Will Sam’s Club Sales Soar with Drones?
Walmart’s 2015 Shareholder Meeting: Key Investor Takeaways
Sam’s Club update
Of its three segments, Walmart’s (WMT) Sam’s Club appears to be experiencing the biggest challenges lately. Sales are down, partly due to the decline in fuel prices and partly due to lower traffic.
Walmart is exploring several ways in which to improve sales. That includes carrying a comprehensive selection of drones next holiday season, according to the Wall Street Journal. These are consumer-oriented drones, with various levels of sophistication depending on the end user. There will be drones for children, surveyors, and real estate agents, to name a few.
Sam’s Club versus Costco
Despite headwinds from lower fuel costs and traffic last quarter, Walmart added 17 new clubs last year in the US. Sam’s Club sales grew 1.5% to a record ~$58 billion in fiscal 2015.
In contrast, Walmart’s rival in the warehouse club format, Costco (COST), reported sales of $112.6 billion in fiscal 2014, representing growth of 7.1% year-over-year.
Yet despite the much stronger growth and larger business, Costco’s ~2.9% operating profit margin was lower than that of Sam’s Club, at 3.4%, in their respective most recent fiscal years.
Mindful of Millennials
Walmart has been aggressively investing in its omni-channel and home shopping capabilities. This should enable it to compete more effectively with Costco for the loyalty of a younger demographic, which finds these features naturally more appealing.
As well, Sam’s Club increased its selection of organic produce by 20% last quarter.
These strategies are likely to appeal to Millienials, who typically stock less, are less likely to shop at wholesale clubs, and gravitate toward organic products. This will also enable Walmart to compete more effectively with organic chains like Sprouts Farmers Market (SFM) and Whole Foods Market (WFM), which are cashing in on the organics boom.
WMT, COST, and WFM together make up about 11.1% of the Consumer Staples Select Sector SPDR Fund (XLP).
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