Warehouse Club Industry Gets Competition in Bulk : Consumers: Analysts see tough times, consolidations ahead for the once-high-flying discount stores.

The $33-billion warehouse club industry has run into tough times after a decade of fast growth, with sharp competition and economic weakness eating into sales.

“There are some difficult times ahead, certainly for the smaller ones in this business,” said Kurt Barnard of Barnard’s Retail Marketing Report. “I would not be surprised if we were to see some consolidation over the next two to three years.”

Warehouse clubs, huge no-frills stores catering to bulk buyers who pay a membership fee, sprang up in the mid-1970s and have grown rapidly in the last decade. They cater not only to retail consumers but also to small businesses, whose needs are too limited to be met by traditional wholesalers.

Wal-Mart Stores Inc., which launched its Sam’s Club division in 1983, has muscled its way to the top of the heap with more than 250 stores and annual sales of more than $12 billion.

While sales at the warehouse stores boomed through the 1980s, with the industry posting growth of up to 50% a year, the sector hit a wall toward the end of last year.

Comparable-store sales, considered a good barometer of retail industry health, have held steady or declined so far this year at the major chains, after rising at a 10% rate for most of last year.

For example, Sam’s same-store sales fell 2% in the two months that ended March 31, the most recent figures available, even after adjusting for an extra selling day in 1992.

San Diego-based Price Co., considered the founder of the industry, posted a 5.9% decline in comparable-store sales for the first half of its current fiscal year, with California sales down even more sharply.

Kirkland, Wash.-based Costco, the No. 3 player in the field, has reported virtually flat comparable-store sales so far this year.

Kmart Corp.’s Pace Membership Warehouse division, which recently recruited a new chief executive to turn things around, has posted a decline in comparable-store sales over recent months.

Analysts say the industry is being hurt by saturation in many markets. Economic weakness has hurt small businesses, which are major customers for the stores, which offer items ranging from food to computers.

“The nine major operators of warehouse clubs will not sit back and let their business fade away, but I think their simplistic approach to merchandising may no longer work,” consultant Walter Loeb said in his Loeb Retail Letter. “The cost advantage of warehouse clubs is waning.”

Analysts believe that the industry ultimately will resume its growth pattern, but for now competition is heavy. Sam’s admits that it is cannibalizing sales of its own stores in 45% of its markets, said Peter Monash, a Columbus, Ohio-based retail consultant.

“They feel that is a smaller evil than somebody else cannibalizing them,” Monash said.

The chains also face mounting competition from retail super-stores such as Staples and CompUSA, which offer deep stocks of goods at competitive prices.

Declining prices and a migration of consumers toward lower-priced private-label goods have also hurt wholesale clubs’ sales--though not necessarily profit.

In response, some wholesale clubs have experimented with traditional formats, adding new items, service and other amenities to attract new customers. But analysts warn that such moves risk upsetting the bare-bones cost structure.