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Published: Sunday, 8/19/2007

Wholesale giant to test Toledo-area retailers

BY JON CHAVEZ
BLADE BUSINESS WRITER

It has taken nearly three years to put the pieces in place, but Costco Wholesale Corp. will open its checkout aisles in Toledo next week, substantially changing the retail landscape in the Westgate neighborhood.

The nation s fifth-largest retailer is the shining jewel in a redeveloped Westgate Village Shopping Center, a 50-year-old center that was torn down, re-configured, and rebuilt for $35 million.

The expected high volume of customer traffic to the 150,000-square-foot Costco store is likely to attract more stores to the Central Avenue and Secor Road vicinity, which handles 32,000 vehicles a day. The store is projected by city officials to attract an additional 350 vehicles an hour to the area.

Several new retailers have moved to the area in anticipation of the arrival of the Issaquah, Wash., firm s store.

The opening by the $64 billion wholesale-club retailer likely sends competitive shivers to big-box retailers and smaller stores in the area as it sells groceries and general merchandise at low prices, experts said.

Wal-Mart, Target, Kmart all of the above will be tested, said George Rosenbaum, a retail consultant and president of Leo J. Shapiro & Associates in Chicago.

And they also compete with Best Buy, the supermarkets, and drug stores on pharmacy items. Their pharmacies do very, very well. They are a competitor with almost every major category of retail.

Potential customers are awaiting the Aug. 29 opening of Costco, which requires a $50 annual membership to buy goods.

Its typical first-day openings attract about 4,000 customers, the firm said.

Kay Sarka of Toledo had a Sam s Club membership, but let it lapse recently. She s waiting for Costco, a direct competitor to Wal-Mart Stores Sam s warehouse unit, which has one metro Toledo location behind Spring Meadows Shopping Center in Holland.

I definitely plan on shopping at Costco, she said. I do a lot of shopping in this [Westgate] area, so it would be closer.

Kris Wong, left, and Lisa Pittman process membership applications in the week leading up to the Aug. 29 opening of the Costco Wholesale Corp. s store in Westgate Village. Kris Wong, left, and Lisa Pittman process membership applications in the week leading up to the Aug. 29 opening of the Costco Wholesale Corp. s store in Westgate Village.
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Dave Long, a real estate agent with commercial real estate firm CB Richard Ellis in Detroit, said, Costco is going to crush sales numbers. There s no question that Costco will do great in Toledo.

The company picks its sites carefully, in this case a relatively affluent area. Within five miles of the store, there are 114,000 households with average income of $57,806, according to U.S. Census data.

Costco and Sam s have similar formats, but analysts say a typical Costco store has $125 million in annual sales and a Sam s Club about $70 million.

The retailing strength may seem surprising given that a typical store carries only 4,000 different products. By comparison, a typical supermarket carries about 40,000 different items and a Wal-Mart nearly 100,000.

But Costco compensates by keeping only 70 percent of its merchandise items on the shelves each week, replacing the rest with special items.

They have more items on the high end at lower prices, Mr. Rosenbaum said. For example, you might find them selling two pounds of macadamia nuts on special for $6.99. Usually, macadamia sell for $7 or $8 dollars a pound.

It s that kind of thing they re very, very good at making it possible for people to indulge in luxury or high-end products that they might otherwise be reluctant to buy or indulge in at all.

It has a corporate policy to not mark up prices more than 15 percent above its costs, but its average markup is 8 percent, the company said. That s considerably less than grocery stores, for example, which often boost prices by 25 percent or more above their costs.

That s why Costco makes much of its revenues on membership dues. It charges $50 for a basic membership and more for a club card with added services. By comparison, membership at Sam s Club is $35.

Pressure on grocers

The entrance into northwest Ohio of Costco occurs as Wal-Mart, with its four metro stores, has asserted a significant presence in local grocery selling and in its other lower-priced merchandise.

Costco, which has 513 warehouse stores and is No. 32 on the Fortune 500 list, sells most items in bulk sizes and tends not to have a variety of sizes of a given brand of pain-reliever pills, for example.

Last year, the firm sold more than 141 million muffins, 295 million cakes, a million whole turkeys, and 106 million pounds of ground beef.

Kris Fredrickson, a Perrysburg resident, plans to give Costco a try, even though she has a membership at rival Sam s Club.

I ve heard good things about Costco, she said last week during a visit to a restaurant at Westgate.

Gladys Wright, far left, speaks with Howard Nollenberger about a Costco membership while Theresa Otersen helps Cheryl Ball with an application at the soon-to-open wholesale club. Gladys Wright, far left, speaks with Howard Nollenberger about a Costco membership while Theresa Otersen helps Cheryl Ball with an application at the soon-to-open wholesale club.
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I ve heard they have higher-end merchandise. But I do not buy much in bulk anymore, she said. But I guess it depends on what they have there. The West Coasters I know swear by it.

Her daughter, Emily, a freshman at the University of Toledo, was less hesitant. I m sure I ll shop there, she said.

The local store also has a gas station.

Even though it is known for its bulk items, the company sells many individual items, such as clothing, electronics, furniture, books, tires, and health and beauty aids. And it has been quick to add categories that consumers might not expect.

It was the first warehouse club to sell high-end jewelry and now sells over 67,000 carats of diamonds annually. Last year it sold 1.6 billion gallons of gas and filled 26 million prescriptions nationally. Its hearing aid center sells more digital hearing aids than any independent retailer.

No consumer will be able to do all of their shopping there, or even the bulk of their shopping, said Mr. Rosenbaum, the consultant. But Costco will take a good chunk out of the local economic pie.

The company anticipates a strong opening.

Angling for members

The area already had a significant number of Costco card holders, probably heading to Livonia, Mich., the closest warehouse to Toledo. In Ohio, the nearest Costco is in Cleveland. The firm began a local drive this month to sign up customers and was helped by local businesses that displayed membership forms and information.

We re preparing to open with somewhere around 10,000 to 15,000 paid members, said Mark Facemire, assistant general manager of the Westgate store. Its Columbus store opened with 14,000 memberships; a Cincinnati store had 8,000.

The support of the community has been phenomenal, Mr. Facemire said.

Still, the company s entrance was not without controversy.

A company vice president predicted in August, 2005, that it would open a Westgate store in 2007. But then, Toledo Mayor Carty Finkbeiner and several residents from Westgate-area neighborhoods complained that Costco s big-box format ran counter to keeping Westgate more villagelike and more walker-friendly.

After five months of arguing, Toledo City Council voted to approve the project.

The Westgate area was the best fit in the Toledo area by Costco s standards, which is why the retailer was willing to put up with delays. The firm has no plans for another local store.

Topped Westgate s list

Westgate owner Liz Holland said consumer affection for the chain is why she put it at the top of her list of possible anchors as she planned the center s redevelopment.

I can t even remember who No. 2 might have been, said Ms. Holland, chief executive of Abbell Credit Corp. in Chicago. The firm has owned Westgate since it was built.

They have the ability to attract the right type of shopper and a high volume of traffic to a center like ours, she said. Plus, they re great employers.

The company is known for how well it pays and provides benefits to its employees.

Nationally, its wages start at $11 an hour and top out at $18.87 for full-time clerks. Workers get three weeks paid vacation after five years. But at all stores across Toledo, starting wages generally are about $7.50 an hour.

Costco received 11,000 applications for 200 jobs at the store. It interviewed 6,000 applicants, Mr. Facemire said.

Contact Jon Chavez at:jchavez@theblade.com or 419-724-6128.



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