Published Saturday August 20th, 2011
Wholesale | Store tries to bring in new, short-term items to keep things fresh
A3 By HEATHER MCLAUGHLIN
[email protected]
Brad O'Kurily, assistant manager of the new Costco wholesale warehouse in Fredericton, holds a $17,000 diamond ring in one hand and an almost too-hot-to-hold barbecued chicken in the other.
The Fredericton Costco store opened its doors Friday. Above, Anne McNamara of Fredericton looks at a flyer as she passes items in the store. Brad O'Kurily, assistant manager of Fredericton's Costco store, holds up a $6.99 chicken next to a replica of an 18-karat, two-tone gold, round diamond solitaire ring that's for sale at the store for $16,999.99. The new Fredericton Costco store opened its doors Friday. That study in contrasts is illustrative of Costco, said Costco's Canadian spokesman Ron Damiani.
"This is what surprises people. That you can buy a $17,000 diamond ring and then go a couple of metres down and buy rotisserie chicken for $6.99," Damiani said.
He took The Daily Gleaner for a tour through the store, which opened Friday.
The store is the largest in Atlantic Canada.
Costco complements the business community, Damiani said.
"If you want a specialty hammer, you're going to go to your local hardware store and talk to the gentleman who has owned it for the last 10 years, and he's got 15 hammers for you," he said.
"We don't even have hammers sometimes. We're an item merchandiser. We're not a category merchandiser. We don't say we have to have X amount in this category ... We look at an item if it's both wholesale and retail, it's perfect for us."
Local businesses also buy at Costco to resell in their stores.
At the checkout Friday morning, one man was leaving the store with cases of bottled water.
If he had to guess, Damiani said, the man was likely purchasing the product to resell at a chip wagon, canteen or similar small-scale venture such as a convenience store.
Restaurants will also do a lot of their product shopping in the store's grocery section, Damiani said.
Purchasing toilet paper at Costco, you'll buy it in a big bag, but each roll will be individually wrapped.
That's so the product is suited both for individual consumers and for a business customer such as a janitorial business.
"The name wholesale isn't just a cute moniker that we hang on the building. The essence and why we were created was to act as really a middleman for small-business owners who had no leverage against big companies. Still today, the bulk of our sales are made to small-business owners," Damiani said.
"There's a misnomer that when we come into a community, we're going to hurt small businesses, but actually the opposite happens. We become a huge supplier of theirs because they come and buy their merchandise from us.
"The interesting thing for an individual like you or I when you see somewhat walking out with a pallet load of televisions because they own a motel and they're buying eight televisions, you're buying your television at the same price as somebody who is buying four, eight or 10. That's what makes it exciting for everybody."
From clothing to food to tires, Costco has a variety of products that fit the bill for every need in the household.
However, Costco carries a more limited variety for each kind of item than some other stores.
"A medium-sized grocery store has about 65,000 to 70,000 different skus (stock keeping units). We have, all in, food and non-food about 4,000 skus. On the food side, about 1,200 to 1,400," Damiani said.
Costco's marketing strategy to keep its shoppers engaged is then to bring in special product lines for short periods.
For instance, for Friday's opening, the store had a two-day fresh seafood counter set up with whole fish, king-size raw lobster tails, gigantic scallops, prawns and king crab legs.
"So we have to surprise our members all the time ... We're not boring," Damiani said.
"Every time you come in you say, 'Oh my God, look at the size of the those things and look at the price.' It's exciting, but you don't want this every single week. In two weeks, you're going to come back and see something completely different. We have to do that with every one of our categories because we have such limited stock keeping units."
Atlantic Canada may have some products that Quebec or Alberta won't have.
On the non-food side, there may be more local variation.
"In Fredericton, we have three sizes of propane tanks, so propane is important to this marketplace, whereas in Montreal you'll only have one size of the small propane tank because the only people buying them are for their barbecues," he said.
Meat products are sold under Costco's brand called Kirkland Signature.
"Our private-label strategy is to compete with the top-quality brands around the world and ensure that we have significantly great value and price it significantly less than a national brand and make sure it's equal to or better," Damiani said.
Costco's history began in the U.S., with two separate businesses duking it out to run warehouse-style shopping for members only.
Founded by Jim Sinegal and Jeffrey Brotman, Costco opened in Seattle, Wash., in 1983.
In 1993, Costco merged with Price Club, which was founded by Sol and Robert Price in 1976 in San Diego, Calif. The new company, PriceCostco, became Costco Wholesale in 1997.
Costco Wholesale operates 587 warehouse clubs around the globe, 82 of them in Canada.
Total sales in 2010 were $76.3 billion US with 147,000 employees.
Costco Wholesale Corp. is the largest membership warehouse club chain in the United States.
With its buying power, Costco is also embarking on new consumer products.
"We're just finalizing a deal for home and auto insurance. We're working on consumer travel as well. We're into long distance, Internet, payroll services for small-business owners," Damiani said.
Costco's Fredericton location includes a gas bar.
On Friday, with the price of regular gasoline at $125.5 per litre, Costco was selling gas $117.9 for regular.
Costco only sells gas to its members, and it only sells a regular and super grade.
Because it doesn't stock a medium-blend, Costco saves on construction and inventory costs.
Costco doesn't take any charge cards other than American Express, cash or debit.
That eliminates the associated merchant transaction fees that credit-card companies charge to businesses that allow them.
For instance, on a litre of gas, a typical charge-card company's fees would equate to about four cents per litre, which a retailer has to remit to the charge-card company.
Costco's gas bar is only open store hours, not overnight, so that eliminates staffing costs as well, he said.
Inside the store, Costco has limits on its profit on products.
"We have internal caps on markups. On our branded products, its 15 per cent, and on our national brands it's 14 per cent," Damiani said.
"We firmly believe that as a company we have to make money with our membership revenue."
In 2010, Costco made $1.1 billion net profit and had $1.2 billion in membership profits.
"We're a business that's about selling memberships, and we will sell more memberships if we reduce our prices more," Damiani said.
Seventy-five people - managers, cashiers and some experienced personnel - moved to Fredericton to help staff the store.
In total, there are 225 employees.
A number of personnel have moved from store to store through different provinces in the Costco chain.
http://dailygleaner.canadaeast.com/cityregion/article/1433438
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