BJ’s Wholesale Club Holdings Inc (BJ-NYSE, $60.46) Purchases Refrigerated Supply Warehouses in Preparation for Entrance Into new States.

BJs Wholesale announced the purchase, for an undisclosed sum, of Burris Logistics, a long time supply chain partner. Burris owns and operates cold storage warehouses, delivery vehicles and related logistical assets with facilities located in Connecticut, Florida, Maryland and Kentucky.

Investors will read the announcement and some might think: “so what, this is a behind the scenes announcement and no revenue will be had from this purchase, why should I care one bit?

I HOPE that investors and analysts completely gloss over the article; this transaction offers a tangible confirmation into planned and probable store expansion plans for 2022 and beyond. BJ’s has quietly indicated previously, via local media announcements, that it intends to set up locations in the states of Tennessee and Indiana. The Kentucky cold storage warehouse, included in the Burris Logistics package deal, is strategically significant for such an endeavor. The membership retailer will soon have a seamless ability to provide inhouse logistics and storage capabilities to serve both new states and multiple potential new states in the future. If one has a storage facility in Kentucky, it would be unfathomably bad planning to NOT operate retail locations in that state. Suitable retail real estate in Kentucky is likely being sought. Going forward, expansion into Missouri, Alabama and Mississippi look increasingly feasible, backed by a vertically integrated, Kentucky based, cold storage supply chain.

Geographically, it appears that BJs seems quite willing to enter markets that were assumed fiefdoms reserved for Sam’s Club (the membership only warehouse chain owned by Walmart).

Sam’s Club offerings have historically tended to be somewhat similar to what was found at Walmart, albeit in larger formats and featuring cheaper prices. In many locations, a Sam’s’ Club is located adjacent to a Walmart; they share parking lots, share warehouse space, store signage is the same corporate color, store management and back office personnel get regularly swapped out in lateral transfers. To a bean counter, that seems a useful allocation of overhead and brings efficiencies of scale, but this can result in a “sameness” of offerings. The top executive of Walmart have, since the creation of Sam’s Club, tended to treat the membership retailer as just an offshoot of Walmart. The inability of Walmart to seize on the vast potential of membership club retail, after decades in the field, suggests that maybe this is a deeply entrenched issue, a corporate culture divide. Even today, too many of the products at each store are the same, differing only in package size. The merchandising executives at Sam’s Club have made, by their standards, great strides in the last several years to separate the offerings but they seem to do it with considerable pushback by Walmart. As large a retailer as Walmart is, the top layers of the executive there always seem reactive, several steps behind, when it comes to membership warehouse customer wants and retail trends.

Membership retail large format clubs are growing faster than retail in general and differentiation of SKU is a primary reason.

Inhouse brands and highly unique offerings at membership retailers drive growth; households, when surveyed and when income levels are sufficient to support membership stores, tend to have very little problem purchasing memberships at more than one retailer. Membership stores have found that shoppers spend more when an assortment of familiar products is supplemented by a “treasure hunt” of limited quantity or time sensitive offerings; but for a treasure hunt to take place, first there must be treasure. BJ’s is far more differentiated in its product SKU as compared to a Walmart/Sam’s Club. That is as much by circumstance as by design; to fill stores and to compete for customers, less on price, more on quality, BJ’s requires brands that are not the same as offered by Walmart and Costco. As a result, BJ’s merchandisers continually look beyond the big 10 traditional multinational consumer products companies in order to stock shelves. Thus far, plenty of up-and-comers, willing to accept lower markups to gain market presence, have been identified.

BJ’s has seized upon an optimal store size format of about 104,000 square feet, sells almost 2X the fresh produce and perishables per square foot vs competitors and has positioned its house brands as upmarket offerings featuring higher margin organic/natural products, in bulk formats, sought after by higher income shoppers. I predict that they will do well, in the two new states to be opened up, in the coming year or so. BJ’s has some unique offerings in the retail space, now the goal is to scale up.

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