Costco to test home concept - tests entry into home furnishings retailing - Brief Article - Statistical Data Included

DSN Retailing Today, July 29, 2002 by Mike Duff

ISSAQUAH, WASH. -- Costco is viewing an entry into home furnishings retailing with the test of a store in Kirkland, Wash., to be christened Costco Home. The store, scheduled for a November opening, features an expanded selection of furniture, appliances and related items already found in its warehouse clubs.

While the test was not previously announced, Costco executives have been high on their roll out of upholstered furniture in the warehouse clubs.

According to an Associated Press report, Costco may expand the test to Portland, Ore., and the San Francisco Bay area. The merchandising strategy, though still a work in progress, will continue to focus on strong price value of a limited selection of products, as is the case in Costco's clubs.

Costco's move into home furnishings would further a shift of that business into the mass market. Wal-Mart, Kmart, Target, ShopKo, Ames and Zellers all have made major commitments to housewares and/or furniture over the past several years. Wal-Mart and Zellers both have been conducting major tests with major appliances as well, as have others, to a lesser extent.

Not every experiment has been successful, however. Sears, Roebuck and Co. tried a format called HomeLife stores in the 1990s, but pulled the plug after a few years. PriceClub, which Costco acquired in the '90s, tried its own home furnishings venture, but that also was discontinued.

The furniture business, to the extent that Costco emphasizes furniture, is rough and the extended payment terms that many furniture retailers offer make it particularly competitive. On the appliance side, the strength of Sears has to be considered and, indeed, some retailers, Circuit City being an example, have withdrawn from major appliances or, like Tops, slipped into oblivion.

One Costco analyst, who asked not to be identified, said commenting on a test that had yet to break was difficult, but noted Costco's rollout of furniture afforded them some ability to gauge their prospects, "They already have a successful business on that count," said the analyst. Yet, home furnishings has proven to be a difficult business even for specialists, particularly given its sensitivity to the economic climate, which is now decidedly dreary.

Still, Costco has often exceeded expectations in the past. Just in June, same store sales gained 6%, exceeding analysts' consensus expectations of 5.7%, as tabulated by Thomson First Call. Sales for the five weeks ended July 7 increased 11% to $3.86 billion from $3.48 billion last year. Over the first 44 weeks of the fiscal year, comps gained 6%, while total sales improved 12% to $32.01 billion.