Rumor Mill: Costco Ready to Take Manhattan
Is Costco looking to “make a brand new start of it in old New York”?
A developer on the Upper West Side is reportedly in talks with Costco to open the chain’s first warehouse club between 59th and 61st streets in Manhattan.
CBS 2 HD found New Yorkers were generally positive about the prospects of Costco opening in the area known as Riverside South.
“It could be good,” said one woman interviewed by the local CBS television affiliate. “Could drive a lot of business to this neighborhood.”
Not everyone, however, saw a Costco warehouse club as positive.
“This is not a good location for Costco,” said NYC Councilwoman Gale Brewer. “The traffic is always so intensive and this would [exacerbate] the traffic situation … because you need a car to take home all that toilet paper.”
Costco, which operates a club in Long Island City (Queens), has been generally well received in New York.
“It’s good to have it here,” one resident told CBS 2 HD. “It helps out a lot of people here.”
Discussion Questions: How likely do you think it is that Costco will open a club in Manhattan? What changes, if any, would the club have to make to operate successfully in Manhattan?
Real estate cost, including land, would probably be at least $1,500 per square foot in that part of Manhattan, so Costco would be paying rent of $150 to $200 per square foot. The rent on 140,000 square feet would be 21 to 28 million dollars. (If the property were purchased, the total cost would be at least $210 million.)
About 20% of Costco locations are leased and the rest are owned. The leased locations pay about $1.4 million rent, each. The average Costco does about $120 million per location, and has 100,000 card holders. 1.5 million people live in Manhattan, and of course Costo serves businesses, too. If the Manhattan store paid 1% of its sales in rent, its volume would have to be $2.1 billion. In 2007, Costco’s total sales were $64 billion, in around 500 locations.
So the rental cost for that area of Manhattan would be 15 to 20 times the typical rent of a leased Costco location. Would the sales be 15 to 20 times a typical location? Costco certainly wouldn’t have any direct competitors in Manhattan.
Comparisons to the 23rd Street Home Depot store might be worthwhile. Although that location is called Home Depot, it certainly doesn’t match most other Home Depot assortments. It has no lumber, roofing, garden supplies or parking. It’s more of a hardware store with some home decor (lighting, rugs, etc.)
If Costco does come into Manhattan, it will be great for the elite to see how the rest of the world lives. I believe even they can appreciate saving money on good quality items, being treated well by retail clerks, and feeling that they are understood and respected by a retail store. And I also feel that they will learn how to handle any logistical challenges that this location presents. Deliveries during off hours comes to mind for starters.
As a “Native New Yorker,” I’d commute with a friend to the Westbury, Long Island warehouse where we would shop as a team and “share the spoils” splitting large packs of toilet paper and such into equally shared amounts (and storing underneath beds and tucked into the base of hall closets, etc).
New Yorkers are a resourceful bunch–we adapt to our environment.
One approach that Costco might need to change to survive on Manhattan would be to redesign their warehouse layout to a multi-level environment–now, wouldn’t that just accentuate “the treasure hunt” experience? “Come on honey, I hear they’ve got plasma televisions on the second-floor this week at bargain prices….”
It would be interesting. Costco would be a real treat for New Yorkers if they can make it work. Due to NYC real estate cost and space limitations, it would probably have to be multi-story, with the shopping cart escalator like IKEA uses, and because you need a car to cart everything home–with free parking garage as well as a cab waiting/loading area. Store deliveries would have to take place overnight when there is little traffic.
Product selection would probably have to be scaled down and tailored to New Yorkers who have notoriously small apartments with little or no storage space, including small refrigerators. New Yorkers will buy TVs, computers, books, and ready to eat foods, but don’t necessarily have space to store huge packages of frozen food, perishables like lettuce, or paper towels and toilet paper–unless they split with friends and neighbors.
If they do open, it will be worth a trip to see it.
Costco has proven to be very adept at location site selection, so I have to think they have done a lot of homework on this particular selection. They do have some inner city locations, but Manhattan is a very different experience in customer and freight logistics. I can understand why many New Yorkers would want a Costco in Manhattan but Costco must validate the cost of operations in such a unique, inner megacity environment.
Other big box stores have figured out how to do business in Manhattan–Home Depot comes to mind. I think Costco could be a huge success in Manhattan given its reputation for upscale offerings and better-quality food and wine departments. There are some logistical challenges to work through–not just parking but especially how to cater assortments to urban-living customers who may not have the appetite to buy huge bulk quantities.
If they do, I will make it point to go to the grand opening. I have to see how Costco takes Manhattan!
Finally, after years of bullying the executive team at Costco about what they perceive as poor margins, Wall Street analysts will get to see what the retailer is all about. I’m not talking about the store visits they’ve gone on as part of some IR effort, but hearing from relatives and friends about how employees and customers are treated. Maybe now they will “get” the concept and not punish the stock as they have for the past few years.
As a former 18-year Manhattanite, I believe that this would be a rip-roaring success. Especially given the demographic shifts that have been happening in that trade area the last few years. Delivery is key in Manhattan, so those services–including webbuys–must be in place. Go Costco!
Costco opened an ‘urban’ store in Vancouver, Canada a couple of years back and it has been a raging success. A good retail concept, irrespective of congestion issues, will always draw in customers like flies.
Costco just gets it…and based on their ongoing string of same-store sales increases, customers love what they have to offer.
I think you can expect to see Costco open more stores in urban areas in the months and years ahead. It’s just good business.
Interesting! This would certainly be a learning experience for Costco. Just replenishing stock through the busy streets of NY will be very challenging. Can it be done? Absolutely. But would the high cost of real estate and the big pain of space constraints like parking, traffic, storage, etc, be worth it? Or would it make more sense to find a more “user friendly” space a few miles outside the city?
Costco will open in Manhattan…and it will be a raging success. Years ago before Costco opened its first urban San Francisco store, many said it would not do well for a variety of reasons. In a few months it became one of the chain’s top five stores in gross sales per square foot.
The Costco shopper fits perfectly with the demographics of Manhattan so I believe that this would be a great win-win for both consumer and Costco. When New Yorkers want to shop outside of the city, they rent a car, shop, bring everything back to the apartment and return the car. Costco may want to add a delivery-type service complete with same day delivery (almost-instant gratification for basic items and maybe next-day or scheduled delivery for larger items).
Costco already uses a multi-floor layout in Taiwan, Japan, and Korea, so they already have the blueprint in place.
Have all these people who think the Costco concept will work in Manhattan ever BEEN there? Have they seen the sizes of the tiny apartments and condos that most Manhattanites live in? The high rises with elevators and long hallways? The six floor walk ups? The utter lack of closet and storage space? The postage stamp kitchens? The dearth of cars which requires residents to walk places or to get around in cabs, the subway and buses? The expense of hiring delivery services which must fight their way through clogged streets while the milk curdles and the spinach wilts?
How will they get the 16 paks of paper towels and the four paks of mayonnaise home? Where will they store them in the places they inhabit? Why are mega sizes of anything even needed in households which usually constitute three people or less? Manhattan is wonderful. But it is not sprawling spacious suburbia or even a Queens neighborhood of single family houses and families. Unless Costco intends to completely revamp their style and their product sizes for this special urban market it won’t succeed.
I love, and have lived in Manhattan, and I love almost everything about Costco–but these two together do not make an ideal marriage.
Elected officials will be on the hot seat with this since they are heavily union-supported and have been against only Wal-Mart all the way. Mayor Bloomberg likes the idea. The proposed location is in my neighborhood. Costco knows what it is getting into, and has thousands of its customer demographic living and working in close proximity. If the company can get the parking situation resolved or maybe have the customers pay for delivery (like they do online when goods are shipped), the store will be a success.
Ah, George, what an interesting topic. 🙂 Must be a slow news day. The extremely varied denizens of the island of Manhattan would go bonkers for a Costco. That is, if they could get their purchases delivered or rent a vehicle and a few guys to stevedore their purchases. Costco is about large amounts and large vehicles to haul them home. It’s NOT about double or triple-parking on narrow city streets. In Manhattan, Kansas, where I was born, the Costco model works just fine. But, I suspect, not on the island of Manhattan.
Many of the comments focus on consumers. But Manhattan is full of bodegas, small independently-owned restaurants and little grocery stores and deli’s. They’re currently served by folks like Jetro/Restaurant Depot, and their owners often go to warehouse clubs outside Manhattan. So there would be demand for the gallon size mayo jars and 5 liter cans of soy sauce.