Draft:Warehouse Club (retail chain)

Warehouse Club, Inc.

Company type	Public
Traded as	NASDAQ: WCLB (1986–1994)
Industry	Retail
Founded	1983
Defunct	1995
Fate	Closed due to financial difficulties and competition pressures
Headquarters	Niles, Illinois, United States; Skokie, Illinois, United States
Number of locations	15 over its lifetime
Area served	Midwestern United States
Key people	Walter H. Teninga (Founder and CEO) Sid Doolittle (Co-Founder, 1983–1985) Everett Buckhardt (CEO, 1993–1994) Jack McBride (Chief Financial Officer) William C. Kahrs (Vice President of Operations)
Products	General merchandise, groceries, automotive supplies
Revenue	$134 million (1993)
Operating income	-$4.5 million (1993)
Net income	Loss of $6.6 million in 1994
Total assets	$82 million (1993)
Number of employees	500 (1993)

Warehouse Club, Inc. was a membership-based wholesale retail chain founded in 1983 by Walter H. Teninga, a former executive at S.S. Kresge Co. (later known as Kmart), and Sid Doolittle, a former executive at Montgomery Ward. The company aimed to provide significant savings on a wide range of products, including general merchandise, groceries, and automotive supplies, primarily targeting small business owners, corporate employees, union members, and credit union members.

Over the course of its operation, Warehouse Club owned and operated 15 locations across the Midwestern United States. However, the company struggled to compete with larger national chains such as Sam's Club and Costco. Despite efforts to expand and adapt, including the opening of a key location in Chicago's Clybourn Corridor in 1994, Warehouse Club ultimately ceased operations the next year due to financial difficulties and competitive pressures. Although its time in the retail industry was brief, Warehouse Club played a role in the broader acceptance and evolution of the membership-based wholesale model.

History

Founding and Early Years (1983–1985)

Warehouse Club, Inc. was founded in 1983 by Walter H. Teninga, who had previously served as an executive at S.S. Kresge Co. (which later became Kmart) and briefly at Price Club. Teninga left Price Club after a short tenure when its founder, Sol Price, declined to take his advice to expand the business into the Midwest. This experience motivated Teninga to pursue his vision of a membership-based wholesale retail chain, leading to the creation of Warehouse Club, Inc. He co-founded the company with Sid Doolittle, a former Montgomery Ward executive who played a key role in shaping the company's initial strategy.

Doolittle's expertise and innovative ideas in the warehouse retail model gained the attention of prominent figures in the retail industry. Notably, Sam Walton, the founder of Walmart and Sam's Club, visited one of Doolittle's early warehouse clubs to gain insights into the business model. Walton's visit was instrumental in shaping his vision for Sam's Club, which would later become one of the largest and most successful warehouse retail chains in the world. This encounter highlights Doolittle's far-reaching influence on the evolution of modern retail.

The company initially planned to open its first store in Elk Grove Village, Illinois, within an industrial park. However, these plans were thwarted when Teninga was unable to secure a special use permit required to operate a retail-focused business in an area zoned for industrial use. Additionally, lease negotiations with the building's owner, Prudential Life Insurance Co., fell through, leading to the abandonment of this location.

Despite this setback, Teninga moved forward with the establishment of the first Warehouse Club location in Niles, Illinois later that year. The Niles store quickly attracted a substantial membership base, drawing approximately 35,000 members within its first five months of operation. The initial business model focused on providing wholesale prices to members, with a particular emphasis on small businesses and corporate accounts.

Investors and Initial Growth

Warehouse Club was initially funded through a combination of private investment and a public offering in 1986, where it began trading on NASDAQ under the ticker symbol "WCLB." Key early investors included prominent figures and companies such as A. Alfred Taubman (a real estate developer and mall magnate), Max M. Fisher (a Detroit-based philanthropist and oil executive), and George F. Valassis (a Detroit investor who acquired a 41% stake in the company in 1987). The capital raised from these investments allowed the company to expand its footprint across the Midwest, particularly in states like Illinois and Michigan.

Expansion and Growth (1985–1990)

By the mid-1980s, Warehouse Club was actively expanding its footprint, focusing both on increasing its presence in the Chicago metropolitan area and entering new markets across the Midwest. In 1986, the company acquired leases from the recently closed Pick 'N Save grocery stores in Arlington Heights and Lombard, Illinois. These new locations, along with the opening of a store in Hammond, Indiana, were part of the company's strategy to solidify its presence in the greater Chicago area.

Simultaneously, Warehouse Club expanded into several new markets outside of the Chicago area, establishing locations in states such as Michigan, Ohio, and Pennsylvania. This strategic growth was aimed at capturing a larger share of the burgeoning warehouse retail sector across the Midwest, capitalizing on the demand for bulk purchasing and membership-based savings.

During this period, Warehouse Club employed aggressive marketing strategies to attract members, including direct price comparisons with established retailers such as Kmart and Sears. These comparisons highlighted the potential savings members could achieve by shopping at Warehouse Club, thereby reinforcing the value of the membership.

The company sought to capitalize on the departure of BJ's Wholesale Club from the Chicago market in 1987 by offering former BJ's members the opportunity to transfer their memberships to Warehouse Club. This move was part of a broader effort to capture market share and strengthen the company's position in the competitive warehouse retail sector.

Challenges and Strategic Moves (1990–1994)

As the 1990s began, Warehouse Club faced increasing financial difficulties. In 1990, the company entered into a non-binding letter of intent with the [[A%26P][Great Atlantic & Pacific Tea Company]] (A&P) for the purchase of a 51% stake in Warehouse Club. The deal, which was valued at approximately $10.95 million, would have provided the company with much-needed capital. However, the agreement ultimately fell through, leaving Warehouse Club in a precarious financial position.

Despite these challenges, Warehouse Club continued to seek growth opportunities. In 1994, the company opened a new store in the Clybourn Corridor of Chicago, an area known for its competitive retail environment. This move was part of a strategy to secure a foothold in urban markets before larger national competitors, such as Sam's Club, could establish a presence in the city. The Clybourn store, which opened on March 26, 1994, in a building shared with Montgomery Ward's Electric Avenue and Homemakers Furniture, was a novel configuration for the company. The 76,000-square-foot store featured a mix of bulk-packaged foods and traditionally displayed items like clothing and jewelry, aiming to cater to the neighborhood’s needs in a more upscale manner than typical warehouse clubs. This location was critical for Warehouse Club as it sought to differentiate itself by targeting an urban customer base, while also reacting to the opportunity that arose when Sam's Club, which had acquired Kmart's Pace Membership Warehouse, allowed its option on the building to expire.

Decline and Closure (1994–1995)

By late 1994, Warehouse Club was facing insurmountable financial challenges due to intense competition from larger, better-capitalized chains like Sam's Club and Costco. These pressures, combined with the company's inability to secure long-term financial stability, led to a significant decline. Despite operating 10 locations at the beginning of 1995, the company filed for Chapter 11 bankruptcy on February 2, 1995, and announced plans to close 4 unprofitable stores, bringing its count down to 6.

At the time of the bankruptcy filing, Warehouse Club's assets were estimated at $31 million, while liabilities were estimated at $32 million. The largest stockholder, George F. Valassis, controlled approximately 80.7% of the outstanding common stock. The company's unsecured creditors, which included suppliers like Bunzi Distribution and Coca-Cola Bottling, were owed a total of $4.9 million.

In August 1995, Warehouse Club Inc. announced that it would not attempt to continue operations under Chapter 11 reorganization and would instead liquidate its remaining assets. The company, which at that time operated six stores in Ohio, Michigan, Illinois, and Pennsylvania, decided to cease all operations, marking the end of Warehouse Club's presence in the retail industry after 12 years. The liquidation process included the closure of the Dayton, Ohio store located at 835 S. Edwin C. Moses Blvd., where 67 employees were informed of the closure, with most expected to remain employed through mid-October 1995. The going-out-of-business sale was managed by Gordon Brothers Cos., starting on August 13, 1995, and was open to all customers, accepting cash and major credit cards but not checks.

Business Model

Membership Structure

Warehouse Club, Inc. operated on a membership-based model that was designed to cater to specific segments of the market. The primary types of memberships offered by the company included those for small business owners, corporate employees, union members, and members of certain credit unions. These memberships provided access to the company's wholesale prices, which were significantly lower than those of traditional retail stores.

The membership structure was a key component of Warehouse Club's business model, as it allowed the company to create a loyal customer base that was incentivized to return for regular purchases. By targeting business owners and corporate employees, the company aimed to build a customer base that not only needed to purchase in bulk but also had the purchasing power to do so.

Over time, Warehouse Club experienced significant growth in its membership numbers, particularly in the early years of its operation. Within the first five months of opening its Niles, Illinois location, the company reported a membership base of approximately 35,000 members. The demographics of the membership were diverse, with a mix of small business owners, corporate clients, and union members, which contributed to a steady stream of revenue for the company.

Product Offerings

Warehouse Club offered a wide range of products that spanned multiple categories, catering to the needs of its varied membership base. The primary product categories included general merchandise, groceries, automotive supplies, electronics, and home goods. The company's product selection was designed to appeal to both individual consumers and business customers, providing them with the convenience of one-stop shopping at wholesale prices.

One of the unique selling propositions of Warehouse Club was its ability to offer products at prices that were often significantly lower than those of traditional retailers. This was achieved through bulk purchasing and a streamlined supply chain that minimized overhead costs. Additionally, Warehouse Club frequently conducted price comparisons with major competitors such as Kmart and Sears to highlight the savings that could be realized by shopping at the club.

Over the years, Warehouse Club made several merchandising adjustments across different locations to better compete in the evolving retail market. For example, some locations experimented with store layout changes by placing seasonal items and apparel categories at the front of the store, which was intended to increase visibility and drive impulse purchases.

At the Clybourn Corridor location, which opened in 1994, the company introduced new product categories such as pet food and office products, reflecting a shift to cater more specifically to the needs of the urban customer base. The Clybourn store also featured a "softer touch" in its merchandising approach, displaying clothing, jewelry, and videotapes similarly to more traditional stores, rather than the bulk-oriented presentation seen in earlier locations.

Some locations, especially those in areas with a high density of small businesses, emphasized business supplies and bulk office products more heavily to appeal to local demand. Additionally, certain stores offered tailored selections, such as expanded automotive supplies and meat departments, depending on the preferences and needs of the local customer base.

The Clybourn Corridor location also benefited from shared resources with Montgomery Ward's Electric Avenue and Homemakers Furniture, which were located in the same building. This collaboration allowed Warehouse Club to focus on bulk-packaged foods and paper products while relying on Montgomery Ward for electronics.

Marketing and Advertising

Marketing and advertising played a crucial role in the success of Warehouse Club, particularly during its expansion phase. The company employed a variety of marketing strategies to attract and retain members, including direct mail campaigns, newspaper advertisements, and in-store promotions.

One of the key marketing strategies used by Warehouse Club was direct price comparisons with established retailers. These comparisons were prominently featured in advertising materials and were designed to demonstrate the significant savings that members could achieve by shopping at Warehouse Club. This approach helped to differentiate the company from its competitors and reinforced the value proposition of the membership.

Warehouse Club also focused on creating a sense of exclusivity and value for its members. By limiting memberships to specific groups, such as small business owners and corporate employees, the company was able to foster a sense of belonging among its customers. This exclusivity was further reinforced through targeted marketing campaigns that emphasized the benefits of membership and the unique shopping experience offered by Warehouse Club.

Overall, Warehouse Club's marketing and advertising efforts were instrumental in driving membership growth and establishing the company as a competitive player in the wholesale retail industry.

Corporate Structure

Management and Leadership

Warehouse Club, Inc. was founded by Walter H. Teninga, a former executive at S.S. Kresge Co. and Price Club, in 1983. Teninga was instrumental in shaping the company's early strategy and direction, focusing on the members-only wholesale retail model. He served as the company's first CEO and was closely involved in its expansion efforts during the mid-1980s.

Sid Doolittle, a co-founder and later a partner in the retail consulting firm McMillan/Doolittle, was a key figure in the company's early development but left the company in 1985.

Walter H. Teninga, while credited with driving the company's initial growth, was known for his intense and often overbearing management style. His hands-on approach, which included micromanaging and making abrupt personnel changes, led to high turnover among top executives. This approach, combined with the company's challenges in the competitive Chicago market, created internal instability and contributed to the company’s struggle to sustain growth.

In July 1986, James McKitrick was appointed as president and CEO of Warehouse Club, taking over the president's post from Teninga, who retained his role as Chairman. Teninga acknowledged the need for "more heft at the top" to manage the rapidly expanding company, which was operating nine stores at the time. McKitrick brought extensive experience in operations, merchandising, and marketing from his previous roles at Kmart and TG&Y stores, which Teninga believed were crucial for Warehouse Club's continued growth.

Despite this leadership change, the company continued to face significant challenges in the evolving retail landscape. In July 1991, Teninga abruptly resigned as Chairman and CEO, with his responsibilities assumed by James V. Walsh, who had been the company's President and Chief Operating Officer. Walsh, who joined Warehouse Club as Chief Financial Officer in 1986, took over during a critical period as the company struggled to secure $8.5 million in working capital through a stock rights offering, backed by its principal shareholder, George F. Valassis.

By the early 1990s, Everett Buckhardt had taken over as CEO, leading the company through some of its most challenging years, including the failed deal with A&P and efforts to compete with larger warehouse chains.

Headquarters

Warehouse Club's headquarters initially were located in Niles, Illinois, where the company opened its first store in 1983. The choice of Niles for the headquarters was strategic, given its proximity to Chicago and the company's target market.

In the mid-1980s, as the company expanded, the headquarters were relocated to 7235 Linder Ave., Skokie, Illinois. This move reflected the company's growth and the need for larger administrative facilities. However, by the early 1990s, financial difficulties led the company to downsize, and the headquarters were moved back to Niles.

Financial Overview

Warehouse Club, Inc.'s financial performance varied significantly over its operational years. In its early years, the company experienced rapid growth, fueled by the expansion into new markets and the opening of multiple locations. However, the financial situation began to deteriorate in the late 1980s, as the company faced increasing competition from larger chains like Sam's Club and Costco.

One of the most significant financial developments was the non-binding letter of intent with the Great Atlantic & Pacific Tea Company (A&P) in 1990. Under this deal, A&P was set to acquire 7.3 million shares of Warehouse Club stock for approximately $10.95 million, giving A&P a 51% stake in the company. However, the deal ultimately collapsed, exacerbating the company's financial woes.

Despite efforts to stabilize its finances, including the opening of a new store in Chicago's Clybourn Corridor in 1994, Warehouse Club continued to struggle financially, leading to its eventual closure later that year.

Competition

Key Competitors

Warehouse Club, Inc. operated in a highly competitive market dominated by major warehouse retail chains such as Sam's Club, Costco, and Price Club. These competitors had significant advantages in terms of size, financial backing, and brand recognition, making it challenging for Warehouse Club to establish a dominant position.

• Sam's Club: A division of Walmart, Sam's Club was one of the largest competitors in the warehouse retail space. With Walmart's substantial resources and extensive distribution network, Sam's Club was able to offer competitive pricing and a wide range of products, which posed a significant challenge to Warehouse Club.

• Costco: As one of the pioneers in the warehouse retail model, Costco had a strong reputation for offering high-quality products at low prices. Warehouse Club often found it difficult to match Costco's pricing and product offerings, which attracted a loyal customer base.

• Price Club: Founded by Sol Price, Price Club was the original warehouse club concept and set the standard for the industry. Warehouse Club's founder, Walter H. Teninga, had previously worked at Price Club, and the influence of Price Club's model was evident in Warehouse Club's business strategy.

Market Dynamics

The warehouse retail sector during the 1980s and 1990s was characterized by intense competition, rapid expansion, and aggressive pricing strategies. Larger chains like Sam's Club and Costco leveraged their economies of scale to offer lower prices and a broader selection of goods, which made it difficult for smaller players like Warehouse Club to compete.

• Competitive Landscape: The warehouse retail market was fiercely competitive, with new entrants frequently emerging and established players constantly expanding their reach. Warehouse Club attempted to differentiate itself through localized marketing and by targeting niche markets, such as small businesses and corporate employees.

• Challenges: One of the primary challenges Warehouse Club faced was its inability to match the purchasing power and supply chain efficiencies of its larger competitors. This often resulted in higher prices and a less diverse product selection, which ultimately limited its appeal to cost-conscious consumers.

Warehouse Club's struggles were further compounded by its attempts to expand into markets that were already saturated with competitors. The company's strategic moves, such as opening a location in Chicago's Clybourn Corridor in 1994, were seen as efforts to carve out a niche in urban markets where competitors were less likely to enter. However, these efforts were not enough to offset the broader competitive pressures in the industry, leading to the company's eventual decline and closure.

Legacy and Impact

Impact on Retail Industry

Warehouse Club, Inc. played a significant role in the evolution of the membership-based retail warehouse model in the United States, particularly during the 1980s and early 1990s. As one of the early adopters of this retail format, Warehouse Club helped establish the concept of offering bulk goods and significant discounts to a specific membership base, primarily targeting small business owners, corporate employees, and union members.

The influence of Warehouse Club extended beyond its operations, as the membership-based model became foundational for larger and more successful chains such as Sam's Club and Costco. While Warehouse Club did not reach the same level of market dominance as these competitors, its early efforts contributed to the broader acceptance and expansion of the warehouse club model in the retail industry.

Aftermath of Closure

Following the closure of Warehouse Club, Inc. in 1995, many of its former locations were repurposed or taken over by competing retail chains. For example, some sites were acquired by larger warehouse retailers like Sam's Club, while others were converted into general retail spaces or left vacant for a time before being redeveloped.

Warehouse Club’s legacy in the retail industry is seen as part of the early wave of warehouse clubs that helped shape the landscape of American retail. Although it was ultimately outcompeted by larger chains with more substantial financial backing, the company's pioneering efforts in the warehouse club model left an imprint on the industry, particularly in the Midwest.