Stumbling To Victory

Walmart's Sam's Club Closings: Smart Move, Dumb PR

The retailer's store count needed trimming, even if it fumbled the execution.
Photographer: Daniel Acker/Bloomberg via Getty Images
WALMART INC
+1.55
At Closing, February 16th
104.78 USD

The giant footprint of Sam’s Club is getting significantly smaller.

Wal-Mart Stores Inc., the warehouse club’s corporate parent, said Thursday it would shutter 63 Sam’s locations, bringing the number of stores in that chain down to 597. The company did not specify how many jobs will be slashed, but some have estimated it could be around 10,000.

Before we dive into whether this was a sound strategic move, it's worth noting that Walmart handled the delivery of this news rather poorly. Reports of the closures were swirling online for hours before the company sent out a press release about the move. (The Sam’s Club Twitter account had earlier mentioned some clubs were closing, but offered scant details.)

The silence about the store closures felt awfully discordant with the trumpets Walmart had blared earlier Thursday about its decision to hike its minimum wage to $11 across its U.S. business and dole out one-time bonuses to some workers. You couldn’t help but feel like the company was trying to drown out bad news.

But I don't think the closures are a grim sign for the future of Sam's. Shuttering these locations, no doubt, is a big deal: It amounts to axing about 10 percent of the chain's fleet. And while Sam’s is the smallest pillar of the Walmart empire, it is a retail behemoth in its own right: 

In The Club

If Sam's Club were a standalone business, it would be in the pantheon of America's largest retailers

Source: Bloomberg

Figure for Sam's Club is the retailer's net sales for the most recent fiscal year, a figure that that does not include membership fees

So it certainly creates an opening not just for long-time rivals such as Costco Wholesale Corp., but also for newcomers such as e-commerce bulk seller Boxed.

But that is a reasonable risk for Sam's Club to take. If you’re a regular Gadfly reader, you know I frequently suggest chains get much more serious about shrinking their portfolios. Certain department stores such as J.C. Penney Co. Inc. have not pared back far enough, and it's worrisome that TJX Cos. continues to expand its store count as though the internet doesn’t exist.

The Wall Street Journal reported that in a memo to employees, Sam's Club CEO John Furner said, "After a thorough review, it became clear we had built clubs in some locations that impacted other clubs, and where population had not grown as anticipated."

If that is indeed what fueled these closures, it's hard to knock the chain for that. Plus, some of the locations will be converted into e-commerce fulfillment centers -- a decision that is also hard to criticize. As Walmart hustles to offer speedier delivery of a wider array of products, re-purposing these sprawling warehouses seems like a good use of resources. 

I expect this move by Sam's Club is a harbinger of what's to come in the retail industry. UBS analyst Arpine Kocharyan has noted that Toys "R" Us, for example, has 183 stores located within a 15-minute drive of at least one other Toys "R" Us outpost. The rise of online shopping will continue to force retailers to reconsider having locations so close together that they're fighting for the same customer. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Sarah Halzack in Washington at shalzack@bloomberg.net

    To contact the editor responsible for this story:
    Mark Gongloff at mgongloff1@bloomberg.net

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