Nielsen Consumer 360 Conference in spring of 2005 that the U.S. market was big enough to add at least 300 more club stores, particularly in the central states. Bennett also noted the club channel is seeing a 5 to 10% growth in buyers' frequency of visits, enjoys an average ring of $83 per cart, is expanding the perimeter departments (e.g. dairy, meat, produce) at a double-digit pace, and can boast that 42% of shoppers will drive more than 11 miles to shop their aisles. According to ACNielsen's surveys, Costco holds the strongest reputation for offering high-quality brands; BJ's strength lies in food categories; and Sam's Club business members spend 50% more than regular members. So it stands to reason that clubs are stocking more product categories to feed this money-making machine. And, they're positioning their merchandise as affordable luxury, with an emphasis on taste, trends and quality rather than bulk packs, says Ted Taft, managing director at Meridian Consulting Group in Westport, CT. Marketers agree, this jump to classier product offerings has the potential to challenge current in-store marketing concepts; but for now, the pallet reigns supreme. The club channel welcomes suggestions, though, says Matt Kistler, senior vice president of marketing, research and insights at Sam's Club in Bentonville, AR He admits the variety of merchandise means the company starts with a one-size-fits-all rule when it comes to point-of-purchase displays. "But we are open to making P-O-P that best communicates product attributes, features and benefits to our members," he says. "However, we can make it more relevant -- that's what's most important.""It's fair to say we have less freedom in a club setting," admits Andrew Sparkes, director of retail marketing for stationery and activities at MEGA Brands America in Livingston, NJ. "When we do a typical installation in a regular mass channel, we usually have a promotional piece on an endcap, and we're in line for a minimum of the season. With a club there is a lot more in and out, so they tend to have size rulings and line-of-sight issues." At least there are exceptions to the rule, Sparkes adds, as he has seen a few displays at Costco break its height barriers. For Peggy Collins, director of retail marketing at Energizer in St. Louis, the secret is as cut-and-dried as Marketing 101 principles. "It's no longer just about putting stuff on the floor. You have to be able to stop the shopper and get them to engage in the category, even if it is a big box store," she notes. Alison Chaltas, a principal at Southport, CT-based Interscope, says book and wine merchants are showing wonderful creativity in creating pallets that mimic upscale shops. More traditional consumer packaged goods, she says, face a greater challenge. They're meeting it with everything from color to pallets with less product and more corrugated messaging. (In SKU-intensive categories, this strategy also empties the pallet more quickly and sends consumers a signal that "Hey, we're the popular one.")Taft has noticed manufacturers teaming up to present their products together, creating a lifestyle pitch -- a direction he predicts will become more pronounced in the coming months.Club stores are also keeping pace when it comes to adopting digital signage, says Kelly Canavan, market development manager for 3M in St. Paul, MN. He has personally strolled through Costco, which sometimes uses its LCD and plasma television displays to also convey club messages. In the future, he believes, clubs will crunch their data to determine details such as which products shoppers tend to buy between 5 p.m. and 7 p.m., and which companion items those purchases trigger. Then they can use this knowledge to program targeted digital images and announcements that drive traffic. "Because they know their audience so well, it gives them an inherent advantage over other channels," Canavan says. His data shows consumers will accept high-tech digital communication in this more spartan setting without batting an eyelash. "If the message that's delivered is relevant, then it won't be perceived as advertising, and it doesn't stand out as odd that this thing is talking at me," he says. "Instead, people say, 'That's interesting. I'll go look at that.'"Interactivity at the department level has been a big hit at Sam's Club. General Electric's compact fluorescent light (CFL) bulb display, which invites shoppers to compare electricity demands and light output via a toggle switch, stands out as one of the more creative, and successful, P-O-P approaches in Kistler's mind. "How we combine play and offer something informative is the next hurdle," Sparkes confides. "Over the last five years, clubs have done a good job of migrating from a very utilitarian look. Now it's time to move forward again a bit more."Pallets FirstOn the other hand, one foundation shouldn't change: Club stores are pallet Meccas, and management brass from the headquarters to the store level expect these industrial tools to double as the main salespeople on the floor. From a retailer's perspective, the pallet is sturdy, minimizes shrinkage and creates the maximum amount of products per square foot. Marketers don't view them as favorably.Often manufacturers can plan on working with a full-sized 40-foot-by-48-foot pallet footprint for their products in the club stores, which beats the volume they can sell in a PDQ tray or floorstand, says Peter Salenius, a director at Rand-Whitney Retail in Worcester, MA, who produced the Gillette Braun 360 razor display for club stores. What's more, Sam's Club ideally looks for full-pallet vendors as opposed to mixed-product displays, since this strategy keeps costs down and enables the club store to really get behind certain products and items, says Kistler.So the pallet emphasis evolves around corrugated and easy set-up -- as in, the cover slips off like a glove and the display is ready to sell, Salenius describes. As a designer, he knows the pallet must also break down easily and move into a shelf merchandising situation as the item sells down. That's one reason Tom Taylor, general manager of Atlanta-based Wilpak, urges fellow packagers to work with a standard set of cases or trays and build variations around them. This route, he says, eliminates the need to do extensive pre-testing on each variation, which reduces costs with larger order quantities. Granted, the idea of building the display as a pallet from the get-go rather than shoehorning later reduces opportunity for the flash that exists with floorstands, Salenius admits. And, standing out as a 5-inch-tall product in 200,000 square feet of space is a different mindset than commanding attention in a 7,000-square-foot theater. That's why Salenius developed a 2-foot-tall die-cut image of the Braun 360 razor -- an element strong enough to communicate to customers from a distance -- on a quarter graphic wrap that created a mirror effect. He placed the removable images on two corners of the pallet, in the event store managers decided to stand one of the corners on top of the pallet for additional height and visibility. Energizer faced a similar challenge with its distribution at Sam's Club. "It's difficult to create high-tech-looking displays when you're dealing with square blocks," Collins points out. Under her leadership, the company's battery pallet switched from a black, recessive pallet to a steel construction painted red. Next, she colored three of the corners either neon blue, orange or green and devoted each hue to educating the consumer on the different battery segments in the display. Describing when to buy titanium, rechargeable and Energizer Max has measurably impacted trade-up sales. On a practical note, Collins also insists club display pallets present product on all four sides, because she never knows how it will be set up on the floor. "If you design something that is shoppable from only one side, I can guarantee you that it will end up sitting the wrong way," she explains. Sparkes finds it useful to make a few attitude adjustments in his pallet displays as well. "From a marketing standpoint, we cannot be self-indulgent with what we do in the store," he says. "There is always the underlying sensitivity to maximize the quantity of merchandise that we can get on a pallet." MEGA Brands has gone so far as to change the layout of the product within packaging to squeeze in a few more units. Salenius has discovered, too, that a stuffed-to-the-gills pallet means as they sell down, the pallet remains attractive.But the marketing brainstorm of the decade won't matter if the pallet begins to slump, sag and look tipsy during execution. Contrary to popular belief, wooden pallets won't hold up very long, thanks to their exposure to fork lifts. Collins solved the problem by installing a heavy-gauge, powder coated steel version with bumpers at the base. Energizer's own reps oversee setup of the battery centers. "Heavy-duty is the operative word," she notes. "It's all about how cheap you can make it while getting quality at the same time."Big and BoldResearch at Sam's Club shows that club consumers make their purchasing decisions in five seconds from 5 feet away. So, small print on the P-O-P copy won't fare well, Kistler tells vendors. Big and bold rules, with informative copy winning out over clever slogans and puns. That's why using the corrugated trays themselves to deliver the message works well, even if it's nothing more than the Oil of Olay tagline, "Love the skin you're in," and the word "Bonus" printed on the lip to stress value, as Procter & Gamble discovered last year, says Kistler.Two years ago, Kraft Foods bundled 15 of its single-serve packages of macaroni and cheese together in a single box, treating that space as a mini-billboard to advertise the food product. Now the idea of plastering containers, trays and shipping boxes with P-O-P messages is reaching warehouse-sized proportions. "With today's technology and printing, I don't think it's a challenge," Kistler says. "It's something, though, that definitely can be looked at as a bigger opportunity than maybe is being used today. The ability to use packaging to communicate to members is an opportunity we are trying to have our suppliers look at."Of course, Sam's Club is motivated in part because packages that double as signage allow managers to maintain an uncluttered look throughout the warehouse and help the club continue to deliver savings. "A sign becomes dated very easily," he says, "and is just another thing that adds cost."Another rule: When it comes to club store packaging, even the smallest packaging details count. "It's subtle," Sparkes warns. "It's very easy to walk down the aisles and miss the work that has gone into some of the merchandising, more so than in other retail channels." Sparkes has noticed a trend toward more inviting metallic and foil materials on product packaging as he strolls the club store aisles. Then in 2006, Salenius redesigned the Gillette Braun 360 razor primary package to a special bubble presentation for the club channel. The change meant customers could hold the shaver to get a feel for its dimensions and weight. In a similar vein, Collins evolved from the original brick pack of batteries to a large track blister for Sam's Club, the better to catch shoppers' wandering eyes.Yet while Kistler says packaging has improved overall in the three years he's been in Bentonville -- he praises CPG food manufacturers' ways of calling out health and wellness benefits and the USDA organic seals in particular -- there's room for improvement. For one, it would be helpful for items that need assembly to arrive in their warehouses sporting P-O-P that guides a consumer through whether he needs a kindergartner's knowledge or an advanced degree in engineering to put it together. More universally, Sam's Club is focusing on environmental issues, seeking ways to use recycled materials and emphasize sustainability. For example, at the chain's request,Toshiba America Electronic Components in Irvine, CA, switched to a blister-corrugated packaging made from 65% recycled materials for its memory storage disks. But as for more formal guidelines, "we're working on that right now. I don't have the magic answer yet," Kistler admits. "We're asking suppliers, members and a lot of outside stakeholders the best ways to communicate these things."Out in the OpenSometimes, the most desirable packaging in this channel is no packaging at all, according to Chaltas. Particularly in hard line categories, nothing sells chairs, picture frames and dishes like the ability to touch and test the item on the spot. "We have to show the value, so putting the item out on display is most critical," Kistler agrees.That decision ultimately rests with the club stores, but a majority of the general merchandise will get this treatment, according to Kistler. As a working practice, most stores simply open a unit box and set it out. MEGA Brands takes no chances -- when Sparkes stocks items like the Pirates of the Caribbean: Dead Man's Chest building set, his team assembles the toy themselves, shrink-wrapping the final results and including it with the product shipment to set above the display pallet. He considers it part of his sales pitch to the club as well as the consumers. "It's about creating in-store theater, making the product stand out and exciting people," he explains. For Collins, getting out of the box has more to do with real estate location. "A visually compelling package alone won't get you a win," she points out. "If it's sitting in a hole, nobody can see it." So Energizer's batteries, as an impulse item, languished when Sam's banished them to the corner of electronics, where less than 10% of foot traffic goes. Executives hoped the beefed-up pallet display and new consumer-friendly packaging would do the trick, but still the club didn't record the sales increase it wanted. "We said, 'Look. You have to get batteries in a more prominent location," Collins says. A checkout display turned out to be very effective at growing sales, but that placement didn't mesh well with the chain's desire for a clean front end. So she proposed parking the pallets at the end of the office supplies aisle. Sales went up "phenomenally," she reports."Was it because it was in office supplies? No, it was because they were on endcaps near the main traffic," Collins says.Do You Know the Way to...Kistler may prefer that product containers do the talking in a store, but Sam's Club uses signage when appropriate. When the chain began accepting MasterCard credit cards, for example, the store managers sprinkled signs throughout the square footage. Certainly new, hot products in technology could merit a signpost, too. "But overall, it is something we try to minimize," he says. Collins, however, sees an increasing need for signage to help shoppers navigate the store. She enjoys bargain-hunting sometimes, "but there are still times when I just want to go in and find the paper towels, dog treats and the institutional size of aspirin. I'm on a mission to get in and get out." She applauds Sam's way-finding signage at the end of aisles and predicts it's just the beginning. "The better any retailer understands their shopper and how to orchestrate the in-store experience around her needs, the more they will realize in terms of increased sales," she says. Nor does navigation have to come down to traditional signs. Inflatable holiday decorations displayed in all their glory, for instance, are definitely at the core of who the club stores are, in Chaltas' opinion. Not to mention big, bold and attention-grabbing not only drives impulse buys, but it also points the way toward a seasonal merchandise section without printing a word.

Channel Report: Club Stores

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