Retailing of a different kind

Model targets affluent family shoppers, small business owners 

Customers are not waiting in line at the cashiers, the high shelves are occupied with packing goods, the corridors are wide enough for three parallel shopping carts, and the latest audio range is on display at the Bose section in the 9-meter-high outlet.

But the shopping environment and the latest gadgets and gizmos at the 12,000 sq m Sam's Club, a retail warehouse club owned and operated by Walmart Stores Inc, is only for those who have a membership card.

Set up in 1983 by the US retailer, Sam's Club, named after Walmart founder Sam Walton, opened its biggest outlet in Beijing at the Yizhuang Beijing Economic and Technological Development Area in November. It was the fifth Sam's Club in China, and the second in Beijing.

Du Limin, vice-president of Sam's Operations, China, says finding an ideal location for expansion in Beijing was a tough challenge for the retailer. "When we realized that Yizhuang would be developed as a satellite town five years ago, and that it would house many of the Fortune 500 companies, we decided it was the place for us to be in."

Du says that the presence of multinational companies, such as Coca-Cola and Nokia, in the area gave it immense confidence, as these companies tend to buy office supplies and other business gifts in bulk. Middle-class professionals working in the high-tech industry were also target customers, along with the fact that there was virtually "no competition".

In less than six months since it started operations, Sam's Club has roped in more than 100,000 members, with a quarter of them business members.

"Most of our customers come from Yizhuang. But with more people traveling abroad and becoming aware of Sam's Club, we have been getting more membership enquiries. Many of the prospective members want to visit or drive to the club on the weekend, with some of them coming from as far as Tangshan in Hebei province," Du says.

Unlike the other hypermarkets in China, Sam' Club is looking to transform itself into a dominant club format in key urban cities in China.

Stephen Montgomery Smith, Walmart China's chief marketing officer and senior vice-president of Sam's Club, New Formats, says the retailer is looking to grow much more quickly in the next few years, in tandem with the rapid growth in the middle class and urbanization, which in turn has created over 800 emerging cities.

Sam's Club is planning to open a new outlet in Dalian in Northeast China's Liaoning province later this year, Smith says.

"Walmart's China business has become more diversified with the mainstream retail and super center business."

According to the National Bureau of Statistics, China's total retail sales increased 17.1 percent year-on-year to 18.12 trillion yuan ($2.87 trillion, 2.17 trillion euros) in 2011.

But Sam's Club seems to have taken a cautious approach with regard to expansion in China, as it had just five stores in the past 16 years. It also took seven years for the company to launch its second outlet in Beijing.

"Sam's needs its own facilities, instead of leasing space in a large retail shopping mall like other companies. This type of building takes more time and capital, and the opportunities are more limited than the current retail center dynamics that exist in China today," Smith says.

He adds that Sam's is rigid on the size of its clubs, including the location, the access to main roads, the need for high-capacity parking, and the demographics of the trade area.

The Yizhuang outlet is the biggest single-deck Sam's Club around the country, and has 1,200 free parking lots. Therefore, although it is located in the suburbs, it is considered to be much more convenient and comfortable, considering the crowded parking place and long lines at the checkouts in normal supermarkets in Beijing.

Targeted at affluent family shoppers and small business owners, the club charges a membership fee of 150 yuan every year. This model helps the club keep merchandise margins low and encourage members' loyalty.

"Our price is 8 percent lower on average compared with other hypermarkets," Du says.

The club only offers 9,500 stock keeping units (SKU) while a usual hypermarket often has nearly 200,000 in China. It is aiming to provide members the high quality and popular brand merchandise at the lowest possible price.

Nearly 18 percent of its products are imported goods, while 4 percent are the club's own-brand merchandise.

Although Bose products are often seen in high-end shopping malls, the brand is teaming up with Sam's Club to sell its items through supermarkets. The hot iPhone 4S is also available at the club and is 8 yuan cheaper than the sticker price in an Apple store.

However, as an imported business model in China, Sam's Club had to make some adjustments to adapt to local customers.

"Our format and commitment to members is the same in all countries, but the content of what we provide, and how we provide it, is always country-culturally correct," Smith says.

Sam's Club is locally managed and operated by 99.9 percent Chinese management and associates, so they are able to remain locally relevant. In the US, Sam Club's SKU is just 5,000, nearly half of that in a China outlet.

"Since Chinese consumers like to pick their favorites from various items and they are used to wandering in supermarkets to find something new when they have free time, we are providing more choices in China," Du says.

The club is also narrowing its pack compared with the US stores as a family of three accounts for most family models in China. People do not have the habit of storing too much things and prefer to change a brand from time to time. The soy sauce is often packed in five bottles, but in China, only two bottles are tied up.

In the US, roast chicken and ribs are the only two items in the cooked food area, while it provides various cooked food in China to cater to the different tastes of Chinese consumers.

Although Chinese consumers were not accustomed to pay membership fees in the beginning, an increasing number of people are seeing it as a status symbol.

As trade modernizes and as disposable incomes increase there is a quest for clean, well-organized stores, interesting high value merchandise, the best fresh foods, and through internationalization a real interest in imported items, Smith says.

Aiming to better lead and educate Chinese customers, Sam's Club holds different interactive activities especially when it launches new products. Business members are invited to attend wine tasting, and learn how to select and taste wines. There are also activities targeted at mothers and children. Such activities help build customer loyalty and improve the image of the club in the community, Du says.

Though the company faces competition from local competitors and foreign retailers like Metro from Germany, Smith says he is excited about the opportunities and challenges in China.

Realizing that online retail is becoming increasingly popular among Chinese consumers, Sam's has set up SamsClub.cn, an interactive online platform for its customers. The online shopping service is available to Sam's Club members in Beijing and Shenzhen.

"We need to be accessible whenever and wherever our customers are, be it at home, on the road or at the club," says Jordan Berke, director of e-commerce (SamsClub.cn).

yaojing@chinadaily.com.cn