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Sam’s Club Q1 FY 2021: Finding opportunity in challenge

19 May 2020 / By: Timothy Campbell

Sam’s Club’s Q1 FY2021 marked Kathryn McLay’s first full quarter as CEO, and she has deftly handled the challenges posed by COVID-19. Sales and comps (with fuel) rose 9.6% and 8.5% respectively, but Sam’s Club’s performance is even more impressive than it first appears. First, plummeting fuel demand and prices accounted for an approximate 350 basis point comp drawback. In addition, reported results already account for a 410 basis point negative effect from the ongoing and intentional reduction of tobacco related-items across clubs. Taken together, Sam’s Club’s comps without fuel and equalized for tobacco would have been about 16.1%. These results include a 1% boost due to 2020’s extra Leap Day this quarter. Despite member-focused investments in price and fulfilment, gross profit also surged in Q1 due to higher fuel margins associated with the lower price of fuel. Sam’s Club’s sales surge is unparalleled in its recent history, but is it any guide to its future?

COVID-19 caused clear shopping patterns to emerge. As the reality of COVID-19 set in within the first half of the quarter, traffic soared as droves of shoppers simultaneously looked to purchase from retailers like Sam’s Club that acted as value-driven stock up destinations across categories. As the quarter waned and stronger lockdown restrictions were implemented, shoppers left their house less frequently and traffic fell. Ticket rose as shoppers looked to consolidate their trips and minimize their risk of infection. Performance differed across categories as well. Grocery and consumables such as fresh food and HBA performed well while general merchandise categories like apparel, tires, and jewelry underperformed.

In an environment with less store traffic and higher ticket per trip, preventing trip erosion becomes more important. Sam’s Club suppliers can help bolster members’ trust in Sam’s Club as a value-driven, stock-up destination. However, shopping trips may begin to become more frequent as state economies reopen and shoppers navigate a new normal under the reality of COVID-19’s ongoing threat. Walmart CEO Doug McMillon stated that, towards the end of the quarter, Walmart saw an uptick on some general merchandise spending on apparel, televisions, sporting goods, toys, and video games as a form of mental relief shopping. The same phenomenon could occur at Sam’s and provide a slight lift within these categories going into the beginning of Q2.

Ecommerce is an exceptional bright spot with 40% growth at Sam’s Club in Q1. As a result of the virus, home delivery may take on increased investment moving forward vs. Club Pickup given the former’s especially strong performance for the quarter. Considering the timing of COVID-19’s onset in the US, Ecommerce growth would have been backloaded for the quarter and may have been closer to 50% for March and April. As the nation comes to terms with handling COVID-19 over a longer period of time, Q2 Ecommerce growth may even outpace Q1.

Sam’s Club is also adjusting quickly to accommodate members’ rising need for speed, safety, and convenience. While Sam’s Club may not require members to wear masks as other retailers like Costco does, they have enforced better in-club sanitation and added special shopping hours for at risk members. Sam’s Club is satisfied with the ongoing growth of its newly launched Prescription delivery platform even as it adds more free prescriptions and discounts available to members in its pharmacy. Pharmacy Curbside Pick-up has also been added since the start of the crisis as means of adding convenience and safety for members who don’t want to leave their vehicle. One more notable initiative in this vein is Sam’s Club’s newly launched concierge shopping feature. The service was launched in late March and allows seniors to pull up to the club to have a waiting Sam’s Club associate take their order and coordinate their shopping for them complete with curbside pickup minutes later. The process is supported by an employee app that took only 6 days to develop, and the service has already reached 100,000 shoppers. Sam’s Club’s technology office in Dallas is well positioned to continue developing solutions like these to adjust to ever-evolving member pain points in the near future.

Timothy Campbell

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