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2 Key Ways BJ's Wholesale Club Is Building a Winning Strategy

By Rhian Hunt – Nov 22, 2021 at 8:08AM

Key Points

  • Membership is up, and member quality improving, even as the “great reopening” rolls on.
  • BJ’s digital sales are growing fast, and individual purchases are larger than in-store baskets.
  • The warehouse club just partnered with DoorDash for new delivery options.

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Here's how the warehouse chain is leveraging its already strong growth to bolster its outlook.

BJ's Wholesale Club (BJ -2.49%) dazzled investors on Nov. 18 with a hearty revenue and earnings beat, and its stock climbed nearly 20% following the report. A rival to Costco in the warehouse club space, BJ's has seen a steady rise over the past year, outperforming the S&P 500 index in the process.

However, being able to maintain its growth in the future is what's most important to investors or potential investors. Here are a few strategic initiatives the retailer is pursuing that bode well for its future.

1. Broad-based growth still looks dynamic

Warehouse clubs boomed in 2020 as COVID-19 gripped the U.S., with shoppers turning to these retailers to stockpile supplies and reduce their exposure to the virus. Fresh and frozen foods, consumable goods, and health products topped the lists of most popular products.

Walmart's warehouse club chain, Sam's Club, saw same-store sales surge 13.9% in the fiscal 2022 third-quarter as e-commerce jumped 32%. In the nine weeks ended Oct. 31, Costco's e-commerce revenue also increased 12.1%, and comparable sales were up 10.4%. BJ's Wholesale saw 44% and 5.7% gains in those respective categories in its fiscal third quarter.

Exterior of a BJ's Wholesale Club location.

Image source: BJ's Wholesale Club Holdings, Inc.

With the "great reopening" currently underway as COVID-19 fears ebb and government restrictions on retail disappear, decelerating growth for this sector is expected. However, BJ's CEO Robert Eddy noted during the latest earnings call that membership grew 3% year over year and 15% on a two-year basis. The quality of BJ's memberships is also improving with "higher-tier" customers now making up 34% of the total, up 400 basis point year over year.

BJ's ability to keep growing its membership, improve their quality, and generate a high number of renewals, even as tailwinds from the pandemic wane, shows it is successfully connecting with shoppers. Its work to streamline 40% of SKUs in key categories has made shopping easier with less cluttered shelves, and the launch of additional private-label brands has also contributed to the recent success.

2. Digital and delivery are strong -- and getting stronger

Though brick-and-mortar demand is there, BJ's Wholesale is still seeing the digital channel shine. "Digitally enabled" sales in the fiscal third quarter were up 244% on a two-year basis. Eddy noted that online shoppers spend more and buy more frequently than members who only shop in-store, so expansion of this channel is more important to growth than the headline numbers would indicate.

The retailer also inked a deal with food delivery company DoorDash, a company which has itself been generating explosive growth despite the "great reopening." DoorDash is expanding aggressively beyond restaurants to provide local same-day delivery to a wide assortment of retailers, including Ulta Beauty, Bed Bath & Beyond, and now BJ's.

The DoorDash deal involves a special online marketplace, which will launch to the public in Jan. 2022, with deliveries starting in the first quarter. Eddy described it as "the first step toward a new model where our team members will pick all orders, and a stable of transportation partners make the deliveries." This delivery initiative could be key to driving even stronger, more durable digital order growth.

What this all means for BJ's future

While the stock market delivered flashy one-day gains on the earnings news, it's the strategic initiatives revealed in the earnings call that are likely to cement those gains long-term. Improvements to its product mix, the launch of private-label brands, growing digital offerings, and membership retention and growth reassure investors that this retailer can continue flourishing beyond the pandemic.

BJ's Wholesale Club appears to have a strategy capable of generating plenty of momentum going forward, and that's why it's a bullish pick among retail stocks

Rhian Hunt has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Costco Wholesale and Ulta Beauty. The Motley Fool has a disclosure policy.

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