Let’s Go Clubbing!

COMPLIMENTARY PRIMER

CLUB MAVEN RESOURCES CONSULTING SERIES

CHAPTER 1

Let’s Go Clubbin’!

In this issue you will learn more about the profiles, product, presentation and pricing strategies, promotional tools and the sales process for the warehouse club model(s).

The information herein is the property of Club Maven Resources who is solely responsible for the content. Our biz-intel and content has been gleaned and honed from nine years of experience actively calling/selling and managing accounts with these venues as well as contributions from those who have worked for these companies in mer-chant and operator capacities. This work represents the information gleaned from over 50 products presentations, sold and managed into the warehouse club operations.

CLUB MAVEN RESOURCES

ISSUE 1 | INTRODUCTION TO CLUBBIN’

1. In this Issue, you will discover our complimentary primer. We hope you find it helpful in deciding your next steps.

2. This is what we do for a living. We are happy to sell you our complete guide, or the modules that are most helpful to you, though we are eager to partner with you to develop your club channel with our proven methodology and experience.

3. All purchases can be credited against our consulting services.

4. For more information, visit it us at: www.clubmavenresources.com

SECTION 1

Your Guide to Success within the Warehouse Club Channel

Costco USA and Beyond

It’s all about the memberships. Yes, Costco sells over $110 billion in goods and services but they are not in the prod-uct business, they are in the membership business. Keeping members thrilled, delighted, surprised and “renewing” is the game.

BJ’s Wholesale

BJ’s Wholesale has higher margin expecta-tions, not just “margin caps”. Of all the clubs this 200+ chain acts more like traditional retail but think about the ladies first. From Boston to Miami. BJ’s has the Eastern Seaboard like Costco covers the West Coast.

Sam’s Club (yes, you fly into NWA but...)

Located near the Walmart “mothership” but don’t be confused, these two entities are not in alignment. You can sell to both, but don’t wear the same hat in the two meet-ings. Costco is a “context” not a competitor. Many more USA locations than Costco but does much less volume.

PriceSmart (Best Sales Call Locations)

Sol Price merged his clubs with Costco and took the model south. 33 Clubs in the Carib-

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bean, Central and South America that punch way outside their weight class.

Cost U Less (bring a compass)

Their HQ is just outside of Seattle but owned by NorthWest Company of Canada. They have 13 warehouse clubs located in a variety of locale’s that comprise a niche market that is not part of a geographic com-munity but a demographic niche.

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Buy the entire publication,

or just what you need.

The entire “Let’s Go Clubbin” publication (covering all chapters) is avail-able for $250. We provide very specific/actionable detail. Each company/

club has a specific chapter available for $100 each.

Any and all payment(s) will be used as a credit towards consultation, mar-keting and sales representation services from Club Maven Resources as

part of an assessment/engagement to ready you to go Clubbing with these businesses should you opt to contract our services but no obligation. If

you go it alone, best wishes and we trust this will help you.

ENTIRE “LET’S GO CLUBBING” $250

• COSTCO USA AND INTERNATIONAL $100

• SAM’S CLUB $100

• PRICESMART $100

• BJ’S WHOLESALE $100

• COST U LESS $100

• CLUB LOGISTICS AND PACKAGING $ 50

• CLUB PRICING AND MARKET SENSITIVITY $ 50

CLUB RETURNS (MITIGATING THE DOWNSIDE) $ 50

• I’M IN, NOW WHAT... HOW DO I COMPETE? $ 50

INSIDE

1. An Introduction

2. The 6 P’s

1. Price

2. Product

3. Place

4. Presentation

5. Promotion

6. Process

3. Conclusions and next steps.

SECTION 2

WAREHOUSE CLUBS: Much more than pallets and products

The warehouse club business started in multiple places almost at the same time (early 1980’s) but official recognition of the “first warehouse club” goes to A&P who in 1971 had a short-lived experiment with a warehouse format called WEO (Warehouse Economy Outlet). As for the first successful (and still doing busi-ness today) warehouse club, that honor goes to Sol and his son Robert Price who opened Price Club in San Diego in 1976 in an airplane hangar (which is a Costco today and home to some regional buying offices). Kmart experimented with the Club format with Pace warehouse in 1983 but that was sold to Walmart/Sam’s Club in 1993. Sam’s Club also acquired another warehouse club (Wholesale Club of Indianapolis) started in 1982 by John Geisse and acquired by Sam’s in 1991. Sol and Robert Price were not quite done with “Clubbin” when they merged their Price Club operations with Costco in 1993, they opened PriceSmart (warehouse operations in Central America and the Caribbean in 1995.

Today, by sales volume Costco worldwide holds the title for most sales revenue $110 Billion with over 670 warehouses worldwide (478 USA, 90 Canada, 35 Mex-ico, 27 U.K., 13 Japan, 11 South Korea, 10 Taiwan, 7 Australia, and 1 in Spain with many more to come in Spain and France). Costco has an envious position re; members demographic with an average house-hold income of twice the USA average. Hence, Costco enjoys very strong sales per location at $163M.

Sam’s Club has the most stores in the USA (583) with an additional 27 in Brazil and 11 in China. Sam’s Club does $92M per loca-tion.

BJ’s Wholesale Club operating primarily along the U.S. Eastern Seaboard and Ohio has just over 200 clubs doing $10.9B or $54.5M per location.

PriceSmart does really impressive volume on their 36 club chain in Central Amer-ica and the Caribbean. 2.64 Billion Or $80M per location.

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Cost U Less (1st club opened in 1989 in Maui) have just 13 warehouse retail out-lets. They do not charge a “membership fee” but have an interesting set of loca-tions; Maui, Guam, America Samoa, Grand Cayman Islands, Alaska etc. C.U.L. is part of the NorthWest Company of Canada. Cost U Less generates revenue per building at approximately $25M. Cost U Less contributes about 16% of the com-pany’s business but with only 5% of the company’s store count.

So, not all clubs are the same nor operate toward the same goals. There is not a single “club channel strategy but five. Costco has a keen focus on maintaining and growing memberships and to a degree all these businesses (with the excep-tion of Cost U Less) need to maintain and grow their memberships but in Costco’s case membership fees are a stunning profit center. Last year Costco’s member-ship fees generated 75% of their operating income. So, when you call on Costco job one is presenting your product(s) in a manner that reminds the member how smart they were to buy a Costco membership. Your goal (take a deep breath and

embrace your new paradigm) is to collaborate with the merchant to floor a value that keeps those members renewing and telling their friends) prospective new members) about what great deal they found at Costco.

For more Costco analysis, click HERE.

There are six fundamental and obvious differences between traditional mass merchant retail and the warehouse club models. Some of you reading this may be familiar with the 6 P’s of retail; Price, Product, Place, Presentation, Promo-tion, and Process. Of these 6 the biggest variances are found within the pricing, product, presentation, place and process arenas.

1 | PRICE (using Costco as a benchmark, there are important variances for each club)

Costco operates on very slim margins. Your category might yield a traditional 40 to 60 GM% category at conventional stores, but at Costco the margin CAP is 14%. Yep, you read it right, the markup is limited. So, if you see an item at Costco with a member price of $100, the Costco dealer invoice is very likely $86 or higher. There are costs and MDF/givebacks atop that. However, in setting your thought process ponder that Costco must floor a compelling value to its already spoiled members and what they offer YOUR product to members to achieve this “stellar value” times .86 is your dealer price to them (leave room for some give backs and smartly executed promotions),

In one sense this is excellent wiggle room to work with and yet challenging in another. One such challenge, how do you insulate yourself from disrupting your traditional dealers business (or their perception that you are… which is usually more the case) while providing members their “stellar value”. Make no mistake this is “plus business”, significant additional business, profitable business. We know how to do this and we know the matrix: www.clubmavenresources.com

2 | PRODUCT

Comedians have lived well on making fun of the “Costco Bundle”…the 96 count toilet paper bundles, 12 tubes of toothpaste etc. This is one way the clubs oper-ate differently and the packaging to support same is another area to set aside mind time before your journey to Issaquah, Bentonville, San Diego and Boston etc. Contrary to popular lore, Costco, Sam’s etc. DO NOT want to ruin your busi-ness. They do understand the disruption they could represent for you. After nine years of doing this, I can tell you…it is the perception that needs to be managed more than the reality of the situation. Your challenge will be to manage the angst

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internally with your organization and to maintenance the few whiney dealers who will point at your Costco deal as the Zombie Apocalypse. Now to be sure a 14% margin deal at Costco cannot peaceably coexist on the planet without some mitigation. Here are a few basic ideas;

a) BUNDLING… Yes, the obvious bundle…more units in one SKU yields a discount. However, Costco merchants want a real deal not some tiny dis-count and not all items lend themselves to bundles.

b) CREATE a Unique SKU for Costco, this is probably the best ap-proach but don’t dare think you should create a “dumbed down version”. Remem-ber the Costco member is usually a business owner themselves,…smart shopper and price/value savvy. Think “different but equal or better”. These customers/members (the better term) are quality addicts…they don’t want the entry level ver-sion of brand XYZ, they want the best price for the most popular version of XYZ.

c) THINK SINGLE SOLUTION… while Costco warehouses are HUGE by retail standards, they do $167 Million a year on a much smaller SKU count than Walmart. The average Walmart does about $130 Million a year with over 65,000 items whereas Costco does $167 Million per location on less than 4000 items. So, don’t bring anything “too niche” to them.

Think like a fair bowler who doesn’t bowl strikes, nor picks up 7-10 splits but knocks down 7 or 8 pins with one ball.

d) WIDE RELEVANCE REQUIRED… if you are “new to market” it bet-ter be immediately obvious this is a “must have” product. Just take a tour down the pallet racks and look what’s there. Name brands, Name brands of core goods for less. So, you say your product is “On Trend”, okay…they look at it, Now, “on

trend and proven in traditional retail” your odds just went up by a factor or 8, or better yet something everyone needs… you just double it again.

95% of the product mix is a virtual “who’s who” of what in each category. Costco is risk adverse.

How do you deploy the right product that will meet their $500 per building per item requirement without disrupting your other businesses? A $20 performing SKU at Costco is $10 million in revenue for you.

We know how: www.clubmavenresources.com

3 | PLACE (or PLACEMENT)

Unless you live under a rock you already know what a Costco looks like and where they are located. Affluent or semi-affluent communities. The “place” in this context refers more directly to where your goods are placed within a Costco club store/warehouse. Here’s the bad news right out in front. Unless you “pay for place-ment” you have absolutely no control where you goods are placed in the store/club (“club” is right term). Yes, fear not, you will be in the correct department but Costco operators are all about keeping costs in line. The new pallet of goods goes where the old one is sold down and it is a one-touch transaction. Keeping labor costs in line is paramount even though Costco pays pretty well for club-based staff compared to traditional retail. Now, if you really insist on having your product featured on an end cap in all the stores in the USA (as an example) you can be assured of a very high level of execution but there is a price. $1000 per building per two week period and there you go you have great placement. That will increase the run rate by a factor of 3 for the two weeks… does that cover your $473,000 spend? Maybe. There are other ways to achieve the same lift and mo-re…we know how. www.clubmavenresources.com

4 | PRESENTATION (really-really-really important)

If you are a manufacturer who is used to having sales advocacy by a human on the sales floor, well you’ll get a tiny bit of help for free from the very capable but very busy employees at Costco. Each dept. has assigned employees and they are

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better informed on the product than you might think, but they are not going to “push your product out the door”. Your best sales advocate is your presentation. Which in this noisy, concrete floor, A.D.D.-addled environ-ment means your PACKAGING and the PALLET PRESENTATION. You have 3 to 5 seconds to earn the attention of a Costco member passing by with the shopping cart. There is an art to this. Your packaging has to be robust to stand the rigors of transpor-tation to and within the club environment, yet eco-friendly. The pallet presentation is almost as important as the product and the price. One big tip… don’t OWN the packag-ing presentation… collaborate with the Costco merchant who might be very busy but if you put three options in front of him/her you will get good feedback and if they help design the look… you are much better deferring and accepting the help than “digging your heels in on YOUR concept”.

Want to know how to present your products during the sales presentation to mer-chants or later when you deploy… We can help, we know how: www.clubmavenresources.com

5 | PROMOTION (save a little/a lot of bit in the Kitty)

The most important thing is to insure your product(s) at Costco are well received, widely needed/wanted product at a compelling price. However, even the truth needs to be sold. Costco wants you to provide their members the best “net” price in your first presentation. They are very very very busy people and while they can counterpunch your offer, more often than not it is seen as a “waste of their pre-cious time”. So, do your due diligence. If your product is being sold on Amazon or other highly visible e-commerce venues at “X” then their offering to members bet-ter be a 20% REAL savings or more on “X” when broken down and x-ray’d. Most of the merchants at Costco are employees who started their Costco careers in the clubs. Pushing shopping carts is a “rite of passage”. They may not have lived and breathed the category during their apprenticeship at Costco but they have a disci-

plined approach and are not to be trifled with. They probably understand your B.O.M. (build of materials) as well as you do. Now, to promotions…Costco would not call them promotions but they understand that the rest of the retail world calls this MDF (market development funds). There are very good ways to invest in your product presentation to Costco members and some where the R.O.I. is simply the necessary evil of relationship management. Spend your MDF on brand elevating education and presence in the mind of this highly valued customer base. Want to know how much and how to spend your MDF reserve? We know each tool/vehicle and their very predictable yields. We can help, we know how… www.clubmavenresources.com

6 | PROCESS (the seven cardinal sins at Costco)

Each one of these trip wires could be a chapter in and of themselves. Are you and your company an “efficient operator”? Costco would use the term efficient “opera-tor” as a description of their style to provide extra-ordinary member value AKA sell more member- ships. What that really means

is they have an incredi-ble penchant for minimizing operating costs at all points.

Insuring stellar member value requires that you look at logistics, packaging. B.O.M., and all areas where efficiencies will provide a better price. However, this is an organization dedicated to integrity…so your factory will be audited (at some point in the relationship) these independent audits cover the gamut of the facili-ty…labor laws, safety, B.O.M. verification, etc.

This “efficient operator” mindset permeates throughout the organization and is one reason the buyers/merchants begin their Costco life in the stores/clubs. Good Costco merchants select vendor partners who not only provide great products

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with great presentation and at a great price but do so in manner that makes it easy for the store based staffs to deploy the goods with maximum efficiency.

This is more a “what not to do” than a “how to” section but here are the Seven Deadly Costco Sins a Vendor should strive to avoid so you live a good, prosper-ous and long life as a Costco vendor of choice:

i) LOGISTICS - NEVER BE LATE, INSURE GOODS ARRIVE AS IN-TENDED PROMISED BOTH IN TIMING AND CONDITION

ii) PRICE - NEVER ALLOW A COSTCO ITEM TO BE EMBARRASSED ON PRICE IN THE MARKETPLACE. The member value must be the best visible value.

iii) DON’T HAVE HIGH RETURNS - PROVIDE GREAT PRODUCTS WITH LOW DEFECT RATES, PROVIDE MEMBER SUPPORT (BOTH IN THE BOX/INSTRUCTIONS) AND WITH POST SALE SUPPORT. LOW RETURNS = HAPPY OPERATORS

iv) DON’T SCRIMP ON THE POST SALE SUPPORT - IF AT ALL POS-SIBLE DO NOT 3RD PARTY THIS OUT. HAVE IN HOUSE STAFF WELL TRAINED AND CUSTOMER-SERVICE CENTRIC

v) DON’T LET A USURPER KNOW MORE ABOUT THE CATEGORY THAN YOU. BE COSTCO’S GO TO FOR INFO. KEEP MERCHANTS ABREAST OF CHANGES TO YOUR CATEGORY AND AS IMPORTANT HOW YOU WILL KEEP THEIR OFFERING FRESH AND AT ONE WITH CURRENT NEEDS/TRENDS

vi) DON’T WAIT FOR THE BAD PHONE CALL. REACT QUICKLY TO SLOW SALES TRENDS, CHANGE THE PRICE, THE PRODUCT OR THE PRESEN-TATION…BUT DO WHAT IS NECESSARY TO KEEP YOUR ITEM(S) / INCUMBENT POSITION ALIVE

vii) DON’T FUDGE THE TRUTH. INTEGRITY IN ALL THINGS…PROMISE WHAT IS ACHIEVABLE, DELIVER WHAT IS PROMISED… ALWAYS.

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See you at the “club”.

Pretty basic stuff, mostly, but it’s impor-tant to execute all the steps all the time. Yes, things might go askew from time to time (low occurrence events, please) but your reaction both in quality and timeline are key. Remember these are busy peo-ple who do not have the luxury to hand-hold you. They have great integrity, pay

on time, honor agreements and if you do as you say, they’ll give every fair opportunity to keep the business you earned, but you earn it through executing like an efficient operator… just like they do.

Want to know more, we can help. Would you like to learn more on your own? Most of the nuances of doing busi-ness with the Clubs are detailed in our member issues, available for sale at www.clubmavenresources.com

You can’t buy experience, but you can invest in ours. Want us to quote an engagement contract with you? We’re a phone call away 1-844-258-2628

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