Discount travel warehouse

NATIONWIDE DSNRT REPORT -- When the first warehouse clubs opened more than 20 years ago, members paid their annual fees just to get a card that allowed them in the door. But these days, the competition in the channel is growing intense and the clubs, intent on maintaining high membership renewal rates, are adding an entire new generation of perks.

Membership privileges at chains, such as Costco Corp., Sam's Club and BJ's Wholesale Club, come with benefit packages that extend far beyond the price of admission and grow larger every year. Now the same card that gets a customer into the door also provides exclusive access to dozens of services, ranging from discount travel rates to free emergency towing.

"The idea is to give members as much value as you can, not only to keep renewal rates high but to attract new members," said Jonathan Ziegler, an analyst and managing director at Deutsche Banc Alex. Brown in San Francisco. "It's also a very fertile area for creativity and the clubs are constantly branching out into new areas."

The 387-store Costco chain recently introduced a new service that Ziegler lauded as one of the more innovative ideas launched by a warehouse club: a 401K plan for small businesses.

"A lot of our business members have 10 employees or less, so the cost for them to enroll in a traditional 401K plan is prohibitive," said Patrick Callans, Costco's vp of member services. "So we're testing a program in two states through a 401K provider called Gold K to see if it's something our members would be interested in."

Costco also expanded its services in Nevada this month when it unveiled a health care plan for small businesses and opened a new business center in Phoenix that provides next-day delivery to business members (Costco already has business delivery in Seattle, San Francisco and Los Angeles).

"We tend to test new services in a few markets at first to gauge interest and also to see how they work before deciding to roll them out," said Callans. "It's all part of an ongoing effort to add value and take customer loyalty to a higher level."

Many services that were unheard of just a few years ago have become a standard part of most warehouse club membership packages. They include services that provide customers with discounts on airline travel, home purchases and auto buys. "There is a sort of template now that each chain seems to use," said Ziegler.

But there's still plenty of room for innovation. One of the unique services offered at Sam's Club is an emergency roadside assistance plan that gives some members free access to emergency towing, flat tire change, jump-start and fuel delivery. Sam's also offers members a low-cost dental plan and mail-order pharmacy service.

BJ's also has some unusual offerings. It recently introduced a program though Brink's Home Security that gives members an exclusive discount on alarms and other home-security systems. It's also offering a prepaid phone card through MCI that provides callers with a rate of 3.47 cents per minute.

While many club members will never use most of the benefits they have access to, analysts say the important thing is that they know they are there.

"When people renew their membership each year and spend that $30 to $100, it's usually to retain access to two or three services they use on a regular basis," said Marie Driscoll, an analyst with the Argus Research Co. in New York City. "But it's important to have all those services available because people know they may use them somewhere down the line."

Adding benefits also is a vital part of maintaining a service-oriented image that keeps members coming back to see what's new. "It's a matter of meeting the needs of the consumer and building trust and loyalty," said Ziegler.

The membership renewal rates for 2001 show this effort to keep members is working. Costco posted a record rate of 86% and BJ's had a renewal rate of 87% for business members and 83% for regular members. The renewal rate for Sam's Club was not available, but analysts believe it is in the same range. "Once people are in there and get good service, they tend to stick with what they've got," said Driscoll.

But that may change as the chains continue to grow and enter the same cities and states (Costco is currently rolling out stores in Texas, which has long been a stronghold of Sam's Clubs). In the next few years, member benefits may be used to lure customers away from competitors or bring new members into the fold.

"They're going into overlap markets now, so the competition among the clubs is going to keep increasing," said Ziegler.