Perishables one key to BJ’s turnaround

BJ’s is concentrating on running its clubs better. Under new ceo—and long-time chairman—Herb Zarkin, the warehouse club chain has slowed down unit growth and consolidated operations around core strengths including perishables to boost results.

The approach has garnered a degree of appreciation.

“Based on our store work and meetings with management, BJ’s turnaround strategy is unfolding nicely, but there is still work to be done, ”said JP Morgan analyst Charles Grom, noting that the share price had risen about 20%, versus an 8.6% advance for the S&P 500, since former ceo Mike Wedge departed. Zarkin has promised shareholders that he would boost sales and earnings growth.

Communications is currently a critical theme at BJ’s.Zarkin noted that, in the first quarter, senior managers had improved communications between the home office and the field. The effort was undertaken, in part, because club managers have been given more autonomy in running their respective units with significant control over payroll allocation, endcaps, product placement and merchandise adjacencies. “In other words,” said Zarkin in a recent conference call, “BJ’s senior management team is allowing club managers to function as operators and to focus on driving sales.”

Zarkin noted that perishables, like private label, fashion and seasonal merchandise, provides BJ’s with superior margins. So, the company has invested in payroll and training to improve conditions, service and in-stock position in perishables. The investment paid off in the first quarter, Zarkin noted, as comp-store sales grew 2.3%

BJ’s is more carefully focusing its strategy in private label, which represented about 14% of sales at the end of the first quarter, up from 12% in the year-earlier period. Private-label comps increased 12% in this year’s quarter.

Zarkin said the company has realigned private-label strategy to focus on two areas. “The first is signature merchandise with differentiated profiles versus our competition that drives loyalty frequency and word-of-mouth endorsement. The second focus area is consumables, where we demonstrate incredible value versus our supermarket competitors.”

Second quarter and beyond, Zarkin said, will concentrate on the highest margin categories, including perishables. “Our primary merchandise objectives are to take market share in perishables from supermarkets, and to increase our share of general merchandise by providing more fun and enticing items.”

Treasure hunt merchandising will be important in both departments. In perishables, BJ’s will refine assortments of organic produce, imported cheese, natural meats and fish. “Our goals is to make perishables a more exciting destination by bringing in specialty and gourmet items on a rotation so that our members will constantly find new ‘wow’ items.”

Additionally, BJ’s plans to add new assortments of high quality meats and salads in the service deli.