In the world of warehouse clubs, BJ's Wholesale (NYSE:BJ) ranks a distant third. It's smaller across several financial metrics than leaders Costco (NASDAQ:COST) and Walmart's (NYSE:WMT) Sam's Club, but that doesn't necessarily make it a poor investment.

The No. 3 warehouse club has been growing and it has increased its paid membership base. CEO Christoper Baldwin gave an update on those efforts during the chain's third-quarter earnings call.

"As you may know, we've changed our approach to first-year membership offers, moving away from trial members with the goal of increasing the number of paid members," he said. "As a result, we finished the quarter with the highest percentage of paid members in our company's history. We continue to make strides in shifting our membership acquisition to digital channels, [and] as a result, the percentage of members acquired through digital channels doubled in the quarter year-over-year."

A person shops in a warehouse club.

BJ's is a distant third in the warehouse club space. Image source: Getty Images.

Should you buy BJ's?

The biggest negative when it comes to buying BJ's stock is that it does not pay a dividend (like Costco and Walmart do). That's a problem if you're about to retire and are looking for a steady source of income from your investments. But it may not be as big a concern if you're adding the company's shares to a longer-term retirement portfolio.

BJ's has been transforming its membership base and that's key to its long-term success. The company has lowered the average age of its membership ranks and has added to its customer base that pays for the chain's higher-tier membership.

"Higher-tier memberships represented 23% of our member base at the end of last year, and is now at [28%], again the highest in our company's history," Baldwin said. "The progress has been anchored by our ability to offer BJ's Mastercard at the register, a new capability we invested in this year."

The warehouse club has also enrolled 60% of its customer base in its Easy Renewal program. Under that system, those members have their memberships automatically renew, making it more likely that the chain will retain its members for a longer period.

BJ's has also followed its warehouse club rivals in modernizing its business for the digital era. That has not meant going full omnichannel, but the company has made strategic investments.

"Our convenience services, while still small compared to the rest of the business, continue to grow and resonate with our members," Baldwin said. "Buy online, pickup in club [BOPIC] and same-day delivery continued to accelerate in the third quarter. About half of our BOPIC users make additional purchases once they're in the club."

Is BJ's a smart investment?

BJ's has the arrow pointing in the right direction, but investors should be wary. The company has a smart business model but it's still a relatively small company. Q3 sales came in at $3.2 billion, about 10% of the $36.24 billion Costco reported in its most recent quarter.

The challenge for BJ's is whether it can grow fast enough to have similar purchasing power to its rivals. That's a very tough task given the size of Costco, let alone Walmart.

BJ's has built a smart business, but it's a distant third in its space. The company remains vulnerable to Costco and Sam's Club putting warehouses in its markets. Both of those companies can afford to lose money on individual locations to squeeze out its rivals.

If BJ's can get much bigger, it could be a smart investment for your retirement portfolio. At the moment, it's too small to be a safe bet because its bigger competitors could crush it if they chose to do so. This is a company to keep an eye on, but not one to put your money into just yet.