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Home store influence across Costco

Though "still a small piece of the business," the year-old Costco Home format has already made an impact chainwide, allowing the company to identify items and categories — perhaps particular brands or looks — that it can incorporate into all its warehouse locations, even seasonally or on a road show basis.

However, no announcements have been made about opening a second unit, said Richard Galanti, executive vp and cfo, though he guessed the next unit would probably be located west of the Mississippi River in a strong market.

Located in Kirkland, WA, Costco Home has beat its sales and bottom line forecasts for fiscal 2003, and continues to grow, Galanti told investors during the company's first-quarter conference call.

In addition, because of the new format, "vendors are willing to talk to us," he added, though not everybody.

Overall, the warehouse club retailer also "feels strong about our level of competitiveness" in regards to pricing.

He drove that point further making a marketbasket comparison against chief competitor Sam's Club, claiming that Costco has become much more price competitive over the last five years.

Galanti stressed that if an item at Costco costs more than a similar product at a competitor, it's because the Costco product is of better quality. "We will remain the price/value leader, but we're not going to play games with the products — we've been consistent on that forever."

Throughout the chain, Costco has seen a sales pick-up in the higher-end items it sells, and "diverted branded goods" are more plentiful in a weaker economy, he said.

Overall, its private label is about 13 percent of the merchandise mix, and though that will trend up to 20 percent over the next few years, Costco's emphasis will continue to be on brands, he said.

With Sam's Club beginning its rollout in Canada, Costco is "on the offensive not the defensive" and will "make it as inhospitable as possible" for its competitor, remodeling and adding some locations in the Greater Ontario market, and making sure it is sharp on prices, for example.

It won't be easy, he added, but Canada has already been competitive as Costco has faced off with other "discount, cash-and-carry" operations.

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