Walmart's (WMT) Sam's Club sits in the shadow of its more successful rival, Costco (COST).
Both companies follow the same business model. They sell memberships to their warehouses and, in exchange, offer their members limited-frills shopping at very low prices.
Warehouse clubs are exactly that -- warehouses. Good are packed on pallets, very little staff walks the floor, selection is limited and items generally are sold in bulk. But by keeping the selection limited and not spending money on merchandising or customer service, Costco and Sam's Club can offer very low prices.
Both companies have succeeded with the model. The difference between the two, however, is that Costco has a deeper connection with its members. That's not something that's easy to quantify or even explain; it's more akin to how people view Target (TGT) versus how they see Walmart.
Costco has some of the "Tar-Zhay" magic, where it's a discounter that's somehow also a cool place to shop. Maybe that's because of its product sampling or its famous $4,99 rotisserie chicken. Or maybe it stems from how Costco has famously been a good employer, retaining the same staff for decades, which may build its customer connection.
It's impossible to fully understand why Costco has a deeper connection with its members, but it has been an edge for the company, which hovers around a 90% membership-renewal rate.
Sam's Club, however, has been putting up its own strong membership numbers and it made a bold bet to try to win some more, likely at the expense of its rival.
Image source: TheStreet.
Sam's Club Has a Super Bowl Ad
Costco shares its membership total -- 62.5 million, up 800,000, or 1.3%, from 61.7 million a quarter ago -- and total cardholders, 113.1 million, up 1.5 million, or 1.3%, from 111.6 million 12 weeks ago, for its most-recent quarter, according to Chief Financial Officer Richard Galanti.
Sam's Club does not share its membership numbers. It has, however, been growing.
The Walmart-owned company did share that "membership income increased 11.3%, which is the fifth consecutive quarter of double-digit growth," in its most-recent quarter.
Costco currently operates 828 warehouses, including 572 in the U.S. and 105 in Canada, while Sam's Club has 600 clubs, all in the U.S.
To grow its membership, Sam's Club advertised during the Super Bowl in a commercial starring comedian/actor/guy in a lot of commercials Kevin Hart. That's a $6.5 million expense before paying Hart or producing the ad.
Walmart's investment in growing the Sam's Club's audience did not stop with its ad during the big game. The company has supported its ad with a bold special promotion.
Sam's Club Offers Nearly Free Memberships
Costco rarely offers discount memberships, and when it does, it's generally on a very local level. Sam's Club has been more aggressive with discounting and it has a bold offer to follow up its Super Bowl ad.
The warehouse club has decided to capitalize on its first-ever Super Bowl ad by offering what it describes as a "game day VIP campaign," with an $8 membership deal that's redeemable in clubs from Feb. 14 through Feb. 17, 2022.
Available only to new members, the $8 deal "is based on where the football was placed at the two-minute warning in the fourth quarter of the game, just before the warehouse retailer's ad aired."
A basic Sam's Club membership normally costs $45. That's already cheaper than Costco's entry-level gold membership, which costs $60.
"We work hard to win our members' loyalty every day with the strategy to treat them like VIPs, which you see reflected in our game-day ad," said Sam's Club Chief Members Officer Ciara Anfield.
"Our participation in this year's game is giving us an opportunity to celebrate one of the many perks of being a Sam's Club member, while opening the door to invite others to be part of the club with a membership offer that's hard to pass up."
That's a whole lot of marketing speak, but, basically Sam's Club has one-upped Costco by offering a year-long membership nearly free.
In theory, that gives the warehouse club 12 months to convince those new members that they should renew. And of course, some of those memberships will auto-renew.
An offer like this could tip some people who were on the fence about joining a warehouse club to Sam's Club.
If they have a positive experience, they're likely to remain members. If they don't, they very likely won't join Costco and instead will decide that a warehouse club membership is not for them.
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