Costco tests home center dept. to boost avg. ticket - Costco Wholesale Corp

Discount Store News, April 15, 1991 by Arthur Markowitz

Costco Tests Home Center Dept. to Boost Avg. Ticket

KIRKLAND, Wash. -- Costco Wholesale has begun testing a home improvement department within its massive Southcenter store in the Seattle suburb of Tukwila.

The innovative move came as Costco disclosed the four new stores it will open during its 1991 fiscal year ending Aug. 31. Those openings will raise its count to 73 clubs. It plans to further expand in the Northeast with units in Connecticut, New York (on Long Island) and New Jersey in fiscal 1992.

The wholesale club is maintaining its program of rolling out optical, pharmacy and fresh foods departments in more stores. The fresh food operation, deployed in the greatest number of units, 53 at the end of fiscal 1990, will be in 73 clubs by the end of this fiscal year.

Costco has used the 220,000-square-foot Southcenter to test a number of ventures, including fresh meat, produce, bakery and deli departments. The membership warehouse industry's four other major chains now include those categories in a growing number of stores.

Costco added fresh foods to increase shopper frequency. The home center test is designed to boost average transactions, particularly through sales of big ticket items--professional tools, doors, sinks and water heaters--and multi-count items likes boxes of ceramic floor tile.

Southcenter's 31,000-square-foot experimental home improvement department features the full array of products for contractors and homeowners found in a home center: lumber and building materials, a paint mixing center, wall and floor coverings, plumbing and electrical supplies, power and hand tools, lighting, and kitchen, bathroom and outdoor equipment.

Costco follows the usual warehouse club approach of targeting businesses, like contractors. The assortment includes pro lines of power tools, multi-packs of wood moulding and cut cases of pretrimmed double rolls of wallpaper.

But it also includes cross-over items in the mix, such as roofing insulation, painting pads and adhesives that appeal to do-it-yourselfers and non-business customers. The wholesale club already sells basic hardware and DIY items like tools, ceiling fans, lock sets and mechanics' chests. Its expanded mix includes plywood, lumber, sheetrock, faucets and decking products.

A new, consumer-oriented offering is installation of custom cabinets. Members review a display of samples of over 300 kitchen and bath cabinets at the club and pick up an order form. They then make an appointment for the manufacturer's representative to visit their homes to make measurements and select the cabinet modules.

Costco expected to test the new department for a year before deciding whether to roll it out to other stores. An executive said that "if the worst happens and the concept doesn't work but we gain 20 or 30 new items we haven't carried, we would still be ahead."

If Costco decided to roll out the department, it would have to expand current clubs where possible and build larger new units. Over the years, it has increased the size of its stores from an average of 100,000 square feet to 120,000 square feet.

Trade observers said the key test of the concept isn't how well the department does in Costco's Southcenter club. Rather, they wonder what would happen when Costco has to compete against a Home Depot. Home Depot is the dominant home center chain, offering a much greater assortment than Costco, and at competitive prices.

On the surface, the battle would seem to mirror that involving the membership warehouse industry and traditional distributors and retailers. The clubs' appeal is offering the lowest prices on a core of the basic, best-selling items in a category, while distributors and retailers hope to attract customers by offering a much broader selection, albeit at higher prices.

But Costco's test of home center goods could be different, trade observers said, because of Home Depot's unique status in the home center field. Contractors and DIYers could find Home Depot's vast assortment vital to their needs and the retailer's low prices so attractive that Costco may not find room for niche marketing its limited mix in the home improvement area as it has been able to do in other merchandise arenas.

PHOTO : Costco, Tukwila, Wash.: The 31,000-square-foot home improvement department offers homeowners/contractors a full product assortment.