How Sam’s Club became the ‘Netflix of shopping’

One of the world’s biggest retailers sits, a little overlooked, inside the world’s largest company by revenues. Sales at Sam’s Club US, the membership club launched in 1983 by Walmart founder Sam Walton, passed $90 billion last year — a fraction of its parent company’s $681 billion total, but more than the annual takings of Tesco or Albertsons.

Chris Nicholas, its CEO for the past two years, thinks he can double those revenues in the next eight to 10 years, in what he calls “one of the fastest, most scalable transformations” happening in his industry today. Sam’s Club’s comparable sales growth of almost 6% exceeded that of Walmart’s US stores in the second quarter of this year.

Nicholas says it is a good time to be in the low-price end of the retail business because “people are really resonating with great value.” The CEO, a keen athlete who says he was once dive-bombed by an eagle while on a nighttime run, is in a hurry to build out Sam’s Club’s current 600-location portfolio by adding about 15 stores a year and accelerating its e-commerce expansion. But much of his plan hinges on doubling down on the core choices that are most likely to convince existing members to renew and spread the word to new customers.

‘Disruptive value’ keeps customers loyal

At the heart of Nicholas’s strategy is a clear-eyed understanding of the demanding realities of the warehouse club model. “You make as little as possible on what you sell, and always look to reduce the costs of selling it, so that you create incredible value for your members,” he says. If you can constantly improve the customer experience at the same time, he adds, “the cognitive load of ‘do I continue to be a member’ just disappears.”

Nicholas likens the annuity-like returns of his customers re-upping their memberships to a tech subscription model, dubbing Sam’s Club “the Netflix of shopping.” But unlike most streaming services, with their vast selections of films and shows, the average Sam’s Club sells just 4,000 items. Each is selected for its “disruptive value” through a process he likens to Darwinian natural selection and displayed in bare-bones fashion, often on the pallet it arrived on.

The economics are brutal: “Every item needs to sell a lot. Why? Because if it’s going to be on a pallet, it needs to turn quickly, and if it doesn’t turn quickly enough, it can’t be on a pallet. But if it’s not on a pallet, it’d be on a shelf, and I don’t have the wages to pay for it to be on a shelf.”

Sam’s Club now offers about 20,000 items on its e-commerce site, where sales grew 26% last quarter. Those picks, too, are in service of its brick-and-mortar selection: If a product becomes a bestseller online, it will find its way into the club, refreshing the in-store range. Enhancing the value of that offering, in turn, gives Sam’s Club more pricing power. “Ask yourself how much value you’re giving [members],” Nicholas says, “And at some point, you’ll get to the point where it just makes obvious sense that you should be charging more.”

Tech investments need to solve real problems

Operators like Sam’s, Costco, and BJ’s Wholesale Club have not pushed online shopping as aggressively as other retailers, Nicholas notes, because they’ve seen e-commerce as being too costly. Picking and packing orders to ship out to people’s homes cannot match the profit margins of having customers browse pallets in a warehouse.

But Nicholas had helped build Walmart’s e-commerce network, and understood the capacity Sam’s Club’s parent company had to help it fulfill online orders across the country. Walmart now gets more use out of its fixed-cost network, Sam’s Club gets a lower cost of execution and “speed to market,” and customers get the same prices as are offered in-store, adding more value to their membership, he says.

“The more digitally engaged those members are, the more likely they are to renew,” he adds, noting that the online offering has proved particularly effective at pulling in Gen Z and Millennial members. Express deliveries from clubs, for which members pay extra, have become the group’s fastest-growing business, Nicholas says, with handmade sushi and rotisserie chickens among the most popular items.

The principle underpinning Sam’s Club’s tech investments is that they must solve problems for customers and associates. CEOs can’t force adoption by putting technology “ahead of what people really want,” Nicholas says, arguing that automation and AI investments should be “people-led and tech-powered.”

His decision to equip local managers with enterprise ChatGPT has helped frontline staff prepare faster for upcoming events in their communities, for example. And he claims to have automated 200 million repetitive tasks a year that were once done by Sam’s Club’s 100,000 associates. As an example, he cites a floor-scrubbing robot that scans shelves while making its rounds, and can send messages to associates’ phones to tell them which pallets need to be pulled down next.

Investments like its Scan & Go technology relieve staff from mundane tasks like operating tills, he says, freeing them up for jobs like preparing fresh meals. It’s an optimistic vision of AI’s potential to improve careers rather than end them, at a time when anxieties about the technology’s impact on employment run high.

“Are people fearful of it? I’m not seeing it, and the reason I’m not seeing it is because we’re just solving the things people just don’t want to do,” Nicholas says. “The younger generations coming through don’t want to do what was done in the past.”

Sam’s Club is managing to reduce staff turnover and focus its associates on work that drives its membership model, he adds: “We can do that and not grow our cost base, which is really exciting.”

Invite critiques to maintain humility

Nicholas likes to tell his team that loyalty in retail is just the absence of something better, and he is driven by a fear of rivals like Costco outsmarting his business. He learned from Walton’s example not to critique competitors but to study them, and rewards “disruptors” on his staff with a ceremonial blue vest like the one “Mr. Sam” wore.

This culture of humility encourages his company to critique itself instead. Each Monday, merchants gather to “obsess” over data on what is selling and what is not. On Fridays, they regroup. “It’s a really good forcing mechanism,” Nicholas says, “because people know that if it’s a problem on Monday and it’s not fixed by Friday, it’s coming up in our Member Matters meeting — and you don’t want that to be the case.”

Nicholas was born in Hull, Yorkshire, and worked in six countries including Hungary and Australia before landing in Walmart’s Arkansas hometown to take up a finance role in 2018. But his first job in retail, training at Tesco under Sir Terry Leahy, was particularly formative. The UK chain’s lauded former CEO taught him that the CEO’s job is to “listen, lead, build change, be fearless where you need to be, be clear-eyed where you need to be, [and] be a coach to make the next generation of people behind you better than you are.”

If the people at the top are setting the wrong example, he reasons, “it takes a matter of weeks and months before the associates on the front line are treating customers differently, and you’ve got to be paranoid about that,” he says.

So when he’s interviewing people for senior positions, he has a test of whether or not they’re going to make it in retail. “If there is trash on the floor in a club and somebody walks past it, they are not the right person… because if you walk past that, what else are you walking past?”

It’s not that he routinely finds litter when he walks people through his stores, though: “We may have strategically placed some trash on the floor, just to see.”