I'm thinking of starting a support group for BJ's Wholesale Club shoppers. We live under the shadow of the Costco Wholesale majority, gloating over their $1.50 hot dog and soda combo, unchanged in price since 1985, or their beloved Kirkland Signature store label, whose bacon, french vodka, and extra virgin olive oil, for example, have beaten out top brands in high-profile reviews.
The house brands at BJ's get decidedly less attention. But I'll have you know that Good Housekeeping once gave Berkley Jensen Ultra Soft Bath Tissue a perfect 100 score on absorbency. And two years ago, Consumer Reports called Wellsley Farms Premium Vanilla Ice Cream its favorite store brand in the non-premium category. "Despite the word 'premium' on the label, this is a regular ice cream," the testers gushed.
Two deeply held convictions keep me coming to BJ's: I'm cheap enough to drive 10 extra minutes for discount gasoline, but also too lazy to go another 15 for Costco or Sam's Club. I live in the woodsy north of New York's Westchester County, not the more cosmopolitan south. Up here, we're humble people of the land -- just ask our landscapers. After fueling up at BJ's, I'll pop into the store for a Raisin Bran twin pack the size of carry-on luggage, and other essentials.
But surely there are other reasons to favor BJ's than geographic happenstance. The stock recently got me curious. It hasn't done well recently, but it has been a decent long-term performer, twice, and it's half the price of Costco relative to earnings.
For folks out west, the BJ's under discussion here isn't the brewhouse operators -- that's BJ's Restaurants, based in California. BJ's Warehouse Club, out of Massachusetts, has just under 300 members-only stores, mostly on the East Coast. Walmart's Sam's Club has more than twice as many stores, and Costco, more than three times. By stock market value, Costco is more than 30 times the size of BJ's. Why can't BJ's just be more like Costco? More on that after a little history.
In 1976, a 60-year-old retail entrepreneur named Sol Price turned an old San Diego airplane hangar into a bulk goods seller with membership fees, no advertising, and strictly capped markups. Price Club, as it was called, went on to train a merchandising executive who in 1983 launched Costco in Seattle. The two would merge a decade later.
Back east, meanwhile, there was a discount department store chain in the 1980s called Zayre's, from the Yiddish zehr gut, or very good, and it eventually disappeared, more or less like Caldor and Bradlees, after the rise of Walmart and Target, but not before spawning two surviving chains. One is the closeout retailer T.J. Maxx, part of TJX Cos. The other is BJ's, opened to see if the warehouse club trend out west would work in New England.
Zayre's put an executive named Mervyn Weich in charge of the experiment, and Weich had a daughter named Beverly Jean. Hence the initials BJ, which in turn inspired the brand Berkley Jensen. Anyhow, there was a spinoff, a private-equity takeover, an initial public stock offering in 2018, and here we are.
What do BJ's fans say they like most? I asked Anthony Mauriello, moderator of a Reddit chat group devoted to the chain. "They often comment that BJ's is less crowded compared to Costco," he says. Not ringing praise, but OK. Mauriello often shops at BJ's, even though it's seven minutes further than his local Costco. It depends on whether his dog is riding shotgun. Neither store allows pets, and only BJ's will load online purchases into customer vehicles. "Honestly, I don't know why Costco doesn't do it," says Mauriello. He likes the food court at Costco -- BJ's phased out most of its food courts a decade ago. And he says the two stores have similar prices and customer service.
I turned to Chuck Grom, a longtime BJ's follower at Gordon Haskett, a boutique Wall Street research firm. He recently upgraded shares to Buy, bringing to 12 out of 25 the number of analysts who are bullish. Since the 2018 IPO, BJ's has returned a cumulative 326%, 100 points better than the S&P 500, but 80 points worse than Costco. This year, BJ's has lagged behind both, and it recently traded at 20 times forward earnings estimates, versus 42 times for Costco.
Grom likes that BJ's has gotten past difficult comparisons with year-earlier results. "They were fighting a lot of egg deflation," he says. BJ's has a spotty history with trying to push west or south, where it lacks name recognition and a dense distribution network. But a recent venture into Texas' Dallas-Fort Worth metroplex is so far defying the skeptics, says Grom. And BJ's has hired a new merchandising manager to help trim its SKUs, or stock keeping units -- Wall Street-ese for item count. Costco famously plays, say, Jif off Skippy for the right to compete against Kirkland in peanut butter. BJ's will sell multiple outside brands. It has around double the SKUs of Costco.
This cuts both ways. Some shoppers who prefer BJ's like the brand choices, says Grom. "I just think that they are still over-assorted," he says. Other shoppers like that BJ's accepts manufacturer's coupons where Costco and Sam's don't. BJ's also leans toward item multipacks that are manageable for midsize families, whereas Costco has more jumbo sizes for large families, and titanic ones for businesses -- a 60-pound honey pail, anyone?
Grom also likes that BJ's has steady membership income with high renewal rates, along with modest debt and recent stock buybacks. It will always trade at a discount to Costco, he says, but he sees more than 20% upside from recent levels. Readers who heed Grom's call to buy BJ's shares here risk a big move, for better or worse, on the morning of Aug. 21, when the company reports second-quarter financial results. I'll be watching with interest, spoon in hand, still working my way through all this Raisin Bran.
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