Here's why Walmart is closing 63 Sam’s Club stores (WMT)

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Walmart is closing 63 of its Sam’s Club stores, which are located throughout the US and Puerto Rico, Business Insiderreports.

Sam’s Club CEO John Furnersaidthe locations were affecting other stores, likely referring to cannibalization of customers, and that populations did not grow as the company had hoped in certain areas. However, even with these locations in tow, Sam’s Clubpostedpositive year-over-year (YoY) growth in net sales, traffic, and operating income through Q3 of its fiscal 2018 (ended October 27, 2017).

Between 10 and 12 of the closed locations will be turned into e-commerce distribution centers. These new centers will help Sam’s Club build out its e-commerce capabilities by giving it a wider fulfillment network, potentially helping it get online orders delivered to customers faster. Sam’s Club stores are, on average, 136,000 square feet, so the converted locations will be sizable, but still much smaller than many existing Walmart and Sam’s Club distribution centers.

Increasing its commitment to e-commerce may help Sam’s Club compete with wholesale rivals. E-commerce is becoming more of a focus in wholesale retail, and if Sam’s Club doesn’t invest in it, the company may get left behind. Costco is a major competitor to Sam’s Club, and in its most recently reported quarter, its e-commerce comparable sales jumped nearly 44% YoY. Additionally, Boxed, an e-commerce only wholesale startup, is starting to establish itself. Sam's Club's e-commerce gross merchandise value (GMV), on the other hand, has been between 20% and 29% YoY in recent quarters, Sam's Club told Business Insider Intelligence. These new fulfillment centers may help the company strengthen this growth, as it looks to better compete in wholesale online.

Additionally, turning physical stores into distribution centers is a way for Walmart to leverage its brick-and-mortar network. Walmart has a virtually unmatched brick-and-mortar network — its CEO has estimated that it has a brick-and-mortar location within 10 miles of 90% of the US population. The retailer has made efforts to entice consumers to pickup online orders in-store, but turning underperforming stores into full-blown e-commerce distribution centers as Sam’s Club is doing is another way to take advantage of its proximity to its consumers. If Walmart, and Sam’s Club, hope to thrive online, they’ll need to offer fast delivery times to rival Amazon, and having e-commerce distribution centers close to customers should help with that.

Here's why Walmart is closing 63 Sam’s Club stores (WMT)

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