Executive Vice President of Strategy & Development, BJS WHSL CLUB HLDGS INC
BJ's CEO: Value retail works
BJ's Wholesale CEO Chris Baldwin speaks to "Squawk on the Street" about the company's initial public offering, the landscape for ...
About William Werner
In a September 2018 interview on CNBC's "Squawk on the Street," BJ's Wholesale Club CEO Chris Baldwin discussed the company's initial public offering and the retail landscape. Baldwin stated that the consumer in the United States is "in good shape" and that "discount retail works," particularly when combined with a membership model. He noted that BJ's geographic focus is the Northeast, from New England down the East Coast to Florida, and expressed encouragement about opportunities to grow from that footprint. Baldwin acknowledged that any retailer who says they do not compete with Amazon "isn't being truthful," but asserted that "value retail works" and that BJ's is well-positioned. Baldwin said BJ's prices groceries at about 25 to 30 percent below grocery stores in its regions, and described the company's investments in omnichannel convenience, including a partnership with Instacart for delivery and a "buy online pick up in club" option. He stated that the company's cash flow is strong, with leverage expected to fall below three times by the end of 2019, and that private equity owners have made major investments in IT infrastructure. Baldwin also said BJ's deals with wage pressure on a regional basis and treats employees well, and that the company has no plans to expand internationally.
Transcript (28 segments)
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William Werner0:00
I think the biggest thing it says is the consumer in the United States is in good shape and discount retail works. When you add a membership model on top of discount retail, the business is healthy, vibrant, and growing. We feel good about it.
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Interviewer0:10
You make a big point about your geographic territory, right?
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William Werner0:12
Yeah, in the Northeast we are. What's important about it is our geographic scale and markets like New York, New England, all the way down the east coast of Florida is a big part of how we run our company. We're encouraged by the opportunities to take that footprint and grow from there.
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Interviewer0:29
From where to?
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William Werner0:32
We'll see over time. The opportunity we have to deliver value to consumers in different parts of the country is really encouraging for us. We're excited about it.
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Interviewer0:37
Carl mentioned some of the competition in terms of the warehouse clubs like Sam's Club and Costco. What about Amazon? How much do you compete with Amazon?
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William Werner0:44
Yeah, I think any retailer who says that they don't compete with Amazon isn't being truthful. There is no doubt that the consumer is getting great value and great convenience. But in the world we're living in today, value retail works, and membership on top of value retail is a business we feel great about. Investors have been encouraging us along the way.
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Interviewer1:02
Yeah, I mentioned earlier 25% lower prices you say in your prospectus that you offer versus some of the other stores. That's on groceries?
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William Werner1:10
We generally priced at about 25 to 30 percent below grocery stores in the geographies in which we compete. That's a big part of how we drive traffic. In the consumer environment today, value retail is a really terrific business, and our ability to continue to do that is important to our future.
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Interviewer1:29
Well, give us some specifics then as to what you find encouraging, particularly as you indicated the potential for expanding geographically. Why would you? What are the numbers that you look at that say this would be a good idea?
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William Werner1:36
Yeah, the idea that the consumer environment is as strong as it is. Looking at some level, wage growth is good for the consumer. The fact that the consumer is winning as more and more pricing becomes more and more transparent is good for consumers. In our view, transparent pricing is really good for our company because when people check us out, our prices are better than most. In that environment, we believe we'll be able to serve more consumers over time.
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Interviewer2:03
And do you believe you have the capital you need to grow? I would assume much of this is for deleveraging. That is typically the case with a PE-owned company. You obviously will still have a good deal of debt on your balance sheet. Do you have the capital you need to actually make the investments you're talking about?
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William Werner2:19
We absolutely do, Joe. The cash flow profiles of this business are really good. We'll come out of this deal at a little lower than four times leveraged, and by the end of next year we'll be below three. We're encouraged by our ability to continue to perform.
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Interviewer2:31
Where does e-commerce stand on your list of priorities? How should we be looking at that when you report on the quarter? And is it different in wholesale club warehouses than it is for other retailers and apparel specialty?
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William Werner2:44
I think it is a little bit different, Carl. The lens through which we view our investments in omnichannel is about making the trip more convenient. We have a deal where we can go online today and place an order and have it to your house in a couple of hours. We're also letting consumers buy online and we'll have an order ready for them at our clubs. We call it buy online, pick up in club. Our ability to continue to make the trip more and more convenient is something that we feel really good about. With some of the competitive environment going on, the world of delivery is becoming a fascinating source of innovation for all retail. Delivery is surpassing pickup as an option. We'll see over time, things will come and go, but delivery seems to be the issue of the day. And once again, to Joe's question earlier, the consumer is winning and we believe we're well positioned to win in that environment.
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Interviewer3:37
I mean, on the online front, you have more than 200 warehouse locations. How much business are you doing online from that? And would you ever partner with an e-commerce company, given you've got such a big presence in physical retail?
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William Werner3:49
Yeah, the opportunities to do that in the future are significant. So far we've launched a terrific deal with Instacart where they are a delivery agent, and we feel good about the early read there. The online business is going to be a source of growth for many years to come.
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Interviewer4:06
This was a public company once. It went private and was for quite some time private. Private equity will tell you they do a lot of different things to improve the overall profitability of the company. What were some of them? Aside from just putting debt on to obviously pay dividends to your private equity owners, what did you do during this period that has enabled you to be in a better position than you were when you were last a public company?
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William Werner4:24
Sure, Joe. Our private equity has been a great steward of this company over the course of the last seven years. They have made major investments in things like putting in SAP. Our IT infrastructure is dramatically better than where we were seven years ago, and we're really encouraged by the ability to use that both today and in the future.
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Interviewer4:54
Any pressure on logistics, supply chain, fuel, trucker salaries? That's something that keeps coming up at other companies. How do you feel it?
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William Werner5:05
Yeah, we feel we're really well positioned to be able to deal with those pressures. They're part of the business. In the club store business in the United States, our freight is really, really good. We've shipped full pallets and full trucks all the time. As a competitive advantage, it's a big part of our ability to operate efficiently. We work really hard with our suppliers to continue to do that.
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Interviewer5:28
And international in general for warehouse clubs tends to be a low priority, right? I imagine it's the same with you.
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William Werner5:34
We have plenty to do here in the United States, and we're not going to do anything.
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Interviewer5:39
So for viewers who are in Colorado, Oregon, can they expect one?
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William Werner5:44
Stay tuned.
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Interviewer5:46
With unemployment where it is right now, are you finding the workers you need? Are wages going to become more of an issue perhaps for you?
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William Werner5:53
We certainly, there's no doubt that with low unemployment we deal with some wage pressure. We tend to think about it on a regional basis. Our ability to deal with those issues locally is something we've been doing for a long time. We treat our employees really well and we'll continue to.
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