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Gen Z is growing up and opening their wallets\u2014to the tune of $360 billion in spending power<\/a> in the U.S. alone\u2014and members-only big-box retailers are ready to devour their dollars. Sam\u2019s Club, the Walmart-owned membership-only warehouse store<\/a>, believes it has cracked the code to winning over the young generation and hold the advantage over competitors like cult favorite Costco<\/a>.<\/p>\n Sam\u2019s Club CEO Chris Nicholas told CNBC in an interview<\/a> last week the company membership has been transformed by young shoppers. In the past two years, Sam\u2019s Club saw a 68% growth in Gen Z members during that time period.<\/p>\n \u201cThe quickest growth in our business over the last two years has been the Gen Z and millennial members,\u201d Nicholas said. \u201cThat generation believes it\u2019s cool to save money, and we agree with them.\u201d<\/p>\n Gen Z\u2019s bitter attitude<\/a> toward the economy and strong desire to save<\/a> have made them perfect candidates for discount retailers. The generation approaching their late 20s are leading the trend<\/a> in preferring private-brand products, with 64% of young shoppers saying they buy private brands \u201calways\/frequently,\u201d according to a November 2023 Private Label Manufacturers Association survey<\/a> of 934 respondents. Amid steep inflation, retailers like Target<\/a> and Walmart are responding by increasing their selection of own-brand items, including Walmart\u2019s relaunched fashion brand<\/a> and its new grocery line<\/a> favoring plant-based items in colorful packaging.<\/p>\n But while everyone is focused on value, Nicholas argued, Sam\u2019s Club has been able to differentiate itself through digital innovation refreshing to the tech-savvy youth. The retailer ramped up its e-commerce<\/a> operations last year by expanding its warehouse facilities and supply chain networks. It doubled down on technology by announcing in January the use of AI<\/a> in its Scan & Go app, allowing customers to cut exit lines by confirming they\u2019ve paid for all items in their shopping carts with a computerized scanning tool. The app is being used by 30% of Sam\u2019s Club members, Nicholas said.<\/p>\n \u201cWe\u2019re going on a journey of saying, \u2018You can have great items, great prices like the rest of the club channel, but you can also have convenience,\u2019\u201d Nicholas said. \u201cAnd that\u2019s something that really is resonating.\u201d<\/p>\n While Sam\u2019s Club has been able to curry Gen Z\u2019s favor with technology that simplifies the shopping process, Costco<\/a> still relies on its idiosyncratic organization that can be intimidating for new shoppers, Zak Stambor, senior analyst of retail and e-commerce at Emarketer, told Fortune<\/em>.<\/p>\n \u201cThe people I know who shop at Costco frequently, they have the Costco experience down the path, but there\u2019s a learning curve to that,\u201d he said.<\/p>\n Costco customers not only have to familiarize themselves with the store\u2019s haphazard shelving categories (though it\u2019s a strategy proven partially beneficial<\/a> because it tricks shoppers into buying more), they must also figure out the best hours to visit to avoid crowds. That\u2019s not to mention its largely analog checkout operations<\/a>, which require workers to manually look over customers\u2019 purchases, which often requires shoppers to\u00a0 wait in lines to leave the store. Those are problems Sam\u2019s Club customers don\u2019t really have.<\/p>\n \u201cIt\u2019s more about making it easy to shop, and that\u2019s the advantage that [Sam\u2019s Club] found,\u201d Stambor said. \u201cIf you shop at Costco, it can be a frustrating experience.\u201d\u00a0<\/p>\n But Costco has been masterful at creating a near-pristine reputation for its Kirkland Signature private brand, Stambor argued. That, along with its mainstay strategies like good service and products with strong value, prompted UBS analyst Michael Lasser to call Costco shoppers the most loyal customers<\/a> among retailers. Sam\u2019s Club has mimicked Costco\u2019s strategy in its own expansion of own-brand Member\u2019s Mark. The company enlisted 50,000 of its customers<\/a> this month to generate ideas for and evaluate new items under the brand.<\/p>\n \u201cThe private label piece is the critical ingredient here in the formula for success,\u201d Stambor said. \u201cConsumers, over the past few years in the wake of rising prices, have been far more willing to trade down to store brands.\u201d<\/p>\n This is a big moment for these two members-only retailers, Stambor argued. Both had recent blockbuster earnings, with Costco reporting 9.1% net sales increase<\/a> to $57.39 billion in its first quarter, and Sam\u2019s Club seeing a 4.6% first-quarter net sales increase<\/a> from the year before, helping Walmart achieve 6% revenue growth. And because consumers have been particularly sensitive to prices, they are willing to shake up old loyalties in search of new ones, creating more opportunities for new membership.<\/p>\n \u201cWhen consumers are focused on value, their habits change, and that\u2019s when these types of members-only clubs can move in and help consumers establish new habits and new behaviors,\u201d he said.<\/p>\n While Sam\u2019s Club may have an advantage in Gen Z customers right now, Costco, with a long-trusted private brand and buzzy products like its newly launched Kirkland Signature apparel<\/a>, still has the chance to usher in waves of new shoppers.\u00a0<\/p>\n \u201cBoth members\u2019 clubs have an opportunity to wave their arms and say, \u2018Hey, younger consumers, if you want value, we offer value,\u2019\u201d Stambor said.\u00a0<\/p>\n<\/div>\n\nThe big-box brawl for Gen Z\u2019s attention<\/strong><\/h2>\n
Everyone\u2019s a winner<\/strong><\/h2>\n