Desperate Freebie Weekend at Sam's Club May Cut Margins, Anger Members
With its sales shrinking of late, Walmart (WMT) division Sam's Club needs to bust a move to bring in more customers. But the move it's picked out -- a nationwide, three-day shopping weekend that's free to nonmembers -- could have some negative fallout.
Ordinarily, nonmembers pay a 10 percent upcharge if they want to shop at Sam's. Two problems with waiving the charge for the first weekend in August: It's going to give up a decent amount of profit margin, which Sam's can ill afford, and it could make members wonder why they're paying $40-$100 a year to belong to Sam's.
On the plus side, the promotion is drawing plenty of positive press, and should bring in new shoppers. Hopefully Sam's Club will have sales staff in place to hand out membership brochures and otherwise promote the benefits of joining. They'll need to convert these one-day shoppers to members for the gambit to pay off.
Sam's Club has done this before -- in April 2008, to celebrate its 25th anniversary. But that was a lifetime ago economically, before the downturn hit. In the past year, Sam's operating income has been hammered down 8 percent, after being basically flat in fiscal '09. Ten Sam's Clubs closed. The fact that they're ready to repeat this event so soon, absent any particular company milestone, seems to smack a little of desperation.
The company's turnaround plan calls for signing up more members on the $100-a-year plan, while at the same time gradually reducing the number of staff. Let's hope they hold off on the staff cutbacks until after the free weekend -- they need to show customers a good time, or the promotion could just result in another margin hit.
Photo via Flickr user ItsGreg
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