Sam’s Club Exec. Speaks: “Differentiate. Differentiate. Differentiate.”

Bentonville Chamber’s Champion University series.

Greg Spragg, Sam’s Club’s EVP of Merchandising, chose “Navigating Difficult Economic Times” as the theme for Thursday morning’s crack ‘o dawn presentation before a packed house of caffeinated vendors and support firms. Delivered by anyone else, the chosen theme could seem presumptuous; after all, times are more than tough and retail numbers in particular have taken a death-defying plunge. Who within retail would have the cred to talk about not only weathering the storm but charting a course into clear blue water?

Enter Mr. Spragg, the first Sam’s representative to address the Champion vendors, and what timing! Wal-Mart and Sam’s downturn-defying sales achievements can’t be chalked up to price alone (were that the case, a sea of clearance crazy competitors would be winning the race). Time to listen up for a lesson in what’s working.

No Pollyanna, Mr. Spragg began the presentation by hitting the horrible headlines: consumer insecurity, slow-to-no growth and consumer cut backs on fripperies (redefined lately as anything other than food). So far, consumers seem to be applying any extra lucre that comes their way to paying down debt . . . And, If individual consumers have a cough, small business owners have a very bad cold, particularly in food service. However, as anyone who works with Wal-Mart or Sam’s knows, problems are “opportunities” and many of the consumer behavior insights that Mr. Spragg revealed play right into Sam’s strengths:

  • Shopping is being driven by necessity
  • Consumers will attempt to maintain their lifestyle but are reducing non essentials and luxuries
  • Consumers will reward themselves with simple luxuries
  • Newness motivates discretionary spending
  • Consumers are seeking safety in trusted name brands (and let’s not forget that the retailers themselves ARE brands)
  • Channel switching is rampant; consumers are moving toward discounters
  • Consumers are improving living spaces and doing so through accessories, not big purchases

As you may have heard, Sam’s has renewed its focus on small business; in fact, they are set to test a new concept in Houston next month called Sam’s Business Center, which will focus on offering business-friendly bulk items to restaurants, convenience stores and offices.  Apparel, recreational items and anything else that veers off the business core will not be represented. (My after-preso inquiry to Mr. Spragg as to whether the concept is intended as a lab or a ready-for-rollout launch, confirmed that Sam’s is testing the waters). As for mainline Sam’s stores, we were reminded that Sam’s offers many bennies for members to include early morning shopping hours, the ability to order online or by fax (and you get to use your non-Discover™ credit cards when you shop online – free tip from me). Mr. Spragg admitted that Sam’s has more work to do getting the word out on the many membership value-adds (most of which were news to me and I’m in their targeted demo).

Lest anyone think that Mr. Spragg would shelve high-minded causes in favor of hunker-down strategies during this tricky time, he made it clear that gains made toward sustainability now will pay off big time once the turn-around cometh. P.S. In terms of timing, his predictions agreed with Terry Lundgren’s (Macy’s) and several other retail leaders-of-note: we’re looking at about 18 months until  the droop subsides.

But hey, what about the vendors? Surely Sam’s has wrung every possible cost efficiency out of the system by now and everyone can just hit “replenish” and chill. Not so fast . . . when it comes to price leadership, there’s more work to be done; specifically:

  • Moving to “dead net costing” – “Sweating the details” to lower cost continually
  • Sam’s mantra is and will be “how low can you go?” . . . even in inflationary times
  • Ever heard of “intelligent loss of sales?” May sound like an oxymoron; however, just think of it as the retail version of “when in doubt, do without.” Sam’s is in an item-driven business and those items have to deliver value. If they don’t, no sacred cows/see ya!

In the perception defies reality realm (my take), Wal-Mart had Target to deal with (finally past tense) and of course, Sam’s still has Costco; however, Costco’s high-stakes game of ruthless cost-cutting and simultaneous quality upgrading, particularly in private label, is obviously a game that two can play. Sam’s private label, Members Mark, is getting very “Kirkland” with its expectation of above-national-brand quality at a value and constant item expansion (100 new items were added to the program this year).

Mr. Spragg pointed out that club members are switching to Members Mark for quality, not necessarily price, so his plan is to continue to position Sam’s private brand proposition from OPP to NIV (newness, innovation and value). For the suffering restaurant trade, there’s relief in the form of Bakers and Chefs, Sam’s high-performance private label for professional foodies.

As much as we’ve been hearing about retailers’ near-term plans to stay the course, not grow an innovation brain and replenish into the safe and performing, Sam’s is taking a different view. New” and “different” are driving general merchandise at Sam’s and predictable just isn’t as productive. Case in point: Hankering for a salad spinner?  Enough Sam’s customers did to drive a 50% sell through within two weeks.

. . . And, back to sustainability, we were reminded that, when done right, it actually drives innovation. Here he cited Honest Kids organic drink pouches; not only a sales success, but a marvel of sustainable collaboration and innovation. The packaging, developed through Sam’s sustainability networks, saved 33% in fiber, 25% in energy and 41% in green house gas emissions and 40% of Sam’s active replenishable items have been made more sustainable in some way (through product, package or process).

Clearly, the message of the day wasn’t to stay the course during tough times but rather, to push limits, raise expectations and set new standards that will lay foundations for the future.

In other words, this too in time shall pass and the audience was left to ponder how ready everyone will be 18 months from now when the sun comes back out.  In the meantime, cursing the darkness isn’t an option

So vendors, what are you doing to drive differentiation? Sam’s isn’t in for plug and plays and everything is up for scrutiny. Time to get creative!


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