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Walmart’s Sam’s Club Segment: Positioning For The Next Level

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Feb. 19 2015, Updated 12:05 p.m. ET

Walmart’s wholesale segment – Sam’s Club

Walmart’s (WMT) Sam’s Club segment consists of membership-only club warehouse retail operations. Members include both business owners and individual consumers. The Sam’s Club segment also includes sales made online at www.samsclub.com.

The segment accounted for 12.2% of net sales and 7.4% of operating profits in fiscal year 2014. Due to the wholesale nature of the stores, net sales per square foot are the highest among all of the company’s segments. Its operating profit margin is the lowest at 3.5%[1. Fiscal 2014].

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Product assortment

Sam’s Club merchandise falls into five product categories:

  1. Grocery and consumables
  2. Fuel and other categories
  3. Home and apparel
  4. Technology, office, and entertainment
  5. Health and wellness

Groceries and consumables is the largest product category. It accounts for 56% of the segment’s sales. Sam’s Club also sells private-label items like “Member’s Mark” and its proprietary brands including Artisan Fresh, Daily Chef, and Simply Right, among others.

ETF exposure

Due its product orientation, Walmart and other retail companies—Costco Wholesale (COST), Safeway (SWY), and Kroger (KR)—are included in the portfolio holdings of the Consumer Staples Select Sector SPDR ETF (XLP). Together, they account for ~13.5% of the portfolio’s holdings. Walmart is the third largest holding in XLP. Its weight is ~7.5%.

Recent changes

The segment is in the midst of an overhaul to improve revenue growth and profitability. It made changes to membership deals. Now, it’s offering credit value to all of the members on its MasterCard. This includes:

  1. 5% cash back on fuel
  2. 3% cash back on dining and travel
  3. 1% cash back on everything else

Sam’s Club is also offering cash rewards for PLUS members—including $10 for every $500 spent. In comparison, Costco (COST) offers its executive members a 2% annual reward on most Costco purchases. Members can earn up to a $750 reward on qualified Costco purchases.

Sam’s Club is also repositioning its product assortment to appeal to a broader clientele—including Millennials. Sam’s Club is also increasing its digital presence and embracing omni-channel retail through mobile and tablet apps and click-and-collect.

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