The Untold Truth Of BJ's Wholesale Club

We may receive a commission on purchases made from links.

Typically the mention of a "wholesale club" conjures images of giant chains like Costo or Sam's Club. But there's another contender that has quietly yet competitively remained in the wholesale elite, BJ's. From bulk food to baby wear, meat to veggies, and toilet paper to tires, the northeastern supermarket chain has become well known over the last 35 years as a popular wholesale club that, if still technically a bit smaller than their competition, has still maintained a robust membership of patrons that simply can't get enough of their products.

From reselling popular brands, to their own Berkley Jensen and Wellsley Farms product lines, each club is stocked to the hilt with all sorts of goodies — and always priced at those iconically low wholesale club bulk prices. But while BJ's may be a popular stop to flash your membership card and fill up your cart (and your gas tank), it turns out that the story behind the scenes is just as intriguing as that extra-sized double pack of fruit loops that you just threw into your cart. Here's the untold truth of BJ's Wholesale Club.

Even though the BJ's Wholesale Club was one of the early participants in the wholesale club movement, in many ways it's been left in the dust by its more robust rivals, namely Costco and Sam's Club. But that hasn't stopped BJ's from continuing to fight the good fight, even if the stats were stacked against them. The chain has opened hundreds of stores over the years and has soldiered on as the decided underdogs in a heavyweight fight for a competitive market.

The fact that BJ's has remained competitive within its niche becomes that much more impressive when you break down the numbers. For example, in a report posted by CNBC in 2018, BJ's boasted an impressive five million members. We're talking regular shoppers who paid the membership fees in order to be part of the club. The number smacks of success ... until one considers that Costco had a whopping 51 million members that same year. For those of you counting at home, that's more than ten times the membership cards issued. 

Still, when you hear about the "big three" warehouse clubs, BJ's is always thrown into the mix with it's two bigger, badder brothers. It may be tiny, but it's still pretty mighty. David versus Goliath? We would say so.

When a store isn't able to compete on a national level it can be concerning for its long-term survival, as the arrival of "bigger fish" within their markets can often undercut their competitors and starve them out. But the focus of BJ's geographic reach becomes even more restricted (and worrisome) when one zooms in to that Northeastern geographic window where we already mentioned that so many of the existing BJ's currently reside. Upon a closer look, it quickly becomes apparent how much the wholesale market chain is dependent on one area in particular: New York City.

According to Market Watch, out of its hundreds of clubs, 39 of them are located within the Big Apple, with that handful of locations bringing in a dangerously high 25 percent of the clubs' total sales in the 2017 fiscal year. Why is this dangerous? Because it makes BJ's desperately dependent on the City that Never Sleeps for a huge amount of its sales. As their own SEC prospectus clearly and quite literally states, "We depend on the financial performance of our operations in the New York metropolitan area." The section on the report is followed by a list of potential threats that could impact their sales in the area, like rising labor and health care costs, competition, terrorist attacks, natural disasters, or economic problems in the area, all of which could lead to issues with their New York sales.

Anything that affects New York City also affects BJ's — and that may not always be a good thing.

One of the issues with getting good produce can be the freshness factor. Sure, an apple might be labeled as "organic" but that doesn't count for much if it's half rotten by the time it gets to the store. It's certainly not a recipe for freshness, and it goes against the grain of the growing movement to buy locally.

That's why, the next time you're at your local BJ's (if you happen to live near one, that is), you may want to look for the "Farm to Club" label on your produce. This nifty little stamp of approval indicates that the fruits and veggies in question have actually been carefully sourced from local farms — typically within your state — straight to your local BJ's. While it doesn't appear on everything, the initiative includes "zucchini, tomatoes, butter and sugar corn, green peppers, yellow squash, cucumbers, and much more." In 2014 the club claimed to already have 40 farm partnerships and an average of three farms per state. Not bad for an organization focused primarily on the prices.

While BJ's had a bit of a rocky start during the first decade of its existence as it was bought, sold, and eventually spun off into its own company, once the dust settled it had a period of relative stability on its own for a time. But that didn't mean the days of rearranging ownership had passed entirely, as was proven in 2011 when the then-public company announced that it was going private. In theory, the move was done in order to help the wholesale club ultimately grow larger (at that point it had less than 200 stores in just 15 states).

The value of the company quickly rose as the private investors, Leonard Green & Partners and CVC Capital Partners, made their interest in the wholesale club known in the year before the sale. During that year the stock rose by roughly a third of its previous value. The sale closed at a staggering $2.8 billion. And just like that, BJ's had gone from a publically traded company to a private one.

While the recent moves from public to private back to public again has been a bit of a roller coaster for BJ's, the company has thus far proven that it has enough stamina not to be sunk by the whiplash effect that these kinds of major changes can bring. But that doesn't mean it has remained unaffected by the constant changes in its corporate landscape. It turns out that while BJ's grew a little bit during its time under private ownership, that small growth geographically correlated with a much larger one fiscally. Unfortunately, we're not talking about profits though, we're talking about debt.

During its time in private industry, BJ's managed to saddle itself with a mountain of debt, which had pushed upwards towards the two billion mark before the company went public once again. This was contrasted against the fact that they only had tens of millions of dollars in income on a regular basis. The IPO allowed them to raise several hundred million dollars, but all of it went towards paying down their debt. This served as a temporary salve but certainly won't be a complete panacea for the company's fiscal challenges. While BJ's still retains robust sales that add up to billions of dollars per year, their paltry income compared to their mountain of debt is an issue that will need to be addressed sooner or later.