Don’t Expect Smaller, Urban Costco Stores Anytime Soon

While Walmart has been trying out its (relatively) smaller Walmart Express stores for the last few years, and Target began launching its own miniaturized CityTarget stores in 2012, the CEO of Costco says his city-living customers are willing to make the haul out to the ‘burbs for savings.

Even though the company opened its first warehouse in Seattle 30 years ago, it has no intentions of bringing a smaller version to that city’s urban center.

“If you look at — where we’re not exactly in downtown Seattle, we’re awful close,” CEO Craig Jelinek tells The Motley Fool in an interview. “We’re probably 3 miles from downtown, which works just fine for us. People will come to us and shop.”

Jelinek, who worked his way up from warehouse manager to President and CEO, explains that Costco’s goal is to maintain a certain level of simplicity.

“If you start to drift and become complicated, it costs you a lot of money to be complicated,” he says, adding that this higher cost would then have to be passed on to the customer through higher prices, which would defeat the purpose of operating a discount warehouse store.

One major reason for shying away from urban areas is the lack of available square footage. Some Costcos, like the one in Brooklyn, require two stories because the lot is not large enough to have everything on one floor. This causes problems, says Jelinek.

“We’re doing everything to get to one-story shopping, no escalators for having to move customers up and down, because, frankly, the escalators break down,” he explains. “They’re very expensive to maintain.”

Additionally, there’s the concern that customers might avoid trekking to upper floors, or not be aware that a second floor even exists.

It’s not just the difficulty of moving customers and their carts from floor to floor; there’s also the issue of getting the mammoth pallets of goods up and down.

“[Y]ou have to take those huge pallets down by storage elevators,” says Jelinek. “There’s a big expense to putting pallets in a storage elevator and going up and down.”

So, barring a new method of moving people and goods between floors — or a 180-degree turn in Costco’s mindset — don’t expect any Lil’ Costco (or perhaps Costco Jr.?) stores to be taking over vacant lots in your densely populated urban centers.