By Teresa Rivas

When a tornado tore through her hometown of Grapevine, Texas, in 2023, assistant principal Daniela Flores Alvarez remembers being in her office, frantically considering with other officials how best to keep her students safe. Later, as she drove home through a maze of upended trees and downed power lines, she says she felt "relief that no lives had been lost and it didn't hit our school. But then I got worried -- when would the Sam's Club reopen?"

Alvarez, a self-professed rabid Sam's Club fan whose family has shopped at the warehouse club for decades, remembers the town rallying together to petition Sam's owner Walmart to reopen the store, including coordinating a postcard-writing campaign. It ultimately worked -- and better than Alvarez could have expected. When the location reopened in 2024, it did so with all the high-tech bells and whistles that have become a hallmark of Walmart remodels in recent years. The store is now a showcase for everything Walmart can do with its scale and technology -- and how it can propel Sam's Club.

Warehouse clubs are known for their utilitarian feel -- concrete floors and steel-girdered ceilings show they're well named -- and Grapevine Sam's is no exception. Yet gone are the dull gray interiors with long, snaking lines for cashiers. Instead, shoppers breeze in and out of the brightly lit location, their carts scanned in milliseconds by machine-learning-enabled arches like something out of a sci-fi movie. A friendly looking bot that seems like it could have palled around with WALL-E scans the bulk items on the shelves, providing real-time inventory updates. An unobtrusive corner of the store serves as a fulfillment center for online orders.

"Our Sam's was already a great one, but it's even better now," says Alvarez. "I can get in and out so quickly, and that's exactly what I need as a busy mom!"

Alvarez isn't alone in her love of warehouse stores. Three clubs -- Sam's, Costco Wholesale, and BJ's Wholesale Club Holdings -- are among the fastest-growing physical retailers in the U.S., according to data from Kantar, Euromonitor, and others, with increasing visitor traffic and loyal customers. While they have always been successful, the postpandemic era has ushered in a golden age for the retailers, which offer the two things shoppers want now: low prices and curated merchandise.

The proof is in the numbers. Sam's Club has grown sales by 50% over the past five years, without opening a single new store. Revenue has climbed by an almost identical amount at BJ's and Costco from 2020 through 2024. Annual visits grew each year from 2019 to 2024 at Sam's, according to data from Placer.ai, and five out of six years at Costco and BJ's.

"The evidence suggests that there has been a secular change in the way that consumers view, interact with, and use warehouse clubs in the U.S.," says UBS analyst Michael Lasser, who notes that they are taking market share. "Warehouse clubs are now in a structurally stronger position than they were prior to the pandemic."

It's an odd business model; one that seems like it shouldn't work. Warehouse clubs sell items at or near the price they buy them -- even at a discount, given their scale -- so there is virtually no markup. Profits instead come from membership fees, which can range from $50 to $130, so that everything from a party-size bag of Doritos to Downy fabric softener can be cheaper than at other stores.

And those low prices keep shoppers coming back for more. At least 80% of the three retailers' customers are inclined to renew their memberships. The math for shoppers checks out. For consumers interested in big-ticket items, whether it's a flat-screen TV or a Florida getaway, memberships can pay for themselves with a single purchase. The savings also add up incrementally. Clubs have expanded to offer food delivery -- both groceries and hot meals -- cheap gas, a growing online business, and health services like eyeglasses and prescription medications.

One knock against warehouse stores: the long checkout times for a big stock-up, as anyone who has passed a Costco parking lot on a Saturday knows. Yet clubs are coming up with new ways to make it easier to shop -- and get people to spend more. Sam's showcase Grapevine store is benefiting from Walmart's big technology investments in recent years. Bright blue arches frame the doorway, standing like celebratory finish lines for exiting shoppers, whose items are instantly and unobtrusively checked by artificial intelligence. Scan-and-go options mean no long lines at checkouts and exits, and members can get in and out for quick top-up trips in nearly the same time it would take to go to a convenience store. Alvarez often stops by on the way home from work, when her children's lunch supplies are running low midweek.

The warehouse stores are also offering ways to shop that they never would have a decade ago. Sam's Club offers pizza delivery, and those orders have an average ticket 10 times the $8.98 average price of a single pie, the company says, as customers add other items to their orders. Lasser's survey work found that only 8% of shoppers spent less than $50 during their last visit to Costco; at least two-thirds of shoppers at all three club stores spent over $100. Members' spending intentions for the next year climbed across the board compared with 2023 -- ahead of those for Amazon.com -- and only a small minority said they expected to spend less. BJ's leads the way in e-commerce uptake, with nearly three-quarters reporting they've made at least one online purchase in the past year.

It might seem counterintuitive that stores known for their no-frills ethos and limited merchandise are thriving at a time when a single web search can deliver seemingly endless products for digitally native shoppers. Yet for consumers pressed for both time and money, warehouse clubs are the answer to both problems. They offer convenience and value, while their curated merchandise gives members a break from the decision fatigue that comes with Amazon's 100,000+ results.

Private-label products also add to the allure of clubs. Costco's Kirkland Signature brand has a cultlike following, representing more than a quarter of net sales and offering savings of nearly 30% on key items such as diapers. That puts it "at the tip of the spear of [Costco's] value proposition," as Bernstein analyst Zhihan Ma wrote in her deep dive of the brand this summer.

In June, Sam's Club announced that 96% of its Member Mark food and beverage products are free of artificial ingredients and colors -- a figure on track to reach 100% by the end of the year -- appealing to the roughly 90% of Americans across the political spectrum who say they're trying to live a healthier lifestyle.

"There's a cool natural selection happening," says Sam's Club Chief Executive Officer Chris Nicholas. "Our buyers know that if they want to bring something in, it better be good, because it's going to kick something else out."

It's a model that works, and with prices already at or near cost, it isn't an industry prone to wild promotional wars. The scale required to buy in bulk and streamline supply chains means new entrants are unlikely. "The industry is really a very stable one," says Julie Kutasov, portfolio manager at Virtus Investment Partners. "All three clubs started around the same time in the mid-1980s, and that's really a testament to the barriers to entry inherent in the business."

Currently there are just under 1,500 Sam's, Costco, and BJ's locations in the U.S., but UBS' Lasser believes there's room for more than 900 additional warehouse clubs, even using conservative estimates.

"Depending on how you do the calculation, the club channel is only about 7% of total retail today, so all three of us are gaining share every single quarter, and it's not from each other, it's from the other 93%," says Sam's Chief Financial Officer Todd Sears.

Little wonder, then, that even the world's biggest retailer is investing in the model: After a yearslong period with no new clubs, Walmart plans to pour its considerable resources and tech -- from automation to artificial intelligence -- into Sam's. It announced plans this past spring to open 30 new locations, with even more new potential clubs in the pipeline, while also remodeling all 600 existing stores in the tech-forward vein of the Grapevine store.

"It's a great time to be in the club business because the growth is incredible and it's really compelling to everyone, regardless of income group or generation," says Nicholas, highlighting that millennials such as Alvarez and Gen Z are its fastest-growing age cohort, accounting for half of new memberships.

That membership growth has paved the way for greater profits and bigger stock gains. Walmart, Costco, and BJ's shares have all more than doubled over the past five-year period. (Walmart is up 97% since Barron's cover story on the stock in July 2023.) Yet investors don't have to feel like they missed the boat on the stocks.

It's true that valuations have gone up, but not prohibitively so. At nearly 50 times forward earnings, Costco's multiple is the toughest pill to swallow. Nonetheless, Jeff Nelson, senior equity portfolio manager at Northwestern Mutual Wealth Management Company, says it is "a poster child" in terms of "high-quality companies with a strong and sustainable competitive advantage....The stock's valuation likely keeps some investors on the sidelines, but in our view, their execution and consistently strong traffic in various macro environments warrants the above-average valuation." The average analyst price target implies 17% upside for Costco, to $1085, on 10% earnings growth in 2026.

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October 01, 2025 01:00 ET (05:00 GMT)

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