Image Credit: JJBers
If you were a product manager at Walmart’s Sam’s Club, there is one thing that would keep you up at night: Costco. You’d know that your product development definition was broken because the customers that you wanted to come into your Sam’s Club stores all too often were heading over to shop at Costco. The people that you needed to be shopping in your store were well-to-do shoppers who would be willing to spend a lot at your store. However, the people that you were getting were the Walmart customers who traditionally were seeking bargains. This is not going to look good on anyone’s product manager resume. The well-to-do shoppers were all heading over to Costco. What’s a product manager to do?
Time To Grow Smaller
The Sam’s Club product managers have come up with a plan. They want to operate fewer Sam’s Club stores and they are hoping that by doing this they’ll be able to do a better job of attracting the shoppers who are currently going to Costco. The first step in this process occurred when Walmart announced that they would be closing 63 Sam’s Club stores. This is the biggest round of closings since Sam’s Club was started in 1983. There are a couple of reasons for the closings. The first is that more and more of the Sam’s Club customers are shopping online and so they they don’t feel the need to visit a store. Costco’s success is the other reason. The Sam’s Club product managers believe that by becoming smaller, they will be better positioned to compete with Costco.
The product manager’s strategy is not so much to close down Sam’s Clubs as it is to find a way to transform the business that they are involved in. What the Sam’s product managers want to do by closing some of their lower performing stores is to spend more time focusing on their stores that are bringing in higher profits. They are especially interested in those stores that are currently serving more-affluent shoppers. Going forward, the Sam’s Club product managers want to focus on serving a single demographic of customer: families who have children and an annual income of between US$75,000 and US$125,000. They identified this demographic by creating an internal team with consultants who then took a look at the buying behavior of Sam’s Club customers. What they discovered is that a number of the customers that they were classifying as small business buyers were actually buying a lot of products for their home.
Going forward, the Sam’s Club product managers believe that the shoppers that they are going to be focusing on are going to continue to purchase products for their small businesses and this has always been a key part of how Sam’s Club makes money. However, what’s going to be new is that Sam’s Club is no longer going to be spending money and time trying to attract customers from much narrower groups. Sam’s Clubs have always had a problem with sales. They generally only act as a source of profits for Walmart instead of competing with Costco and becoming a growth engine. One of the reasons for this is that Costco got its start out on the West Coast and opened its stores in affluent West Coast areas. Sam’s Club stores have generally been opened near Walmart stores which are located in lower-income or less populated areas.
The Smaller Strategy
Financially Costco has been doing better than Sam’s Club. Last year, Costco’s sales in existing stores increased by 3.8%. Sam’s Club stores only had a 0.2% increase. Sam’s Club store sales are starting to pick up, but not as fast as Costco’s are. Sam’s Club product managers have always wanted to find ways to attract higher income shoppers into their stores. Back in 2001 expensive jewelry was added to the store and the company said that they were interested in offering high end art also in order to do a better job of keeping up with Costco. Over time, they have also added more fresh food and they have done a general upgrade of their merchandise. What they have been trying to do is to transform Sam’s Club into a company that more closely resembles Costco.
When the Sam’s Club product managers had to make decisions about what stores to close, they had to take a number of different issues into consideration. They had always wanted to be able to target higher income customers, but the location of the Sam’s Club stores were making this difficult to do. When they were selecting which stores to close, one of the criteria that the product managers used was to select the stores that were making less money because they had a remote location. This made it very hard to keep them properly stocked. The Sam’s Club stores in Alaska were a good example of this. Other stores were drawing too much traffic from other Sam’s Club stores in the area. Some were located in places where the consumer population had declined, but competition for customers was very high. Costco played a role in helping the Sam’s Club product manager decide what stores to close. All of the Sam’s Club stores in Costco’s home state of Washington were closed as well as other Sam’s Club stores that competed heavily with Costco stores.
In order to meet the needs of their new target customers, the Sam’s Club product managers are in the process of reviewing their inventory in order to determine what they are going to want to stock. The thinking is that this is going to lead to Sam’s Club carrying more household goods and fewer bulk food products. Sam’s Club has added more workers to their produce area and increased training of these workers. These steps have been taken because studies have shown that many customers decide where they are going to shop based on the quality of a store’s produce area. The Sam’s Club product managers realize that how their customers shop is undergoing a very large change. In order to deal with these changes, the Sam’s Club product managers are planning on using a number of the Sam’s Clubs that have been closed as e-commerce fulfillment centers. These sites will then be used to allow home deliveries to be made faster.
What All Of This Means For You
As product managers, based on our product manager job description, we have been taught that in order to sell more of our product, we have to get bigger. However, it turns out that in the real world this is not always the case. Over at Sam’s Club they have been struggling with competition from Costco and they have not been able to come up with a way to attract the customers that they want. Is becoming smaller the right answer for them?
In order to solve this problem, the Sam’s Club product managers have decided to close 63 of their lower performing stores. The stores are being closed because people are doing more shopping online and because of the competition that Costco is creating. The product managers are going to focus on those stores that are currently serving more-affluent shoppers. They plan on serving a single demographic of customer: families who have children and an annual income of between US$75,000 and US$125,000. Costco has been able to capture the customers that Sam’s Clubs want because they are located in affluent parts of the West Coast. Sam’s Club has tried to become more attractive to higher-end shoppers by carrying more jewelry and adding produce. The Sam’s Club product managers very carefully chose which stores they were going to be closing. Studies have shown that customers pick where they are going to be shopping by the quality of the produce department. Sam’s Club has added more workers to their product department and has provided them with more training.
As product managers, we are always up for a good challenge. The Sam’s Club product managers are facing a real challenge in terms of trying to attract the type of customers who are currently going to Costco to shop. They’ve taken the dramatic step of closing 63 stores in order to better focus on the stores that can help them to meet their goal. This is a bold move and we’re all going to have to watch them carefully to see if they are now able to attract the type of customer that they have wanted for so long.
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™
Question For You: What types of products should Sam’s Club stores carry in order to attract the high-end customers that they want?
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