Costco’s Manhattan Project
By Tom Ryan
Costco’s first store in Manhattan, opened in East Harlem last November, has
underperformed so far. The subpar showing is being blamed on everything from
issues around parking access to whether bulk selling ultimately works in Manhattan.
The underperformance came to light after word leaked that Costco terminated
160 of the store’s 453 workers in January. Although many were seasonal, the
number was higher than planned. A Crain’s article at the time listed
numerous problems with the store, including its 15-minute walk from the nearest
subway as well as its $4.00 parking fee. Nearby busy stores in Sunset Park,
Brooklyn, and Long Island City, Queens, offer free parking.
The third possible
problem was the longstanding worry even before the store opened: whether New
York City living was meant for bulk buying.
“People having large-enough apartments to store in bulk is an obvious concern,” Anita
Kramer, senior director of retail development at the Urban Land Institute,
On Costco’s second quarter conference call on March 22, CEO Richard Galanti
admitted Costco gets “a lot of grief for the parking lot because it costs
stating that Costco doesn’t own the lot. But the store is only at about 80
percent to 90 percent of its expected sales and he implied the Crain’s story
was blown out of proportion. “We want to get as many people back to work
and as quickly as possible, but it’s continuing to grow,” said Mr. Galanti.
Nonetheless, weekday traffic has been lighter than expected. Mr. Galanti said, “What
we are finding is that during the week we get a lot of local neighborhood traffic.
What you don’t find is people on their way home from work saying, ‘Hey, let’s
go drive over to Costco’ on their way home from work.”
On The Wall Street Journal’s MarketBeat blog, Matt Phillips
said Costco misread the market. He wrote, “New Yorkers don’t tend to
travel around in cars. Instead we opt for an elaborate system of subterranean
railroads that convey us hither and yon about the city. In these trains, we
are often crammed cheek-by-jowl with our fellow travelers, with little room
for the pallet-loads of cashews and toilet paper that suburbanites are at liberty
to load up on.”
Finally, a lighter story this past Saturday in The New York Times painted
an ideal picture of how the East Harlem scenario should work: “On a recent sunny
Friday, Costco was an oasis of urban harmony: Parents who live in public-housing
complexes shopped for after-school snacks alongside people planning to split
their loot between homes in the city and the Hamptons.”
But it also brought up the fourth potential problem with the store: whether
the store had the right merchandise mix. Rob Coope, the store’s general
manager, said the store is finding that Manhattanites were more likely to prefer
the smaller and higher-end version of offerings.
“Almost all the questions we had were, ‘Can you get the healthier
version?’ Organic sugar, low-calorie bread, soy cheese,” Mr. Coope
recalled of the early weeks. “Kosher, big. Healthy, organic, big. Much
bigger than the other buildings.”
Discussion Questions: How might have Costco misread the New York City market?
Of the issues mentioned in the article, which do you think are its biggest
hurdles to jump?
- A 30-Pack of Charmin, but Where to Store It? – The New York
- Costco stumbles out of gate in Harlem – Crain’s New York
- Costco Q2 2010 Earnings Call Transcript – 123jump.com
- Marketbeat – The Wall Street Journal