By Barbara Thau
BELLEVUE, Wash.–Five years after launching its first store in Kirkland, Wash., Costco Home is still in test mode.
Today, the two-unit home furnishings spinoff of the nation’s leading warehouse club chain is deepening its commitment to serving up high-end merchandise with a “wow” factor as it looks to woo more Costco loyalists to the home subbrand, Pat Callans, corporate vice president of home and business delivery for Costco Home, told HFN.
“We still consider Costco Home to be a format we’re tinkering with,” Callans said.
“The biggest opportunity that we see is the additional penetration of the Costco membership base and [growing] the awareness factor,” he said.
He added, “We are looking for that high-end merchandise to sell within Costco Home.”
Callans assumed the top merchandising post at Costco Home seven months ago. A lawyer who has been with the retailer 13 years, Callans most recently was vice president of executive member services for Costco. Merchandising is a new area of responsibility for him.
Costco Home “offers a unique opportunity to see a side of the business that I don’t have a background in,” he said. “There are so many good merchants in this company that it allows me to take that challenge.”
That challenge includes burnishing the high end of the parent chain’s mix at Costco Home.
Costco is not only known for toothpaste and toilet paper in industrial sizes, but treasure-hunt, tony fare like Versace dinnerware and Prada sunglasses that eclipse the high end of the mix at rivals Sam’s Club and BJ’s.
“While regular Costco does furniture and home, we have to make sure that we’re at the upper end of the quality [spectrum],” Callans said. “That’s how we’ll differentiate ourselves.”
That means finding other things like “an amazing value on a $10,000 bed,” he said.
Today, Costco Home sells such things as “best of class” upholstery and leather furniture from Harden, and Stearns & Foster Mattresses that are unavailable at Costco.
It also holds special events such as artist signings of high-end art glass “to keep it exciting,” Callans said.
The mix at Costco Home is 70 percent furniture, and the remainder is floor coverings, housewares, domestics and home decor.
While the format’s bare-bones warehouse look—complete with concrete floors—cues shoppers that Costco Home is clearly a Costco sibling, merchandise is arranged in room vignettes, a more sophisticated approach than the parent chain.
Driving more Costco fans to Costco Home, which has a separate merchandising staff, means overcoming the resistance warehouse chains face from vendors when it comes to selling their upscale lines.
“It’s a constant challenge,” Callans said. Although the warehouse club industry has “really made a lot of headway, it’s still something we battle at Costco Home and the regular Costco. The buyers are constantly trying to open those doors.”
On a product-category basis, there’s an opportunity to expand the mix of leather upholstery, dining and office furniture.
By contrast, private-label home goods are “not a big category at Costco Home,” Callans said. “It’s limited to mattresses, co-branded sheets, a couple of patio sets and gas grills,” he said.
“We’re making sure we have the right merchandise and the right value to ensure that there is a definite purpose for this still-new business,” he said.
That means Callans is working on answering questions like, “‘What are the right number of SKUs?’ We know what it is in regular Costco, but we’re still deciding what it should be in Costco Home.”
Expansion is on the back burner—for now.
“We’re just cautious of things that are not the core warehouse business,” Callans said.
The retailer postponed plans to open a third Costco Home in Fairfax, Ore., last year.
In the meantime, Costco Home will continue to serve as a home furnishings testing laboratory for the parent chain.
“Costco Home has been profitable almost since the beginning,” Callans said. “The stores do more than $100 million in sales,” and business is up versus the prior year, he said.
The format expects to spread its wings at some point, and could resume expansion discussions in the next six months.
In five years, “I see additional locations with expansion in the Western part of the country,” Callans said.
