Costco (COST) and Walmart's (WMT) Sam's Club dominate the warehouse club market.
The two companies, however, have a third, much smaller rival: BJ's Wholesale (BJ), which wants to make a bigger splash.
BJ's only has about 230 stores, about a third of what Sam's Club has and about a quarter of Costco's total. The chain has always had a devoted following, but its footprint has hurt its business.
Costco and Sam's Club have an enormous amount of buying power, which allows those chains to force vendors to offer lower prices.
Sam's Club also has the Walmart connection which gives it nearly unparalleled leverage in negotiations. BJ's does not have that – and realistically it likely never will. To combat that, the number three warehouse club has a plan that involves a new kind of store.
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BJ's Wholesale Wants to Innovate
BJ's CEO Bob Eddy focused on innovation during the chain's fourth-quarter earnings call.
"So one of the things we're trying to do here in this company is installing a culture of growth," he said. "And that means we need to up the innovation quotient in the business. And one of the ways to do that is to give people the freedom to do it. And having a place to do it, that's a safe place, the way we can tinker and try new things is really what we're after."
That innovation will at least partly take the form of a new test concept in Warwick, Rhode Island. Called BJ's Market, the club will serve as an innovation lab for the brand, allowing it to test "out new assortments, displays, product demonstrations, and convenience initiatives," according to a press release.
Eddy gave more insight on the new concept during the earnings call.
"It will be a different assortment initially than at any particular club that we have today will be presented differently," he said.
"We'll have a different way to do product demonstrations, different labor model, different front-end model with a focus on getting people out of the building more quickly than they might get out of the building today in a traditional club, all sorts of different things that we'd like to try out, see what works and then take what works and port it back to the mother ship."
BJ's Has Big Expansion Plans
The new store might work on its own, or it could show the chain some ideas that might make sense in its current stores.
"If it becomes a new growth vector for us, if it really works in its own right, that would be wonderful. It would be a real asymmetric growth chance where if this thing doesn't work, we lose a few million dollars in trying new things," he said.
Eddy may be offering careful language but he said he is actually pretty confident that the new model could unlock a lot of expansion offers for his chain.
"If it does work, we can open a whole lot more new boxes," he said.
The CEO, however, is also realistic.
"That's not really what we're thinking of at this point, but it could end up that way," he added.
"All we will think it's a stellar success if we can learn a few things about how to show our members new assortments, how to do product demos the right way, how to be more efficient at the front end, how does it deliver value in a truly convenient fashion," he said. "If we can learn things about that to bring back to the chain, we will think it's very, very successful."
