Costco Home comes to Arizona

DSN Retailing Today, Oct 25, 2004 by Doug Desjardins

TEMPE ARIZ. -- Costco is using lessons learned from its first Costco Home to make improvements to its second store opening this week in Tempe, Ariz. Costco expects the store to produce better sales and provide a template for future expansion.

During a tour of the store in mid-October, workers were busy building displays and moving product in preparation for the Oct. 29 opening. Costco Home gm John Ostmeier was in town to oversee construction and provide an overview on what the new store will look like.

"We want this to be part of the evolution of Costco Home so we're not looking to recreate the first store," said Ostmeier. "Our goal is to create a residential ambience so that people can get a feel for what products will look like in their homes."

There were several subtle design changes made to achieve that end. He pointed to the store's high ceiling and explained what they've done to bring it down. "We painted it brown to make it blend in with the floor and we put the lighting on long cords to bring them closer to the ground," said Ostmeier. "This ceiling is just as high as the one in our first store but it looks much lower."

Costco also lowered the height of its display walls scattered around the store from 10 feet to 8 feet. "The lower walls provide a more residential feel and they make it easier to see around the store," said Ostmeier.

The store itself is about 120,000 square feet and, like the store it opened in Kirkland, Wash. in Dec. 2002, it's on the former site of a Home Base outlet. Aside from the aesthetic changes inside, the most important difference at the Tempe outlet is that it's next to a Costco Warehouse.

Building next door to traditional warehouse is a huge advantage, since it will drive customer traffic and improve sales. And it could provide a point of reference for Costco in its future plans for Costco Home. "Building next door to a warehouse is great but it comes at a higher cost," said Ostmeier. "This store will give us an idea of whether the increase in sales can offset those costs."

To make sure Costco members are aware of the new store, the company added a large Costco Home sign at the front corner of the building closest to the warehouse. "You can see the sign from just about anywhere in the parking lot," said Ostmeier. Costco also handed out 7,000 fliers about Costco Home at the Arizona Home Show last month to attract new customers.

From a merchandising standpoint, the Tempe store won't be much different than its predecessor. It will carry a wide range of higher-end furniture, carpeting, bedding, lighting and office furniture from name brands, such as Lane, Whirlpool and Waterford. And despite the regional differences, the tastes of its customers will run about the same.

"You'd think that Southwestern styles would be in demand, and there is some of that," said Ostmeier. "But so many people here are from other parts of the country that it's not a big factor. They bring their tastes with them."

One section of the Tempe store that's geared to the area's unique climate is an outdoor living area. The 10,000-square-foot section will feature patio furniture, barbecue grills, trees and large plants. "We're also going to have waterfalls and fountains and we have an outside contractor who'll handle that," said Ostmeier.

It's no coincidence that Costco chose to open the store in late October. "Obviously, it's the start of the holidays and it's a prime season for furniture shopping," said Ostmeier. "But it's also the start of the season for winter visitors so we're expecting to pick up some business from the snowbirds."

The company expects to draw customers from all over Arizona, which has about 1.4 million Costco members. But the majority of those customers should come from Phoenix and Tucson 100 miles south. Costco will deliver product anywhere in the state but figures to do most of its business in its two largest cities.

Costco hasn't discussed specific expansion plans for Costco Home, but executives have said strong West Coast markets, such as Los Angeles, San Diego and The Bay Area, are prime candidates for future stores.