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Food, Membership Renewals Give BJ's a Boost

Food, particularly high-margin perishables, helped make BJ's first quarter a successful occasion, and one that demonstrated the warehouse club's members are willing to pay for the privilege of shopping there.

BJ's differs from other club operators in its focus on food. The centrality of edibles makes the club chain more consumer oriented than its rival. So does its propensity to stock smaller sized packages and its relatively large, by warehouse club standards, product range. All told, its unique characteristics make BJ's a store consumers can shop every week or two rather than once a month or so, as with other clubs. The idea at BJ's is to compete against supermarkets, where management feels it has distribution advantages, rather than Sam's and Costco. The strategy has been paying off in the recession among consumers actively seeking low-price alternative shopping destinations.

In the first quarter, comparable store sales in food were up by nine percent with perishables up 12 percent on top of an almost 10 percent comp last year, a significant accomplishment as following one surge in comparable store sales with another in the same period the next year is a pretty difficult feat. Still, BJ's managed. General merchandise, the more discretionary end of the business and one expected to take a hit from penny pinching consumers, nevertheless came through with a four percent comparable store sales increase, which may be partially attributable to the shopping frequency food generates.

Critically, memberships are holding their own. Even as results separated warehouse clubs from retailing in general at the end of last year, gaining while those of other sectors fell, observers warned that consumers who had begun to look at every expense critically might rethink their annual memberships, which start at $45 at BJ's. Yet that hasn't been the case. BJ's membership revenues gained 0.8 percent over last year's quarter, reaching $44.4 million.

Renewals, which represent 80 percent of membership revenues, staggered briefly at least year's end, but they've been advancing since.

"We saw members delaying renewals during the 2008 holiday season but coming back to renew in February and March of this year," said Frank Forward, BJ's CFO in a conference call.

CEO Laura Sen pointed out that BJ's marketing in the quarter focused on membership acquisition and retention. The major campaign centered on a spring trial membership program. She said trial membership sign ups, sales related to trial memberships and conversion to paid memberships all came in above the retailer's plan. Additionally, she added, "We saw an increase in upgrades to our $80 Rewards Memberships.

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