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Should Costco Open More Showrooms and Expand Into the Last 3 States?
Costco, known for its bulk bargains on groceries, household goods, and more, is shaking things up. Forget browsing online for furniture and big appliances; soon customers can see them in person at Costco’s latest venture: a dedicated furniture showroom.
Located in an old Toys”R”Us building in Anchorage, Alaska, this showroom aims to make shopping easier for Costco members. Christine Lasley, a Costco director of real estate development, mentioned in the Anchorage Daily News that this move is all about meeting member needs and helping businesses buy in bulk.
This new showroom will give shoppers “a chance to see firsthand what they can buy for shipment. They can then order items online for shipment to their residences or businesses.” According to Lasley, “You can touch and feel it and kick the tires, so it’s a perfect opportunity to see what you can purchase.”
This isn’t the first time Costco has experimented with this concept. The company tried something similar called Costco Home in Kirkland, Washington, near its headquarters, but the two experimental stores, which were dedicated solely to home furnishings, closed in 2009. That decision, announced on April 2, came as a result of lease obligations nearing their end and strategic adjustments prompted by economic shifts of the time.
Former CEO Jim Sinegal described the stores as “a valuable experiment” but explained that they were unsustainable. Costco decided at the time that “the single-format Costco Home concept does not fit into our long-term expansion plans.”
According to Lasley, the new showroom project “is in the process of seeking and receiving permits from the municipality.” She did not share an expected completion date, noting “uncertainties with timelines to receive permits for modifications.”
Lasley also added that Costco is “working on creating additional showroom warehouses.” It already runs a showroom for appliances and furniture in San Juan, Puerto Rico.
People on Reddit are buzzing about this concept. Some think it’s perfect for Alaska’s remote location, while others are curious to see if it’ll catch on elsewhere. If it does, it could change the game for Costco and shoppers everywhere.
Despite the retailer’s expansive reach — with almost 600 locations in the U.S. alone and around 861 altogether worldwide as of 2023 — there remains a notable absence of standard Costco retail warehouses in three states: Rhode Island, West Virginia, and Wyoming. This seems to be due, at least partially, to the smaller populations in these states. According to Tasting Table, “Costco strategically evaluates potential locations based on factors like population density, market demand, and logistical feasibility.”
Per a study published by Medium, Costco typically prioritizes not only population density but also projected population growth, employment, and median household income within a 20-minute drive of the possible warehouse location. This is why the company has put so many stores in California, Texas, and the area between New York City and Washington, D.C.
Food Republic noted that there are plans for a possible opening in Rhode Island, but nothing has been confirmed yet.
As Costco continues its nationwide expansion, including its new showroom in Alaska, the anticipation builds in these three states. Potential customers eagerly await the arrival of Costco, recognizing the potential for economic growth, enhanced consumer options, and, perhaps most importantly, the sense of community that comes with welcoming such a beloved retailer into their midst.
Discussion Questions
Do you think Costco should open more showrooms for furniture and appliances, or would this strategy only succeed in more remote locations like Alaska?
Considering the unique challenges of geography and consumer demographics, what distinct market entry strategies should Costco adopt to expand into Rhode Island, West Virginia, and Wyoming compared to more densely populated regions?
What are the broader economic implications of the absence of major retailers like Costco in Rhode Island, West Virginia, and Wyoming? How can stakeholders collaborate to address these disparities and foster sustainable retail development in these regions?
Poll
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Gary Sankary
Retail Industry Strategy, Esri
Melissa Minkow
Director, Retail Strategy, CI&T
Costco already sells a lot of bigger ticket, bulky items but they are mostly available via its website rather than from standard stores where a lot of space would be needed to display all of the ranges and options. The showroom concept is interesting as it allows people to come and look at products before they buy. Costco is a trusted name and will, no doubt, be very competitive on price. If they opt to roll out this concept, it will no doubt pose a threat to traditional players like the home improvement players and Best Buy. Of course, it also occupies a role that used to be placed by Sears, especially in more remote areas and locations.
Not to boast, but unlike Costco, I’ve been to all 50 states (Curious? the last was – probably not coincidentally – Alaska, in 2015) Of course there was a reason for me…bragging rights. There’s none for Costco; or at least they don’t feel there is…and that’s (more than) good enough for me.
As for WY and WV, I suspect the very reason they don’t have a Costco – low population density – is one of the main attractions to living there. The “implications” needn’t go beyond that.
Where population is concentrated in WY and WV, is often in the capture zone of stores in other states. If I’m in Cheyenne or Laramie, I’m already used to going down to Fort Collins, for instance. Rhode Island is probably just that a location they’d desire simply hasn’t come on the market for an acceptable price yet.
I love the showroom experiment. I just question why Alaska. My guess is that the property was cheap, cheap, cheap. Population density makes no sense to me, but it is certainly a worthy experiment.
If we wiped away the borders of Rhode Island, Wyoming, and West Virginia, would those geographies still be void of Costco? I suspect so. Again, population density doesn’t seem like the issue. After New Jersey, Rhode Island is the most densely populated state in the country. I believe the Rhode Island void has more to do with finding space for a store and the availability of Costcos a stone’s throw away in Connecticut and Massachusetts. For Wyoming and West Virginia, it is likely income trends.
Costco is smart. They make few mistakes. I would not call their voids glaring mistakes or mistakes at all.
Sound analysis, Gene. Not selecting to go into an area can be just as much a strategy as doing so!
Sounds like this all boils down to some pretty straightforward math. Population density & income, and then real estate/space cost and required ROI. Inexpensive real estate but good population density? Great, open a showroom. Expensive real estate and good population density. OK, open a full store. I’m sure the folks living in West Virginia and Wyoming have lots of frustrations about local availability of goods and services. Unfortunate, but again, it’s a math thing. Maybe there’s a smaller footprint Costco that would open up lots of markets they aren’t already serving. Reminds me of the strategic thinking department stores are having to go through right now. And the folks in Rhode Island have 3 Costco’s within a 45 minute drive. And another half dozen within an hour drive. My own “local” Costco is about a 40 minute drive. Such is life.
I think this format will be extremely useful for the many that go to Costco for the big-ticket purchases. Costco is a destination store as is- it’s not really a quick trip kind of place by nature of what it sells, so making it even more of a destination makes sense.
The showroom concept works well for Costco, and their consumer base will respond well to it. It also will allow them to leverage their various corporate partners who could also have a “store in a store” where appropriate. Last but not least, their showroom locations can have an even larger food court area!
Indeed, Costco has select furniture items in their regular stores, but a showroom store dedicated to furniture makes a lot of sense, especially, given Costco’s superior merchant capabilities. I look forward to visiting one soon. With respect to the three states where Costco doesn’t have presence, I’m with Jeff Sward, it comes down to math, and those locations simply don’t return the numbers like other states do.
This showroom concept sounds like an excellent idea for Costco. It allows them to reach customers without having to invest in in-store inventory. I wonder if this is the reason for the showroom in Alaska. It gives them the flexibility to stage products as needed, and given the expense of shipping products to Alaska, it makes sense to keep their inventory fluid—this is conjecture on my part.
Costco has been incredibly successful, and not by accident. They place their stores in markets where they are likely to succeed. This means the market has the right population density, the right economic and competitive profile, and can be efficiently supported by their supply chain. For now, it seems that there are three states where those metrics are not favorable for growth. When the time is right I have no doubt that Cosco will make a move.
Costco isn’t looking to expand into a specific state or city. Coscto, like any good retailer, is looking to expand into a market that is right for them, regardless of the state or city.
The business model for most furniture dealers is a showroom model. For Costco to launch showroom stores for furniture and appliances the focus will be on online delivery, higher costs as delivery expenses are handed to customers and the opportunity to expand their furniture business. As with all smart Costco decisions, this will be another experiment to see if entering this market with this format of stores will yield any recognizable returns. I don’t believe this launch will be based on locations or states without Costco operations- instead it’s about the furniture & appliance markets and whether Costco can turn a profit expanding these.