BJ's Warehouse IPO ould Face a Tough Reception

(Bloomberg) -- It’s a difficult time to get Wall Street excited about the retail industry. But that’s apparently not going to stop BJ’s Wholesale Club Holdings Inc. from trying.

The warehouse-club chain, which had been taken private in 2011 by CVC and Leonard Green & Partners, filed for an initial public offering on Thursday. Its paperwork listed the offering at $100 million, though that is likely a placeholder figure.

I’m not sure BJ’s deserves a particularly warm welcome in its return to the public market.

It’s not that the company’s financial statements are all that scary. In fact, I was impressed by the progress it has made on profitability in the last couple of years through initiatives such as identifying procurement savings and increasing penetration of private-label goods. That’s a sign that CEO Chris Baldwin, who stepped in to the top job in 2016, has been doing plenty of good for this retailer.

And I was surprised to see that BJ’s membership-renewal rates have been ticking up recently, suggesting it is delivering a satisfying experience to loyal customers.

But when I look at other figures in the IPO filing, I can’t help but see a rather tough road ahead for BJ’s. In particular, its comparable sales excluding fuel have been quite lackluster — especially when held up against those of its rival Costco Wholesale Corp.

Then there’s e-commerce. Even though warehouse club formats weren’t among the first in the retail world to feel the pressure of the shift toward online buying, they sure are feeling it now. The upstart website Boxed, for example, sells consumer goods in bulk and says it is recording annual sales of greater than $100 million. As for BJ’s, I don’t think it’s particularly well-positioned to take advantage of the increase in online bulk buying.

BJ’s has just 215 stores that are heavily concentrated in the Northeast. That makes it far smaller than Costco, which has 741 stores worldwide, or Walmart Inc.’s Sam’s Club, which has 597 locations. It also means BJ’s has a much harder starting point for building an e-commerce business that could have nationwide appeal. Costco, for example, has 24 so-called depots for merchandise distribution at the end of its latest fiscal year; Sam’s Club had 22 distribution centers. BJ's has just six, all concentrated on the East Coast. BJ’s says those centers offer enough capacity for it to open 100 more stores on the East Coast, but the fact remains that it doesn’t have a competitive advantage here.

Putting BJ’s own issues aside, it isn’t a particularly hospitable moment for just about any old-school retailer to pursue a public offering. The industry is brimming with uncertainty right now as shoppers visit malls less and sometimes choose to spend on experiences such as dining or travel instead of on goods.

I suspect that means it won’t be easy for BJ’s to get investors to join its club.  

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