We present an edited version of our conversation with Chris Baldwin, Chairman of BJ’s Wholesale Club, from the Coresight Research Open for Business webinar held on June 17, 2020. The webinar was co-hosted by Deborah Weinswig, CEO and Founder of Coresight Research.

Chris Baldwin joined BJ’s Wholesale Club in September 2015 and is now Chairman. Prior to joining BJ’s, he was CEO of Hess Retail and has held executive roles at Kraft Foods and The Hershey Company. Baldwin is a thought leader in the retail industry and serves on the board of the NRF (National Retail Federation), the world's largest retail trade association. He is also an executive board member at Harlem Lacrosse, a school-based nonprofit that provides educational intervention, leadership training and lacrosse for at-risk youth.

Responding to Covid-19 Challenges

When the crisis began, how did BJ’s Wholesale Club alter its day-to-day operations to keep customers and employees safe, and how have industry efforts continued to evolve? Chirs Baldwin: I am incredibly proud of our 27,000 employees and how they reacted in the face of incredible adversity. As a company, our primary objective was to keep our team members and our members safe. We changed just about everything and accelerated all of the work you could imagine we would have done in sanitation protocols—such as adding PPE [personal protective equipment] to the system and putting floor-layout mapping stickers on the floors; we went to a one-way-aisle system in some clubs, and we put up sneeze guards at our cash registers.

On March 12, we closed our offices in Westboro Massachusetts, which is just west of Boston. We have about 1,000 people who work there, and we do not expect them to be back until sometime in the fall, and then it will be in a very different construct than the one we left in March. We have tried to stay in lockstep with the CDC [Centers for Disease Control and Prevention] and the industry. Overall, we have been very aggressive in that regard. We spent an awful lot of money to make sure both our employees and our members were safe.

If you go to NRF.com, “Operation Open Doors” is a body of work that the NRF has led with multiple factions in the industry to bring together best practices—to the extent you can have them in a world that is somewhat uncertain—that will help retailers of all shapes and sizes open safely when they choose to open.

It is my view that the American economy is dependent on small businesses: 96% of the retailers in the US have fewer than 50 employees, and we have a responsibility to help them as best we can. If you think about the challenges that small businesses will face in reopening, the NRF is trying to give them some guidelines on the protocols necessary to do that safely. Challenges include higher labor costs, the costs associated with buying PPE for employees, potential higher costs of product and capacity limitations. The NRF has been a real voice in government to try and give them a sense of what we are doing to help the industry open up again.

How many of us would have thought six months ago that the primary marketing message for retailers to be successful in the summer of 2020 would be, “It is safe to come into our store?” One of the things that small businesses are really good at is having a personal connection with their customers. It is my contention that the biggest leadership challenge as an industry is our ability to be more empathetic and put ourselves in the shoes of our customers in order to give them an environment that they feel good about being a part of. I think small businesses are particularly good at that, and we all need to be better in that regard. But there is no question, it is going to be very challenging for many small businesses to deal with the economic uncertainty associated with this pandemic.

Many companies are rethinking demand forecasting and assortment optimization, to sell product but also to drive consumer confidence. Where is BJ’s on this journey? Chris Baldwin: We are a company that typically grows at 2–4%. In the first quarter, we grew by 27%, but our apparel business in the first quarter was down 30%, so everything else was up by a lot more than that. The investments we have made in our company over the last five years all paid off in a crisis moment for our industry and our company. I think we will end up being a simpler company coming out of this; we will end up being much more technologically driven.

Our delivery business grew eightfold in the quarter, and our online business overall more than tripled; those are investments we made four and five years ago. I think we are on a path to continue to get smarter and more detailed in how we think about personalization. I believe that we will become more focused on technology and how we can get to the customer where they choose to shop with us. I do believe that some categories will see some fairly substantial changes in how our club stores approach them overall.

The Evolution of Personalization and Assortment

How does personalization and localization change how the consumer interacts with the retailer? Chris Baldwin: In our company, five years ago, every member got the same marketing materials, and I am very different than a 30-year-old member in North Carolina. I think the holy grail for us is our ability to personally speak to each one of them, which is now readily available to us. We had not been historically invested in the technology necessary to do that, but we do that fairly effectively today, and it will get more effective over time.

The majority of our members use our app very regularly, because it delivers real consumer benefit. Our marketing offers are all available digitally, where they used to be digital and on paper: We have eliminated most of the paper for now. Even more engagement will come when we go to digital checkout. I think my children will laugh at cash registers the way I chuckled at seeing a phone booth, but there’s some work to be done to get to that reality.

We have improved our assortment technology, and this allowed us to be much more unique club by club. Let me give you a really simple example: We have 25% of our businesses in the city of New York in the boroughs, and in many of those cases, we were selling garden products five years ago in communities that generally do not have yards. This is indicative of how much better we can be in terms of localizing. Today, it is a much different assortment in general merchandise in those clubs versus in the suburbs of New Jersey, for example. We have done a better job, but there is much more to go.

We sell big packages of products at really good prices, and are probably going to be doing so for a long, long time. Our ability to get smarter about sizing, colors and other categories is a compelling growth prospect for our company in the future.

[caption id="attachment_112842" align="aligncenter" width="700"] Chris Baldwin joins Deborah Weinswig to discuss the evolution of personalization and assortment.
Source: Coresight Research[/caption]   How have relationships changed with suppliers and vendors during this time? Chris Baldwin: One of the things we did in our most recent earnings call was make sure we spent a minute thanking all of our suppliers. We were all in a difficult situation doing the best we can, and we were in uncharted waters. Overall, our supplier community was extraordinary.

There are a lot of brands out there that do not want to be assorted in a club for all the reasons you can imagine. We are pushy on pricing, and we try and create value. We charge admission to shop in our club, so the show better be good. People only pay a membership because we give them great products at great prices.

One of the things that has been really interesting is the number of suppliers who have come to us as some of their other customers haven't been open to looking to figure out a way to do business that works for both parties. We have been encouraged by that.

The other thing is the new categories that have been created. We will have a very, very large PPE business by the end of the year. On that basis, I think there will be new categories created, and we will have new suppliers available to us.

How do you think that clubs will change in the future, and how will their role change in the community as well? Chris Baldwin: I think the biggest visual thing in club stores is sampling. The days of us cooking up a hamburger or a hot dog and giving it to children in a cart are probably gone for the foreseeable future. The other thing is that our home-improvement business has been doing very well as people do more DIY projects at home. I think the services overall will continue to morph as we work our way through this situation.

Changing Consumer Demand

What have you seen in terms of demand from consumers for alternate categories? Chris Baldwin: In terms of consumer demand, as you look at protein, you see a lot of price-driven switching: As the price of beef goes up, people shift to chicken or pork. The inverse is true as well. In this case, there has been more supply pressure. Most of the beef and pork has been challenged because of some of the sad situations in processing facilities in the Midwest; that creates pressure demand on other meat types. So, protein overall has been in short supply as a result of some of the issues that everybody has seen in the press.

We have also dealt with some egg shortages, because it is just hard to get them fast enough when demand goes up—eggs are generally always cheap protein. Right now, meat seems to be in better shape, and eggs are certainly in a better shape, than they were a month ago, but the challenge is that we have essentially run through the vegetable supply in the US. Canned vegetables are almost impossible to get. We plant them a couple of times a year, and they get canned in August. As the supply becomes available, we will be back in stock, but there are going to be tricky supply situations through the system and in a variety of categories for the foreseeable future.

We are doing the best we can, but empathy is a primary leadership quality that is going to be more important in the future than it has been in the past. People are anxious when they go into stores; there is some anxiety today that was not there a couple of months ago. When people are anxious and then they see that they cannot get the produce they want, it makes it worse, not better. So, we are trying to help our people give them as much information as we can. We are trying to help our members understand when supplies are available as best we can. It is not a perfect science, because sometimes we do not know exactly. We are trying to give people information that they can use to make decisions on when they shop and where they shop.

As consumers are moving more to online or more to delivery, how are you meeting their expectations?

Chris Baldwin: One of the things that I think is real and will last is trip consolidation. The idea of shopping in a couple of places over the course of a week is less likely in this environment than it has ever been in the last 15 or 20 years. As you think about trip consolidation in a club store, they are big, have wide aisles, have big packages that allow people to stock up, and the prices are low. That combination is a terrific set of capabilities that we bring to the table that will have consumers choosing us and other clubs stores for the foreseeable future. The idea of stopping here for this and stopping there for that is probably less likely in a world where people do not want to be in public all that much.

In addition, the substantial investments that we have made into improving our omni-capabilities have really paid off. Our delivery business grew eightfold in the quarter and is continuing to grow very rapidly, but I think we will continue to be pressured to do more and do it more quickly for our members.

How do the changes in consumer behavior impact the supply chain?

Chris Baldwin: The biggest change is the pressure that it will put on every retailer’s ability to do home delivery. The supply chain of 30 years ago was focused on the store. Now, our supply chains are more focused on every household in America. How do you get things right to the household versus get it to a store? That is probably the biggest structural change.

I think we have seen suppliers really pressure their choices on variety. Quite a few suppliers have eliminated things like colors and flavors in soaps and paper towels. In a world where you cannot supply all the demand, you do not need six patterns of paper towel! Retailers are going with the core porducts, and we will see some of that trend last, which will certainly impact the supply chain.

In food, I don't think we broke the supply chain, but we pushed it about as far as it could go. We were dealing with a pandemic, a dramatic change in consumer behavior, based on capacity restraints and people's lack of willingness to go out, and then you added protein shortages to it; we pushed the supply chain about as far as you can push it.

The Positioning of BJ’s as a Club Retailer

How will loyalty programs evolve through and following the current crisis?

Chris Baldwin: The membership model is the ultimate loyalty program. This is not just about signing up for a card at a register that you put on your key chain. We have people who spend $55 or $110 for the privilege of shopping with us, and it gives us the ultimate ability to communicate directly with each and every one of them, because in order to do a purchase at our clubs, you have to swipe the card. So, we know what everybody buys, and we do a lot of work to correlate the shopping behaviors of members of the same family, for example. It is a holy grail of personalization that we have every single purchase that everybody has ever made.

I think you will see a lot of innovation and the ability to speak to members right through their app and through their emails. The usage rates on the app and emails has dramatically accelerated. I also think we will end up doing a much better job on our in-club signing package, which our team is working on as we speak.

What kind of tech will BJ’s be looking at moving forward?

Chris Baldwin: The big thing in my mind is, “How can you make the trip more convenient?” The lens through which we have judged our technology spending has been all about convenience. The holy grail of retail is the idea of great prices, great assortment and great convenience. We think we have a terrific assortment; we think we have terrific prices. But, let's be real, before and even during the pandemic, club-store shopping is not all that convenient. We have continued to improve our technology with things like pick-up-in-club and curbside pickup options. The real trump card will be when we are able to do cashier-free checkout, so people can use their phones.

How does BJ meaningfully differentiate itself from the rest of the retail landscape?

Chris Baldwin: We have spent some time getting a really deep understanding of the consumer and how our members view us. We sell about two times more fresh food per member per year than our club-store competitors do, so fresh food is what differentiates us.

We also do general merchandise a little bit differently, in that we think more about broader category assortment in general merchandise, and that has served us well so far. There are always opportunities for us to do better.

How do you work with local farmer farmers?

Chris Baldwin: It is something we are good at, but we think we can be a lot better at it. We can do a much better job of localizing our produce assortment. We have to do a lot of work in the underlying operational capabilities to do fresh really well. Over the last five years, we have done a lot of that work, so we feel very good about how we show up in fresh. The next evolution is going to be in how we localize it even more; it is something that we are just starting, and we can do so much better.

How do you recreate the “treasure hunt” aspect for e-commerce shopping?

Chris Baldwin: I think that the fundamental premise of online shopping is in fact the treasure hunt. Five years ago, we did not even have a functioning website. We had a lot of work to do to get our core omni-capability up and going, and the website has been incredibly productive in the last couple of years—and that has accelerated. The ability to do blasts and flash sales is going to get even better going forward, which will be a great way to play around with this idea of the treasure hunt.