There’s a Costco to one side of Gwendolyn Hammer’s house and a Sam’s Club to the other. But when the 28-year-old needs 12-packs of paper towels, or 36 rolls of toilet paper, she heads online instead.
Once a month she uses her smartphone to place a bulk order on Boxed.com, a website founded five years ago as a millennial-friendly alternative to warehouse wholesalers. There is no membership fee, and most orders arrive within two days. Other times, she stocks up using Amazon Prime.
“I’ve never had a Costco membership, even though I knew shopping there would likely end up saving me money,” said Hammer, who lives in Utah Valley, Utah, and grew up shopping at Costco with her parents. “I do like not having to haul my kids to the store.”
Warehouse clubs such as Costco, Sam’s Club and BJ’s Wholesale Club have for decades been an American staple: a place where families can stock up on bulk items, try free samples and spend the better part of a weekend morning meandering through aisles filled with 26-packs of canned salmon and king-size mattresses. But as more of Americans’ buying shifts online, some retail analysts say warehouse clubs may largely be left behind.
“The core club customer is older: It’s generally someone with a family and a house,” said Sucharita Mulpuru, an analyst at the research firm Forrester. “Costco has been one of the least digitally forward companies out there. This segment has had its head in the sand when it comes to competing with Amazon.”
Warehouse retailers, she added, have been among the slowest to shift their business online, offer home delivery or make other sweeping changes to compete with the likes of Amazon.com. (Jeffrey P. Bezos, the founder and chief executive of Amazon, owns The Washington Post.)
There are signs that the sector is falling behind: Warehouse clubs and supercenters cut an average of 2,500 jobs each month in 2017, reversing a longtime trend of steady growth, according to a Post analysis of Labor Department data. Between 2009 and 2016, warehouse stores had added an average of 3,000 workers each month.
The sector received more bad news this month, when Walmart announced it would close 63 Sam’s Club stores, affecting an estimated 10,000 workers. In a tweet, the company said the closures would help “better align” its physical locations with its strategy. (Ten locations will reopen as e-commerce fulfillment centers.)
“Today’s adults are not spending a lot of time shopping like my parents’ generation did,” said Kim Whitler, a marketing professor at the University of Virginia’s Darden School of Business. “Gen X, Gen Y, Gen Z, they’re all time-starved and want to order groceries while they’re riding a bus to work.”
Chieh Huang founded Boxed in 2013 with a simple idea: Deliver bulk goods to shoppers who don’t live near a wholesale club or have a car to get to one.
What he quickly discovered, though, was a different sort of demand.
“We actually found a bigger problem to solve, which is that folks didn’t have the time or patience to go,” even if they lived near a Costco or Sam’s Club, Huang said recently at the National Retail Federation’s annual conference in New York.
In other words, it wasn’t physical proximity or access to warehouse stores that were keeping customers away but rather a lack of willingness to shop for toilet paper and dish soap in person.
Huang’s company, which began as a mobile app and quickly added an online site, has grown rapidly to fill a niche among young shoppers. Today, the company has more than $100 million in annual sales, up from $8 million in 2014.
More than 60 percent of Boxed shoppers are ages 25 to 44, he said. At traditional wholesale clubs, the demographic skews the other way, with baby boomers and seniors making up the majority of members.
“When we look at the numbers, there’s not a lot of overlap between who’s going into a physical club and who’s coming to us,” Huang said, adding that 70 percent of revenue comes from repeat customers. The company also recently began offering wholesale liquor and wine to customers in California.
Boxed’s success has not gone without notice: Kroger, the country’s largest supermarket chain, is reportedly mulling an acquisition. Huang did not confirm or deny those reports but said “given our scale now, interest from retailers has been more tangible and real.”
And, Huang said, he doesn’t think today’s 20- and 30-somethings will suddenly begin shopping at traditional wholesale clubs — even as they get married, have children and move to bigger homes.
Exhibit A, the 36-year-old said: himself.
Huang has two young children and lives in a New Jersey suburb.
“But I personally am not getting any less lazy as I grow older,” he said. “It’s not like suddenly I’m like, ‘Oh, yeah, let’s go spend four hours running around in a store this weekend.’ ”
Stacy Schulz drives to the local Sam’s Club in Little Rock once or twice a month. It used to be a family affair, she said, with her four children scanning the toy aisle or reading books on couch displays while she and her husband shopped. Schulz, who’s from Houston, says she’s a longtime Costco devotee. But she’s had to switch alliances to Sam’s Club because although Costco has more than 510 U.S. stores, it has none in Arkansas, a state fiercely loyal to Walmart, which has its headquarters there.
But now that her children, ages 11 to 17, have phones, they’re no longer interested in regular trips to the wholesale store. Instead, they do their shopping online, using their smartphones.
“It’s like, I’m basically a walking commercial for Costco, but I look at my kids, and they just want to do everything on Amazon,” said Schulz, 50. “And it’s the same when I go to Sam’s Club: I look around, and it’s all people in their 50s, 60s and 70s.”
That’s not to say, experts said, that Costco, Sam’s Club and others haven’t made efforts in recent years to appeal to younger, time-strapped shoppers. Sam’s Club offers in-store pickup for online orders and the option to pay for items using an app instead of standing in line.
Costco, meanwhile, has added more organic produce and meat and has an expansive wine selection. It is also rolling out grocery delivery services that will bring fresh produce, as well as packaged goods and other items, straight to customers’ doorsteps.
“I think we’re encouraged when we see the level of millennials, if you will, that are signing up, when we see the average age of our membership coming down,” Richard Galanti, Costco’s chief financial officer, told investors in late 2016. “Now, it was just a couple of years ago when the average U.S. Costco adult member was four-plus years older than the population as a whole. Now, it’s a little under two. And that’s without a lot of planning, but it’s part of what we do.”
But, at the same time, competition is stiff. Warehouse clubs tend to target middle- and high-income households, which means there is significant overlap between membership at Sam’s Club and Costco (where annual fees are $55 and $65, respectively) and Amazon Prime, which charges $99 per year and stocks a growing supply of essentials in bulk.
Nearly two-thirds of American households have Prime, according to data from Consumer Intelligence Research Partners. As a result, analysts say, more families may be inclined to rethink paying for additional memberships at wholesale clubs.
“There’s a lot of overlap, and people are shopping on Amazon for other reasons as well,” said Mulpuru of Forrester. “Retail is a zero-sum game: As consumers shop more at one company, they’ll shop less at another.”