Gen Z is growing up and opening its wallets—to the tune of $360 billion in US spending alone—and only big-box retailers are ready to part with their dollars. Sam’s Club, Walmart’s membership-only grocery store, believes it has broken the law to win over a new generation and gain an edge over rivals like cult favorite Costco.
Sam’s Club CEO Chris Nicholas told CNBC in an interview last week that the company’s membership has been transformed by new consumers. In the past two years, Sam’s Club has seen a 68% increase in Gen Z members during that time.
“The fastest growth in our business over the past two years has been Gen Z and millennial members,” Nicholas said. “That generation believes it’s good to save money, and we agree with it.”
Gen Z’s pessimistic attitude toward the economy and strong desire to save have made them a perfect fit for discount retailers. The 20-something generation is leading the trend in choosing private label products, with 64% of young consumers saying they buy private label products “regularly/regularly,” according to a November 2023 Private Label Manufacturers Association survey of 934 respondents. Amid rising inflation, retailers like Target and Walmart are responding by expanding their product selection, including Walmart’s reinvented fashion brand and its new grocery line that favors plant-based ingredients in colorful packaging.
But while everyone else is focused on something, Nicholas argued, Sam’s Club has been able to differentiate itself with a refreshing digital innovation for the tech-savvy youth. The retailer expanded its e-commerce operations last year by expanding its warehouses and supply chain networks. It doubled down on technology by announcing in January the use of AI in its Scan & Go app, which allows customers to cut checkout lines by ensuring they pay for all items in their shopping carts with a computerized scanning tool. The app is used by 30% of Sam’s Club members, Nicholas said.
“We’re going to go on a journey of, ‘You can have great stuff, great prices like the rest of the club, but you can also find it easily,'” Nicholas said. “And that’s something that really makes sense.”
Big box contention for Gen Z’s attention
Although Sam’s Club has been able to win the favor of Gen Z with technology that makes the shopping process easier, Costco still relies on its mysterious organization that can scare away new shoppers, Zak Stambor, senior retail and e-commerce analyst at Emarketer, said. Good luck.
“People I know who shop at Costco regularly, they have a Costco experience, but there’s a learning curve to that,” he said.
Costco customers not only have to get used to the store’s disorganized shelf sections (although it’s a tactic that’s proven to be less profitable because it tricks shoppers into buying more), they also have to find the best hours to visit to avoid the crowds. That’s not to mention its analog checkout functions, which require employees to check customer purchases themselves, which often requires shoppers to wait in lines to check out of a store. Those are problems Sam’s Club customers don’t really have.
“It’s about making it easier to shop, and that’s a benefit [Sam’s Club] we have been found,” said Stambor. “When you shop at Costco, it can be frustrating.”
But Costco has been adept at building a reputation that’s almost identical to its own Kirkland Signature brand, Stambor said. That, along with its core strategies like good service and solidly priced products, has led UBS analyst Michael Lasser to call Costco shoppers the most loyal customers among retailers. Sam’s Club emulated Costco’s strategy in expanding its member brand. The company has registered its 50,000 customers this month to generate ideas and test new things under the brand.
“The private label piece is a key ingredient here in the formula for success,” Stambor said. “Consumers, in the last few years because of rising prices, have been more willing to trade up to keep products.”
Everyone is a winner
This is a big time for these two member-only retailers, Stambor argued. Both had recent blockbuster profits, with Costco reporting a 9.1% increase in net sales to $57.39 billion in its first quarter, and Sam’s Club seeing a 4.6% increase in net sales for the first quarter from a year earlier, helping Walmart achieved revenue growth of 6%. And because consumers have become more price-sensitive, they are willing to shake off old loyalties in favor of new ones, creating more opportunities for new memberships.
“When consumers focus on value, their habits change, that’s when these types of members-only clubs can come in and help consumers establish new habits and new behaviors,” he said.
While Sam’s Club may have an edge with Gen Z customers right now, Costco, with its long-trusted private label and iconic brands like its newly launched Kirkland Signature clothing, still has a chance to bring in waves of new shoppers.
“Both member clubs have an opportunity to raise their arms and say, ‘Hey, small buyers, if you want value, we’ll give you value,'” Stambor said.
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