Buoyed by consumer spending at warehouse clubs, BJ's Wholesale Club is on an expansion binge. The Natick, Mass.-based retailer is bolstering its presence in Florida, where it plans a new warehouse. The chain also is opening locations in the Atlanta market and plans to expand beyond the East Coast to Texas.

BJ's entered Atlanta with its first three warehouse clubs earlier this past spring. Eventually the chain expects to have up to eight BJ's Wholesale Clubs in that market.

“Atlanta represented a gap in our coverage between Florida and the Northeast,” says George Drummey, BJ's senior vice president and director of real estate and development. He expects chainwide growth of 10% a year.

To support the expansion, BJ's is building a 480,000 sq. ft. Southeastern distribution center that will employ 200 in Jacksonville, Fla.

BJ's is gaining a solid foothold in the area, according to UBS Warburg, which surveyed the BJ's locations in the spring. And in Atlanta, where Costco Wholesale Corp. and Wal-Mart-owned Sam's Club already rule, BJ's has offered free one-year memberships through mid-July.

Memberships to BJ's cost $40 annually, though the retailer has lowered it to $35 at its new warehouses in the Atlanta area. Other benefits at BJ's are pharmacies, gas stations, and soon the chain may add car washes. The retailer, once owned by Zayre Corp., opened its first club in 1984 and has grown to 134 locations.

BJ's warehouses and 58 gas stations, mostly on the Eastern seaboard. But BJ's, compared with its competitors, offers a more liberal membership policy and accepts coupons. BJ's also stocks a deeper assortment.

For instance, BJ's carries 6,500 items and smaller quantity sizes. Costcos and Sam's Clubs stock 4,000 items, the majority of which are offered only in larger, bulk quantities. By contrast, traditional supermarkets may carry 50,000 items.

In the warehouse club business, narrow assortments mean lower cost structures, analysts says. That's why the membership clubs may charge prices that are 20% lower than at the traditional supermarket.

How does BJ's stack up to the competition?
Number of clubs 1998 1999 2000 2001 2002E 2003E
BJ's Wholesale Club 96 107 118 130 144 158
Costco Wholesale 278 292 313 345 378 413
Sam's Club 451 463 475 500 525 555
Total 825 862 906 975 1,047 1,126
Comp-store sales growth 1998 1999 2000 2001 2002E 2003E
BJ's Wholesale Club 5.2% 7.3% 5.1% 3.6% 4.0% 4.0%
Costco Wholesale 8.0% 10.0% 11.0% 4.0% 6.0% 5.0%
Sam's Club 9.3% 6.7% 5.7% 5.7% 5.3% 5.0%
Average 7.5% 8.0% 7.3% 4.4% 5.1% 4.7%
Source: The companies and Prudential Securities Inc.

BJ's captures about 60% of its sales from typical supermarket items, such as canned goods and frozen food. The rest of its sales come from apparel, electronics, office equipment and tires.

But Wayne Hood, analyst with Prudential Securities, thinks warehouse membership clubs are hitting the saturation point. “Our analysis points to an increasing number of three-player markets, reduced or peaking new store productivity, discounted or eliminated membership fees, more openings in existing markets to protect market share, and peaking margins over the next several years,” Hood says in a research report.

BJ's rang up $5.2 billion in sales and is a distant third to Costco and Sam's. Issaquah, Wash.-based Costco had sales of $34.1 billion, while sales at Bentonville, Ark.-based Sam's Club were $29 billion.

BJ's, however, still sees expansion, opportunities in The chain is expanding in Pennsylvania, Ohio and New York, Drummey says. He did not say when or where the chain would open in Texas.

Beyond those markets, BJ's Drummey says there are opportunities since the chain mostly operates on the East Coast.

“Where next, we're not sure,” Drummey says. “We'll cross that bridge when we come to it.”

Renée DeGross covers retail business and development for The Atlanta Journal-Constitution.