Incorporated: 1997
NAIC: 452910 Warehouse Clubs and Superstores
SIC: 5399 Miscellaneous General Merchandise Store
Natick, Massachusetts-based BJ's Wholesale club, Inc., is the third largest membership warehouse club in the United States, trailing only Costco and Sam's Club, and is the market leader in New England. Unlike its larger rivals, which very much cater to small businesses, BJ's mostly serves individuals, primarily targeting middle-income households with children. With over 8.5 million members, the chain operates more than 170 clubs in 16 eastern states.
The stores offer apparel and accessories, consumer electronics, small appliances, jewelry, and groceries. Most units include an optical department and more than half sell gasoline. Club merchandise is also sold through the company's web site. A Fortune 500 company, BJ's is listed on the New York Stock Exchange.
Membership Warehouse Concept Established: 1976
The first membership warehouse club was opened in 1976 outside of San Diego by Sol Price, a pioneering retailer, and his son Robert. A lawyer by training, Price did not become involved in retailing until his late 30s. After inheriting a warehouse in Los Angeles he turned it into a retail operation in 1954 called FedMart, selling jewelry, furniture, and liquor to a select clientele: government employees willing to pay a $2 membership. The business thrived, growing into a chain of 45 stores.
Its success also inspired an Arkansas man named Sam Walton, who borrowed the idea to launch his own retail chain under the Wal-Mart banner. After selling FedMart to a German company in 1975, Price was soon ousted and looking for a new venture. After months of reflection and long walks through San Diego, during which they conversed with small business owners, Price and his son recognized that the wholesale distribution was failing to adequately serve this market. Thus in 1976 he converted an aircraft parts factory in San Diego into the first Price Club, tailored to the need of small business owners who were charged a $25 membership fee.
In order to keep prices low, selection was limited, items were sold in bulk, and little sales help was made available in the cavernous, unadorned facility. The business struggled until Price opened up membership to government employees and others, people who were not likely to bounce checks. Not only did Price open other Price Clubs, he spawned a number of imitators in the early 1980s: Sam Walton opened Sam's Club, and a former Price Club executive helped launch Costco, which in time would acquire Price Club.
BJ's was the membership club entry of another respected retailer, Zayre Corporation. Its founders, Max and Morris Feldberg, were born in Russia and came to America in the early 1900s to avoid being conscripted into the army. They found work in a family variety store in Chelsea, Massachusetts, and in 1919 struck out on their own to launch a hosiery-jobbing company, and ten years later became involved in retailing by launching a chain of women's apparel stores, Bell Shoppes.
In the post-World War II era a second generation of the Feldberg family took charge and recognized the growing importance of the suburbs, where much of the baby boom generation was being raised, and looked to take advantage of the trend by opening a chain of discount department stores. The first opened in Massachusetts in 1956 under the name Zayre. By the late 1970s the Zayre discount stores were struggling, and a nonfamily member, former American Express Card executive Maurice Segall, was hired to turn the company around. He grew a small retail chain called T.J. Maxx, launched an off-price women's apparel mail-order catalog business, and decided to take a crack at the membership warehouse club idea.
BJ's Launched: 1983
In 1983 Segall appointed a Zayre's computer-management executive, Mervyn Weich, to start a wholesale club. The first unit opened a year later in Medford, Massachusetts, under the name BJ's Wholesale Club, the initials drawn from Weich's daughter, Beverly Jean. Membership was opened to government workers and employees of hospitals, banks, educational institutions, and public utilities, as well as credit union members. Some large companies also provided memberships to their employees as a fringe benefit. BJ's focused on high demand, high price products, skewed toward such opportunistic categories as gold and diamonds, soft goods, and frozen foods. Before the end of 1984 two more 100,000-square-foot stores were opened. Zayre's warehouse club division expanded further in 1985 with the acquisition of HomeClub, Inc., a home improvement store chain.
By early 1986 BJ's had a dozen stores in the fold and hoped to have 50 by the end of the decade. The company ventured into the Chicago market in 1986, opening three stores, but they did not perform well and lost money. While the other stores performed reasonably well, the overall performance of BJ's was deemed disappointing. In July 1987 Weich resigned, citing a desire "to pursue other interests."
BJ's Spun Off as Part of Waban, Inc.
The parent company had other pressing problems to deal with as well. The Zayre discount chain was suffering severe losses, and in the autumn of 1988 management elected to sell the 400 Zayre stores to Ames Department Stores, Inc., in order to focus on the emerging T.J. Maxx unit. A further step in this direction was taken in June 1989 when the warehouse club division, which included BJ's and HomeClub, was spun off as Waban, Inc.
By this point, BJ's was operating 22 stores, 16 of them in the Northeast, where it faced increasing competition from Sam's Club and invasion by three other warehouse clubs: Price Club, Pace, and Makro. BJ's looked to protect its position in the Northeast by stepping up its expansion plans in the region. It also looked to eliminate free group members from its ranks to become a paid-member-only wholesale club. Paid members were more loyal, and shopped more often and spent more money than free group members, who only shopped on occasion and simply created congestion in the parking lot and in the stores, hindering the big spenders from spending.
BJ's began the 1990s with a new president, Herb Zarkin, a 29-year Zayre veteran who was also HomeClub's president, and a major expansion program. Seven new stores opened in 1990, more than any prior year, including the chain's first store in Virginia and units in Hamburg, New York; Fairfield, Connecticut; Allentown, Pennsylvania; Sunrise, Florida; Harrisburg, Pennsylvania; and Niles, Illinois. All told the chain numbered 30 stores. Going forward, the company looked to focus on three areas, the Northeast, Florida, and Chicago. The idea was to cluster the clubs in order to save on overhead by sharing management support, distribution centers, and marketing efforts. A year later, however, management decided to exit the Chicago market, which had always offered more promise than profit. Three of the four BJ's stores in the area were converted into HomeClubs while the fourth was simply closed.
Despite the problems in Chicago, BJ's began to see improvement in its core Northeast market, where consumers were finally becoming more comfortable with the warehouse club format. As a result, BJ's annual revenues grew at a 25 percent rate in the early 1990s, reaching $1.8 billion in 1992, but profit margins were thin, the company netting just $21.1 million. In truth, much of the gains enjoyed by BJ's, and Waban in general, were the result of new store openings. Stores in operation for more than a year actually experienced declines. Because Waban was not performing up to the board's expectations, the company's chief executive, John F. Levy, resigned in May 1993. He was replaced by Zarkin.
BJ's opened 13 new clubs in 1993, bringing the total to 52. Revenues topped $2 billion in 1993 while net income improved modestly to $22.3 million. Ten stores were added to the chain in 1994, nine in 1995, and another ten in 1996. Total revenues during this period increased to $2.92 billion and net income grew to $53.6 million. A key to the chain's success was its thriving fresh food business. By making quality meats and international cheeses available, BJ's provided customers with a compelling reason to shop more frequently.
Despite BJ's improvement, the price of Waban's stock did not fare well, depressed because of the less-than-stellar performance of HomeClub. In order to increase shareholder value, the company decided in late 1996 to spin off BJ's as a separate public company to allow both BJ's and HomeClub to devote more attention to their particular goals and thereby increase the value of both chains.
BJ's Goes Solo
The BJ's spinoff was completed in July 1997 as a special, tax-free dividend to Waban shareholders who received BJ's new stock on a one-to-one basis. Zarkin remained chairman of BJ's while President John Nugent became the new CEO. The chain opened just four clubs in 1997 while closing one, bringing the number in operation to 84. Revenues in the meantime reached $3.16 billion and net income improved to $68 million. The company also developed expansion plans that led to a dozen club openings in 1998 and BJ's entrance into the Cleveland, Ohio, market.
While the vast majority of the units were "big box" in size, averaging 112,000 square feet, 14 relied on smaller formats, about 69,000 square feet, more suitable for smaller markets. Also of importance, the company began adding gas stations and took steps to introduce private-label brands in 1999. BJ's closed the 1990s with 11 new store openings, including the first in North Carolina. Membership also increased 15 percent to 5.8 million. Total revenues increased to more than $4.1 billion and net income jumped to $111.1 million.
The BJ's chain grew to 130 clubs by the end of 2001, a year when the focus was on the Southeast. Five clubs opened in three markets in Florida, and two North Carolina markets that had been entered the previous year were bolstered by two new units. Of the company's $5.2 billion in total revenues for that year, more than 60 percent came from food sales (excluding gasoline, which was only available at 55 clubs). To support BJ's Southeast expansion a new 480,000-square-foot distribution center was opened in Jacksonville, Florida, in 2002, when 13 new clubs were added, including four prototype clubs in the Atlanta market. For the year, total revenues approached $5.9 billion and net income increased to $130.9 million.
The wholesale club business remained highly competitive, however, and the addition of difficult economic conditions served to dampen the price of BJ's stock. In September 2002 Nugent stepped down as CEO in favor of Michael Wedge, executive vice-president of club operations since 1997. While Wedge had been heir apparent for some time, the move was made because Nugent was undergoing some family concerns and Wedge was more suited to seeing BJ's through a period in which the focus would shift from expansion to technology and new marketing initiatives to stave off encroachments from Costco and Sam's Club.
Under Wedge's direction, BJ's began to improve greatly its selection of designer apparel, brand-name appliances, and consumer electronics, while introducing a line of premium prepared foods and improving the offerings in produce, baked goods, seafood, and international cheese. At the same time, some merchandise was pulled from the shelves, including large exercise equipment, automotive parts, and stationery. In addition, several new private labels were rolled out, including Wellsley Farms for fresh foods, Rozzano for Italian-style food, Willow Lane for furniture, Loving Home for housewares, Lanesborough for men's apparel, and Portsmouth Shores for outdoor furniture.
Focus on New Concepts for the 21st Century
BJ's opened ten new clubs in 2003 while renovating 30 others, and established a new-concept club in Kissimmee, Florida, where new ideas could be tested, such as an enlarged consumer electronics department, a store-within-a-store jewelry department, and "BJ's Incredible Kids Club," a supervised area where children could play while their parents shopped. On the technology side, a price optimization program began to help in pricing decisions, leading to improved merchandise margins, and more self-checkout lanes were added to 100 clubs.
Total revenues improved to $6.72 billion in 2003, catching the attention of potential suitors. According to Retail Merchandiser, "reports began circulating in April [2003] that two offers had been made for the chain. One supposed offer came from an undisclosed buyer (rumored to be Albertson's, the Boise, ID-based supermarket chain), and the second from Wal-Mart Stores, parent of rival Sam's Clubs, which has been struggling."
A number of innovations tested in the Kissimmee club began making their way into the other units in 2004, leading to a second research and development club to be opened in 2005. This unit, located in Cape Coral, Florida, was tasked with focusing on food innovation, leaving general merchandise to Kissimmee. Total revenues grew to nearly $7.4 billion in 2004 and approached $8 billion in 2005, when net income improved to $128.5 million.
BJ's did not fare as well in 2006, however. Both sales and margins were down, leading to several months of disappointing results, fueling rumors that the company was on the block. Speculation grew even more heated after Wedge resigned in November 2006. Zarkin stepped in as CEO on an interim basis and in February 2007 took the position on a permanent basis. Although net income fell to $72 million in 2006, total revenues increased to $8.3 billion in 2006 when nine new clubs were opened as well as a new 618,000-square-foot distribution facility that replaced an older, smaller center in Massachusetts.
With Zarkin back in charge, BJ's showed a marked improvement in its performance in 2007, and the company took advantage of its low stock price to buy back well over $100 million of its shares. Late in the year the board of directors authorized another $250 million to be spent on the stock repurchase effort. BJ's also opened a new club located in Manchester, Connecticut, in 2007, and was poised for continued growth.
Principal Subsidiaries
Natick Security Corporation; Mormax Beverages Corporation; Mormax Corporation; Natick Reality Holdings, Inc.
Principal Competitors
Costco Wholesale Corporation; Wal-Mart Stores, Inc.; Family Dollar Stores, Inc.
Further Reading
"BJ's Wages Expansion Battle," Discount Store News, September 25, 1989, p. 7.
Bulkeley, William M., "Zayre to Split into Two Firms, Change Name," Wall Street Journal, December 6, 1988, p. 1.
Facenda, Vanessa L., "BJ's Growth Outpaces Larger Rivals," Retail Merchandiser, July 2003, p. 34.
Ferguson, Tim W., "A Revolution That Has a Long Way to Go," Forbes, August 11, 1997, p. 106.
Halverson, Richard, "BJ's Shows Its Strength as Stand-Alone Company," Discount Store News, August 18, 1997, p. 1.
Owen, Erica, "CEO of BJ's Wholesale Resigns As Firm Opts for 'Fresh' View," Wall Street Journal, November 24, 2006, p. B7.
Pereira, Joseph, "Waban's President, CEO Quits, Citing Financial Results," Wall Street Journal, May 26, 1993, p. B1.
Rudnitsky, Howard, "Making Money at the Low End of the Market; As a Discounter," Forbes, December 17, 1984, p. 42.
"Waban Looks to Bolster BJ's Profitability with Spin-Off," Discount Store News, November 4, 1996, p. 3.
Wedemeyer, Dee, "Those Low-Priced Price Clubs," New York Times, May 18, 1986, p. A4.
— Ed Dinger
