Investors began to worry about the retail sector following Walmart’s profit warning last Monday. However its subsidiary Sam’s Club appears to be thriving as inflation sends consumers on a mad dash for cheap prices, low-cost gas plus perks, and free samples.
Jefferies Analyst Stephanie Wissink said in an interview, “We’re seeing in the [Sam’s] Club channel that the traffic has been remarkably resilient. One of the strongest customer acquisition tools for them is gasoline. And when gas prices spike, that tends to be a net beneficiary to traffic to their pumps.”
Sam’s gas deals helped to make Sam’s Club the bright spot in Walmart’s earning’s report, highlighting a 10.2% sales growth year over year. During that period, gas prices jumped from $3.41 per gallon to $4.14 per gallon.
Wissink said, “Regardless of what your consumer income profile looks like, we know that even the high-income [customer] loves to find a way to value-hack the system, and gas tends to be the way that the Club channel does that.”
Consumers looking for cheaper prices is not uncommon during economic downturns. E-commerce platform Boxed showed that according to historical data, their customers actively sought out more value during downturns.
Chieh Huang, co-founder and CEO of Boxed said in an interview, “What a consumer did in prior downturns, they really kind of traded down or up. They’ll trade down to a dollar store. They’ll trade down to a hard discounter. The folks who can afford it will actually trade up in quantity because if you’re buying more, if you’re buying in bulk, you’re going to save a little bit of money.”
Target CEO Brian Cornell had noted he too saw consumers trading down to private labels to save money.
Consumers trading down can be bad for the bottom line of big-box retailers, but dollar store chains like Dollar Tree and Dollar General will usually see their volume take off. And for bulk buyers, it means they will be picking up memberships at warehouse clubs like Sam’s, Costco, and BJ’s, who will then see a boom which can build loyalty that will extend into better times when economies pick up.
Wissink said, “Broadly, we would say [Sam’s] Club is still an outlier to the positive. Bulk-buying can actually be a way to save.”
