If you don’t know what Amazon ($AMZN) is, you’ve been hiding under a rock. Millions of shoppers buy products from the Washington-based company every day through their main site (Amazon.com), dozens of apps (Amazon Fresh, Amazon Prime Now), and even a sentient microphone that talks to you (Amazon Echo). If there’s something to be sold online, Amazon probably sells it better than anyone.
BJ’s Wholesale Club is not Amazon. They have an online storefront, but it’s not particularly great. They only serve the eastern United States, as opposed to Amazon’s international reach. They do well for themselves, but not hundreds-of-billions-a-year good.
Earlier this decade, private equity firm Leonard Green & Partners bought BJ’s for a little under $3 billion. The firm closed a few stores, trimmed their staff, and made the Costco competitor into a lean-and-mean, bulk toilet paper-selling machine. Though BJ’s hasn’t disclosed the number of paying customers to their subscriber-based business, the company is doing well enough to keep 200+ stores open with an eye focused on expansion.
Now, BJ’s is allegedly up for sale, according to a report from the New York Post. The same report indicated that Amazon, is interested in purchasing the wholesale club. While it might sound absurd that the online retail giant would buy two hundred or so physical stores, it’s not that crazy of an idea. In fact, it might make more sense than you think. Here’s why:
The subscription-based wholesale business is doing well.
Costco’s ($COST) stock is up around 6% since the start of the year, and 10.79% since this time last year. Walmart ($WAL), owner of Sam’s Club, is no slouch either. Both subscription wholesale chains offer bulk products at a low cost for one small yearly subscription fee. Though Amazon has a foot in the door with this model via their Prime Pantry service, it’s not as well-known or popular as Costco, and doesn’t always offer the best value. By purchasing BJ’s, Amazon could not only compete with Costco and Sam’s Club, they could possibly corner the wholesale market.
Amazon wants to open more stores.
Amazon is in the middle of opening automated grocery stores, bookstores, and a few other physical retail concepts. Reports peg the company as opening thousands of Amazon-branded locations soon. Scooping up hundreds of BJ’s locations would help the company expedite their retail expansion while offering products their customers love.
Access to wholesale stores is an added Prime bonus.
Amazon’s Prime customers spend significantly more than non-prime customers. Giving those customers extra access to physical locations — or selling access at a discounted rate — would add incentive to stay subscribed to Amazon. In this scenario, the company’s customers would have the opportunity to spend more with the company in a different space, allowing Amazon to increase the amount spent per Prime customer.
BJ’s has some pretty sweet warehouses.
The wholesale chain has three major warehouses in the eastern United States. Instead of simply building new warehouses, Amazon could take advantage of the existing locations and convert them in to BJ’s and Amazon logistics centers. This wouldn’t be the only reason for a multi-billion-dollar purchase, but Amazon will need more distribution centers as they continue to expand. BJ’s warehouses in Uxbridge, MA, Burlington, NJ, and Jacksonville, FL could help with said expansion.
Amazon might not meddle and just see a potential for profit.
BJ’s is allegedly for sale after turning down the opportunity to go public. This could mean that the company is more valuable than when Leonard Green & Partners purchased it, and they’re trying to make a return on their investment. Amazon might see the potential for more profit by using their way of doing things (automation, awesome online storefront, high-value subscription service) to fine-tune BJ’s already-successful model. Amazon has done this several times before with companies like Audible.com and Zappos. Those companies run independently from Amazon, though utilize Amazon’s incredible resources to run efficiently and increase value.
Should you invest in BJ’s?
You can’t, as the company is privately owned. Amazon, on the other hand, is one of the most valuable publicly traded companies. If you think buying BJ’s will only help the company’s bottom line in the future, be sure to do your research before you decide to invest. If you don’t feel comfortable investing in retail, you might want to put your money elsewhere.