Costco's New Location Does Urban Right
Costco (COST) just opened a Queens, N.Y. warehouse club that demonstrates the potential of urban retailing done right -- with the prime locations and business plans that center on the unique surrounding populations.
At a time when Walmart (WMT) is working to develop formats that will allow it to expand into the urban environment, Costco has taken what sometimes seems a fairly uniform retail operation and tweaked it to capitalize on big city conditions. Adaptation is critical for major, multi-department retailers that want to boost city business. Dense, diverse populations and access challenges -- stores meant to do big business need proximity to major transportation links -- make developing good urban store locations a challenge.
Costco exercised patience to secure its new location in Rego Park, N.Y., which sits near the midpoint of New York's borough of Queens, the fourth most densely populated county in the United States. Originally reserved by Home Depot (HD), Costco grabbed the location after the home center retailer curtailed its growth plans. The new club sits beside the Long Island Expressway, ensuring commuter awareness, and visits by members driving to and from work. Consequently, weekend crowds should be thinner, and checkout lines shorter and less discouraging.
The location falls between two existing clubs that have, until now, had to serve most of Queens and much of adjacent Nassau County. These existing clubs are less than 20 miles apart from each other, but Yoram Rubanenko, Costco's regional vice president of operations, said the the new club will cause minimal cannibalization. The Rego Park club will generate additional memberships, some from non-drivers, as it is a short walk from a New York City subway station.
Costco didn't just adapt to the location but also to the population -- in addition to being highly dense, Queens is the most ethnically diverse U.S. county. Although Costco always limits the number of products it carries -- generally around 4,000 total -- it understood that to maximize its market opportunity it had to accommodate surrounding populations with modified product selections.
So the retailer turned its food assortment into an ethnic smorgasbord. By providing high-demand items that suit specific ethnic preferences, Costco satisfies the core demands of coveted local demographic groups and gives them good reason to become members. One result is an expansive array of cheeses including Arape de Queso for Latino consumers, a Caribbean version of white cheese, Irish Cheddar, and a variety of fetas offered to satisfy both Greek and, in its kosher version, Jewish club members. Indeed, Costco's emphasis on ethnic foods is most obvious in the realm of kosher food. Rego Park and several adjoining neighborhoods have significant Jewish populations that include many religiously observant members. To serve them, Costco developed kosher presentations in the bakery, deli, dairy, and frozen foods sections that are marked by conspicuous signs. The Rego Park club even offers a kosher "marketplace" area where the club mixes in new products to enliven the selection and generate visits from curious customers.
The kosher sections aren't the only ethnic displays in the store. At the end of one aisle sits a refrigerated case stocked with Hispanic-oriented products including flan. In some cases, ethnic foods are grouped within larger presentations, as is the case with Asian offerings in parts of the freezer cases. In others, they join like products, for example in the appetizer section, where members are more likely to shop for variety.
Rubanenko noted that the location and selection advantages that Costco provides in Rego Park will result in enough new memberships, additional shopping from local members, and convenience visits from passing commuters to significantly boost regional sales and profits. One of Costco's current locations, in adjoining Nassau County, draws more customer visits annually than any other Costco. Given its position in to the local market, Rubanenko believes Costco's Rego Park club may challenge the Nassau County location for the chain's store-visit leadership.
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