Despite Boasting a Strong Regional Presence, Intense Competition Pressures BJ's Competitive Standing

Despite operating amid a fiercely competitive retail industry in which price competition is pertinent and customer switching costs are virtually nonexistent, BJ’s Wholesale has managed to protect its position as a regional retailer along the East Coast. BJ’s is one of the few major warehouse club chains in the US, a business model that is predicated on stringently managing costs and driving strong sales volume per store. The firm attempts to keep its costs lower than nearby food retailers by maintaining a frugal store environment and operating a streamlined distribution process. For instance, BJ’s limits where possible the use of distribution centers and it stores large quantities of inventory on pallets located directly on the sales floor (we estimate BJ’s warehouses average about 100,000 square feet). The company also minimizes distribution complexity and enhances its procurement scale on select items by offering a limited assortment of just 7,000 stock-keeping units (or SKUs) per store, often in bulk quantities. This lands well below the typical 40,000 and 100,000 SKUs offered by supermarkets and mass retailers, respectively. Due to its strict cost management, BJ’s typically keeps its selling, general, and administrative expenses at around 14%-15% of sales versus about 20% for most traditional food retailers.