Skip to main content
Publish date:

Warehouse Retailers Starting to Look Bulletproof

Numbers are standing firm or rising in the bulk consumer sector.

Big one-stop shopping discounters like


(COST) - Get Costco Wholesale Corporation Report



(WMT) - Get Walmart Inc. Report

may be the only retailers to meet or beat their sales numbers in the coming months. Sept. 11 seems to have accelerated a trend already in place in a slowing economy, which favored value and convenience-oriented stores.

Since Sept. 11, consumers have slashed their spending, and with layoffs mounting and household debt at unprecedented levels, they're expected to remain frugal for the rest of the year. But while shoppers are putting discretionary spending on hold, they are continuing to buy necessary consumables. In some cases, warehouse clubs and broadline discounters like Wal-Mart are getting dollars that would otherwise have been spent in department, grocery or apparel stores.

"Consumers are going to be even more rational than lately in expenditures," says Bill Dreher, retail analyst at Robertson Stephens. They won't buy stuff they don't have to, they want deals, and they want to do all their shopping at once, he said. "We aren't revising their numbers upward, but we're not cutting their numbers like we are for everybody else," he said, referring to the warehouse clubs and broadline discounters.

The largest warehouse club operator in the U.S., Costco, reported that September sales grew 4.0%, beating estimates for 3.6% growth.


(BJ) - Get BJ's Wholesale Club Holdings, Inc. Report

, the nation's third-largest membership warehouse club, met sales growth estimates of 3.3% for the month. And Wal-Mart reported September sales up 6.7% compared with estimates of 5.0%. Wal-Mart operates regular discount stores as well as its own membership-only warehouse club Sam's and combination discount and grocery Supercenters. Costco rose 7% Thursday to $38. B.J.'s gained 3% to $52, but Wal-Mart lost 0.3% to $53.

By comparison, apparel retailers

Ann Taylor

TheStreet Recommends



The Limited



Pacific Sunwear


and even discount apparel chain

T.J. Maxx

(TJX) - Get TJX Companies Inc Report

lowered their sales estimates Thursday.

The warehouse group should drum up 15% growth this year, says Brian Postol, retail analyst at A.G. Edwards. "Not only are they reaping the benefits from non-food categories, but when people are avoiding department stores, and go to warehouses to buy food, they see good prices on other things and buy other things there," he said. About half of warehouse clubs' merchandise is food, but they also sell sporting goods, jewelry, electronics and office goods, as well as CDs and books. They're able to offer cheaper prices than department stores and supermarkets on many items because they tend to have very simple infrastructures and carry bulk, analysts said.

Earnings strength in the sector is likely to last. Warehouse clubs actually have been encroaching on other retailers' territory for the past 10 years. Since the beginning of the '90s, warehouse stores' same-store sales have grown 15% on annual basis, whereas the rest of the retail universe has recorded annual same-store sales growth of just 5%.

The number of people who are members continues to grow 15% to 18% each year, and lately the warehousers have begun attracting brand names to their stores. Costco, for example, now sells Calvin Klein apparel, while Sam's carries Nautica lines. Postol expects the number of wholesale clubs could double to six within the next 5 years.

"In the past, brand names were reluctant to sell to warehouses, but the tables have turned a little bit," Postol said. "A lot of these vendors, most of their retailers are struggling at this point in time, so they're looking for channels to distribute through, and are opening doors to these guys. They're pleasantly finding that these retailers are willing to sell their stock at reasonable prices, and that they get a quicker turnaround."