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Warehouse Membership Clubs.

In 1991, the market for Warehouse Membership Clubs grew 34% (in terms of retail dollars) to reach $29 billion, according to a new study by Packaged Facts, the New York-based research company. This marked the first time that the annual growth rate has increased since 1987.

Packaged Facts' president, David A. Weiss, predicts that Warehouse Membership Clubs will thrive in the '90s, "because they offer large sizes at low prices, and this conveys a feeling of substantiality and thriftiness to the consumer."

He feels that success is assured because Warehouse Membership Clubs fit the tenor of the '90s which he calls "the Reality Decade." He believes a sea change in public opinion has occurred since the don't-worry-be-happy '80s. And he explains that change this way, "Economic and social difficulties are forcing consumers to take a hard look at many matters, including what they are purchasing, and why. It's not simply a matter of trying to pinch pennies because of a recession, it's a desire for genuine value after a decade of hype."

According to Mr. Weiss, marketers should be based on a broad concept of value, not a narrow sense of bargain. And he comments, "In the Reality Decade, it's not a question of being recessionary or counter-recessionary. It's a question of being solid."

This marked the first increase in the annual growth rate in more than a half decade. But this should not imply any lack of strength in the category over the past five years. The current market is more than two-and-a-half times larger than it was in 1987, when it grew 37% to hit $10.8 billion. And although annual retail dollar growth did decline steadily from that point (until 1991), its weakest ebb (in 1990) still produced a terrific 24% gain for the market.

Over the next four years, Packaged Facts is predicting a relatively similar pattern, with annual sales growth remaining strong, while declining slightly from year to year. If its predictions hold true, by 1996, annual growth will have fallen to 16%. At that point, the market will reach the $82 billion level.

Warehouse membership clubs are projected to gain significantly in all regions of the country, with the exception of urban areas. There, the difficulty in acquiring large blocks of square footage at reasonable rates significantly impedes growth. And without such spaces it would be impossible for warehouse clubs to offer customers the inexpensive bulk rates that their members-only customers demand for a vast variety of products, ranging from satellite dishes to ketchup--a variety of products that according to Packaged Facts, is increasing, especially among grocery items.
Projected Sales per Unit: 1992-1996
(In Millions)
Year Sales % Change
1996 $87 6%
1995 82 9
1994 75 9
1993 69 13
1992 61 5
Warehouse Membership Clubs: Projected Sales and Units
 Dollar % No. %
Year Sales Change Units Change
1996 $82 16% 945 9%
1995 71 20 870 11
1994 59 23 785 13
1993 48 30 695 15
1992 37 32 605 21

Selection of Items Carried by Warehouse Membership Clubs

- apparel - automobiles - automotive parts - books - cigarettes - computers - fresh baked goods - fresh cheese - fresh flowers - fresh meat - fresh poultry - fresh produce - fresh seafood - frozen foods - frozen yogurt - furniture - hardware - health & beauty aids - home improvement products - home security system - hot tubs - household products - housewares - jewelry - luggage - maps - motor homes - musical instruments - office equipment - office supplies - pet food - pizza - plants - satellite dishes - stationery supplies - sports equipment - stereo components - tires - tools - toys - video games - video tapes - vitamins - wines

Commenting on the success of Warehouse Membership Clubs in recent years, Mr. Weiss made this assessment, "The market's overall growth trend is simply a result of an idea whose time has come. And that idea can be expressed by the old cliche, 'I can get it for you wholesale.' This characterization may be a slight exaggeration, but profit margins are in the 10% range, a stark contrast to the mark-ups of between 20% and 50% charged at other types of retail outlets. Naturally enough, inexpensive prices have a special appeal during a recession, which may help to explain the market's extra strong showing in 1991. But Mr. Weiss feels that another recessionary phenomenon may help explain the sudden jolt to growth. "Falling real estate prices engendered by the recession have resulted in a surplus of large inexpensive properties, perfect for conversion to warehouse membership clubs, and marketers have taken advantage of this fact in order to expand their empires."

Statistics would seem to support this theory--In 1991, in the midst of the recession, the number of Warehouse Club outlets increased by 97. This represented a 24% gain over the previous year, double the 12% increases racked up in 1989 and 1990.

But if recession has benefited the market, the much anticipated 1992 recovery does not pose a threat to warehouse clubs. "Even if the U.S. economy is expanding," he believes, "many citizens are going to continue to feel pinched. Economists have come to the conclusion that the average American family has been losing spending power for more than a quarter century. This may have been obfuscated by the ebullient mood of the Reaganomic boom of the go-go '80s. But consumers have more than come down to earth by now, and the theme song of that era, Don't Worry, Be Happy, seems like the anthem of a far-off fantasy view of American life."

"The '90s are a Reality Decade, long deferred problems (such as recession, labor and urban unrest, bankruptcies and layoffs) have come to the fore. Americans are worried, and they have a right to be. Products, or services, that help consumers address the insecurities of the Reality Decade will prosper in the coming years. And warehouse membership clubs fit that bill, because they offer large sizes at low prices, and this conveys a feeling of substantiality and thriftiness to the consumer. In the Reality Decade, it's not a question of being recessionary or counter-recessionary. It's a question of being solid.
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Title Annotation:forecasts
Publication:Frozen Food Digest
Date:Oct 1, 1992
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