Late on a warm Sunday afternoon, the parking lot of the new Price Club in Sterling, Va., is packed. Early on a rainy Tuesday morning, it's the same thing as cars circle the football field-size lot looking for a space. The scene plays out again on a chilly Wednesday at midday.
At any time in any weather, it seems, deep-discount membership warehouse clubs have caught on with consumers throughout the Washington area, where the San Diego-based independent Price Club and K mart's Pace Membership Warehouse have been setting up shop and squaring off against each other and existing retailers.
"I love the feeling I get shopping here," said a shopper from Reston pushing a cart filled with a bulk bag of chicken wings, a 24-pack of toilet paper, a case of soda and a small television for her son's birthday. "It's like you're getting in on the bottom floor of things."
High-volume, low-price warehouse clubs are one of the hottest concepts in an otherwise tepid shopping environment and are competing with retailers that include supermarkets, department stores and specialty shops. Born and mostly located in the West, the stores are a growing presence in the Northeast and are starting to ring the Beltway. Competitors are even more nervous now that mega-retailers K mart Corp. and Wal-Mart Stores Inc. have acquired warehouse chains.
"Everyone should watch out for them," said Walter Loeb of Loeb Associates, a retail consulting firm in New York. "When people are uncertain about their immediate future and they can shop at a place where they can buy recognizable brand names at low prices, they will flock to it."
And they do, it seems. The appeal -- bulk bargains -- is a real deal for the little guy.
Sales at warehouse clubs nationwide have increased tenfold since 1984, with industry revenue for this year estimated to be $25 billion. Some retail observers predict that sales could double by the mid-1990s.
From fewer than 100 at the start of the 1980s, there now are more than 600 club locations nationwide selling a range of items, such as household products, groceries, electronics goods and jewelry.
How the typical warehouse club beats other retail operations seems simple: low prices. While the markup for a grocery store averages 20 percent above total costs, a discounter's markup averages 25 percent to 30 percent and a department store's markup averages 50 percent or more, most membership warehouses keep markups to less than 10 percent.
A case of 24 16-ounce bottles of Coca-Cola cost $7.29 at the Price Club last week, compared with area supermarkets charging from $2 to $7 more. A Nintendo hand-held video Game Boy, at $88, was $10 less than most local toy stores. A Cuisinart Classic food processor cost $136.99, while it was on sale at a local kitchen supply store for $159.99. A 250-count bottle of Tylenol Extra-Strength caplets was $11.29, compared with $12.89 for 150 caplets at some area drugstores.
The warehouse clubs manage these prices by cutting overhead to the bone. The stores, which range in size from 100,000 to 120,000 square feet, are built on real estate in cheaper areas and sparsely decorated with wooden pallets, stark fluorescent lighting and unadorned concrete floors. There are no sales at warehouse clubs and little advertising. Charge cards are not allowed and the only shopping bags available at most clubs are sold to customers.
Service is minimal, with most employees restocking the metal shelves rather than helping customers. In this age of increased customer service, people who shop at warehouse clubs seem to be willing to forgo piano players in tuxedos for bargain paper towels.
Stock selection also is limited. The clubs buy from manufacturers in huge volume mostly when items become available rather than when customers request certain products. A discount store or supermarket may stock 50,000 different items, but a warehouse club offers about 4,000. Some popular items like garbage bags and soft drinks are always available, but many other products can be found only sporadically.
Still, the clubs make sure popular and brand-name items -- including, for example, American Tourister, Clairol, General Electric, IBM, Pillsbury, Sharp and Wilson -- are available to keep shoppers coming in.
Customers are flocking to warehouse clubs at a rate of 4,000 a day, each spending an average of $200 a visit, said Donald Longo, executive editor of the New York-based trade publication Discount Store News. Individual clubs can pull in as much as $120 million a year, he said, and people stay with remarkable loyalty and keep shopping over years.
Small-business owners make up a large segment -- 65 percent -- of members. They were the original group the clubs targeted, since they often were frozen out on good deals from conventional wholesalers. Most clubs still have special morning shopping hours for business owners, who buy for their firms and themselves before the general public enters the store later.
Other customers include churches, union members and people with large families, all of whom can shop for typical annual membership fees of $25. Companies near warehouse locations often make deals with the clubs to allow their employees to shop there. Government workers also are able to join, making the Washington area attractive because of its large pool of federal workers.
Membership requirements, which vary by club, have become something of a gimmick because they include virtually everyone. Requirements may include membership in a labor union, credit union or nonprofit group.
Everyone, it seems, wants something different from the warehouse clubs.
Restaurant owner Tom Castro, for example, was pulling a dolly last week at the Sterling Price Club, buying items such as 15 dozen eggs, 36 pounds of butter and a case of American cheese for his 300-seat Mama's Italian Restaurant nearby. He was able to get almost everything he needed, except for the more exotic gnocchi potato pasta.
"Sometimes I don't want to order the $250 minimum wholesalers demand and I don't always get as much credit, since I am a small business," Castro said. "This place is convenient and close, so I can come in every day and maintain a good cash flow."
In Pace's Capitol Heights operation, a Korean merchant was buying a dozen pairs of jeans for $17 a pair to round out the stock for an advertised sale. He planned to sell them for $20.
Bunny Rudacill, a retiree from Annandale, was shopping in the Sterling store because the bulk goods are better priced there than at her nearby Food Lion. "When you have a limited income, saving money on anything is terrific," Rudacill said. But she added she sometimes has been disappointed when the warehouse club did not have certain items in stock when she wanted them, such as dietetic goods.
Still, it doesn't keep her -- or others -- away in the Washington area, where there are five Price Clubs and three Pace Membership Warehouses. At least three more stores of each chain are planned in the next two years.
The Price Club's Fairfax branch, for example, has 100,000 members and is the company's most successful East Coast store. It's the third-highest-volume store in the nation for the Price Company, which was founded in 1976 and is one of the biggest warehouse chains in the United States, with annual sales of $5 billion and 6 million members at its 55 stores.
"We're growing strongly in the Washington area and were surprised by the reaction we've gotten so far in Sterling," said Ted Wallace, chief operating officer for the Price Club on the East Coast. "We did not realize there was that much pent-up demand."
Instead of taking away from the Price Club's business in Fairfax and nearby Maryland, the Sterling branch, which opened last month, has attracted customers from as far away as West Virginia. Because of its success, new stores are planned for the Newington, Va., area, Richmond and Baltimore.
Pace Membership Warehouse, with Washington area stores only in Maryland, is gearing up for expansion to bolster its 3 million members and $1.7 billion in 1989 sales at its 61 stores nationwide.
"We're bullish about Washington and consider it one of the strongest markets in our national chain," said Charles Steinbrueck, president and chief executive of Colorado-based Pace Membership Club, founded in 1983. "And we anticipate our growth there will continue strongly."
Pace Membership hopes to benefit from the clout of its parent company, K mart Corp., which bought the club in 1989 for $322 million. K mart had attempted start-ups on its own, but largely failed because of entrenched competition in markets where it opened new stores.
According to Steinbrueck, Pace Membership enjoys a hands-off management relationship with K mart, the nation's second-largest retailer, but is aided by the parent company's real estate development expertise and consistent lines of funding. In return, K mart gets a high-growth and profit-generating jewel for its retail empire.
The kind of strength K mart brings may be necessary in the coming years, which many industry observers say will bring heavy consolidation. Years ago, there were dozens of independent warehouse clubs; now five major players grossmore than 80 percent of the sales.
Last month, for example, Wal-Mart bought the 27-store Wholesale Club of Indiana for $172 million to add to its Sam's Wholesale Club chain, propelling it past the Price Club as the nation's top warehouse club owner. At the same time, the Great Atlantic & Pacific Tea Co. bought 51 percent of Warehouse Club Inc. of Illinois for $11 million.
All this expansion, of course, could have a downside in today's shaky retail environment, since the warehouse club concept was not around in a large-scale manner in the last recession in the early 1980s. Each store needs tens of thousands of customers shopping regularly to survive, and sales need to average $60 million to be profitable. That kind of volume typically requires customers from 10 to 15 miles away, so too many clubs could cause problems.
"You could almost call the warehouse club industry a mature one, since you just can't put them on every corner," Longo of Discount Store News said. "And since they grew up with boom times, it's hard to know how they will do when the economy isn't so good."
Neither Price nor Pace executives are worried. "It's a double-edged sword, since small businesses are shrinking, but people are also looking for bargains," the Price Club's Wallace said. "We're betting on those people."
Pace's Steinbrueck agrees. "We have found that in soft economy, like Denver, our growth has done well," he said. "If the solid expansion in Washington now is based on a weak market, when this economy turns around we should grow tremendously."
Competitors are watching the clubs carefully.
"The biggest impact they have is in pricing, since they create a greater cost awareness on the part of customers," said Tim Flynn, executive vice president of Andrews Office Products in Capitol Heights, which has seen competition from the clubs in office products.
To fight for business, Flynn stresses the service aspect of his company, including its delivery, credit, selection and experienced staff. "We see that firms that recognize and appreciate those things don't utilize the clubs," said Flynn, whose company offers up to 30,000 office items. "The pricing appears attractive upfront, but people have to settle for what they give them and it might not be what they want."
Ann Collier, spokeswoman for electronic discounter Circuit City Inc. of Richmond, said the company also banks on its broader selection, and, she added, the company will definitely match prices with the clubs.
"We have 150 types of color televisions, 50 videocassette recorders, 30 camcorders, 30 compact disc players, 45 refrigerators, 25 washer and dryers, and they have limited offerings," Collier said. "And for the customers who needs help, we back up everything."
Giant Food Inc. of Landover has met the warehouse club idea head-on by expanding "Super Deals" sections, which offer low-cost bulk goods. "Everyone has a place in the economy," said David Sykes, senior vice president for finance at Giant. "But we'll do whatever it takes to compete, like supplementing our many offerings with 'Super Deals.' "
To keep up their advantages, warehouse clubs have expanded offerings -- all for sale at the option of customers who want to pay. Shoppers can now pay for home delivery, warranties and cut-rate optical services, film development, long-distance deals and mail-order pharmacies.
Pace Membership, seeing an interest by customers, has even added in-house bakeries and fresh meat processing facilities at some locations, and said it will keep prices low by eschewing varied selection and fancy cuts.
"The warehouse clubs will change to even better serve the consumer ... as long as they can keep costs low," retail consultant Loeb said. "And they in turn will keep changing the way retailing is done."