Various news organizations report this morning that BJ's Wholesale Club has decided to explore strategic options, including the possible sale of the company. This news comes after substantial external pressure has been placed on the company in recent months, particularly as a private equity investor (Leonard Green) took a significant equity stake in the firm.
Why has BJ's ended up in this predicament? On the one hand, the company has improved its financial position in many ways over the past few years. Specifically, the firm has established a much stronger balance sheet, with an elimination of most long term debt and an increase in cash on hand. On the other hand, investors have clamored for faster growth, something that the firm has been unable to deliver. Recently, the firm has taken some actions to try to mollify investors; for instance, it has shut several underperforming stores. However, investors want more substantial change.
Here's the irony: BJ's has actually made itself much more attractive to a private equity firm because of its strengthened balance sheet. Putting itself on more stable financial footing has now meant that they may lose control of the firm.
Can the firm improve its performance, perhaps under different ownership? It certainly has great potential, but one wonders about the disadvantages that the firm faces because it cannot exploit the same economies of scale available to Sam's Club and Costco. For years, the firm has walked a fine line, by trying to offer great value to consumers, while at the same time attempting to do some things to differentiate from their bigger rivals. BJ's knows that it cannot simply compete in a head-to-head battle against its rivals in terms of price because of lack of scale. However, differentiating successfully, particularly against the Costco, can be very challenging. Costco achieved such success in this market, even more than Sam's Club, because it created a retail concept that was more than just about having low prices.