Costco announced recently that a third Columbus store would be coming soon at the planned Dublin Green shopping center in Jerome Township. The Seattle-based chain entered the local market with a store at Polaris in 2006, and opened a second store at Easton in 2013. With each store averaging 145,000 square feet, few stores are needed even in major markets, begging the question as to whether or not Columbus actually needs another one.
“I believe the Columbus MSA, with a population 1,967,000, can support a third Costco but barely,” says retail analyst Chris Boring of Boulevard Strategies. “This would work out to about 655,000 persons per Costco location. The national average is 685,000 persons for every Costco, so this would be in the ballpark, plus the Columbus MSA is growing by about 22,000 persons each year. In five years, I would predict that there will a Costco store for every 610,000 Americans while the Columbus MSA will have 690,000 persons per Costco.”
Boring says that the new store’s location is 13 miles from the Polaris store, and might cannibalize some of the traffic from that store at first. But with a large number of higher income households, families and small business owners, he thinks that the placement on the northwest side will be well served.
“You can bet that a lot of Dublin residents currently fight the traffic to shop at the Costco on Gemini,” he says. “So this is a great location and therefore they may be willing to sacrifice some sales at Gemini Place to add a store between Dublin and Marysville.”
The Costo retail business model is one that Boring finds particularly interesting, and expects it will take a larger bite out of other big box retail in the region, most notably the Sam’s Club and Target stores located on Sawmill Road and at Tuttle Crossing, both within a four mile radius of the Dublin Green shopping center.
“Costco runs on a much different business model than its biggest rival, WalMart,” explains Boring. “It operates on very low margins/prices at very high volumes. It also only carries only a few brands, for instance, Costco only has four toothpaste brands versus 60 at Walmart, which allows them to negotiate rock-bottom prices with fewer vendors.”
He says that other difference includes a mix of luxury items at deeper discounts, few merchandise displays, a push for customers to make bulk purchases, no advertising and much lower administration pay: Costco’s CEO currently makes $650,000 per year while Wamart’s CEO makes $18 million per year. Additionally, Boring says that the average Costco employee makes $19.50 per hour after five years of employment, compared to Walmart’s $12.50 per hour, and employees are only paying 12% of their healthcare insurance costs versus 40% at WalMart.
“This makes for a happy, loyal, experienced, and highly productive Costco workforce,” says Boring. “Revenues per Costco employee average three times as much as Wal-Mart workers.”
National industry analysts are closely watching the growth of Costco and how its differing business model may help or hurt it in the future, but locally it looks like Columbus residents have supported the chain in its continued growth in the region.
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