Bigger may actually be better

Buying in bulk really does pay off, at least for BJ’s.

Against large competitors in a tough market, BJ’s Wholesale Club Inc. has more than held its own.

The company, which sells everyday items in bulk at wholesale prices, has been steadily increasing in value and is branching out down the East Coast away from its Northeast base.

“We have a 10-year record of year over year improved profitability,” said Eileen Kirrane, director of investor relations for BJ’s. “Our net income is also growing 15 to 20 percent a year.”

The Natick-based company is doing well despite direct competition from other wholesale stores, mainly Sam’s Club of Wal-Mart and Costco.

“We’re quite different from them,” Kirrane said. “They have over 400 units, we only have 118. We’re significantly smaller, but significantly stronger.”

BJ’s secret to beating the larger stores is clustering their facilities in particular areas, Kirrane said.

“BJ’s is in direct competition with at least one of those stores in 90 percent of our markets, and in competition with both of them in 50 percent of our markets,” Kirrane said. “However, we usually wind up on top. We’ll put several units in an area that has only one of the other stores and draw business that way.”

However, other wholesale stores are not all BJ’s has to worry about.

“We face competition from other places because of the variety of what we sell,” Kirrane said. “Supermarkets, department stores, chain stores, et cetera. Everyone is our competition.”

Competition can be a good thing, though, according to BJ’s spokeswoman Julie Somers.

“Sometimes it’s advantageous when we first move into a market. Then, the other store has already educated customers to wholesale shopping.”

If BJ’s is moving into an untapped market, the process is different.

“We’ll advertise through the radio mainly, and through direct mailings to potential customers,” Somers said. “We’ll mail trial memberships well

before the store actually opens. That way, we’ll have thousands of members by the time the store is ready for business.”

Other than that, Somers said BJ’s doesn’t advertise often.

“We only really advertise on store openings and holidays,” she said. “That way, we can keep prices low and pass on savings to the customers. Sometimes we’ll use grassroots campaigns, but we really use very little advertising.”

BJ’s operates by selling the top brands of a product from large inventories at the store itself. This eliminates much of the need for storage space and shipping costs that raise other stores’ prices, Somers said.

Many of BJ’s customers come from small businesses, according to Somers.

“About 40 percent of our business is to small retailers,” Somers said. “The

rest is to regular consumers.”

According to Kirrane, the average BJ’s customers are upper-middle-class families with two kids who own their own home. There is also large penetration in the college market in some areas, she said.

“Large college areas that aren’t big cities, like Columbus, Ohio, usually have a large student population that shops at BJ’s.”

BJ’s is now extending its reach to sell gasoline. They currently have more than 30 facilities that sell gas, with plans to add more in the coming year.

“Right now we’re only selling gas at two Massachusetts stores:

North Dartmouth and Chicopee,” Somers said. “But if this takes off, we’ll probably start selling it at other stores as well.”

Right now, BJ’s is mainly concerned with expanding on the East Coast.

“We’re looking to expand our market down in Florida, and we’ve just opened new stores in South Carolina. The Carolinas are our main focal point,” Somers said.

The one area that BJ’s is not looking to fully expand into is the Internet, Kirrane said.

“We offer certain products, such as vacation packages and contact lenses, over the Net, but we’re not planning on selling most of our inventory online,” she said. “Packaging and delivery costs would drive up our prices, so we’re staying back for the time being.”