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Costco Taking Mall Space

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Mall owners who have lost big department store tenants like Mervyns and Macy's are finding a new savior: Costco Wholesale Corp.

Issaquah, Wash.-based Costco, which operates 396 warehouse clubs in the U.S., has opened nine clubs at the former sites of department stores at traditional, enclosed malls in four years. The next two will open within a year as anchors at Macerich Co.'s Paradise Valley Mall in Phoenix and Lakewood Center in Lakewood, Calif. Costco is in talks for an additional "four or five" anchor-store slots that it may open within the next two years, co-founder and chairman Jeff Brotman says.

For malls, Costco offers several advantages beyond filling vacant anchor slots. For one, Costco's members -- who pay annual fees of $50 to $100 for access to massive warehouses stocked with bulk goods at wholesale prices -- have median household incomes of $62,22, compared with the national median of $46,243. And a Costco store averages roughly one million customer visits per year. Finally, Costco offers a limited selection of goods, which means most other tenants needn't fear it will siphon customers from the rest of the mall.

For Costco, the malls offer an avenue to enter built-out, affluent markets where few, if any, of the 15-acre tracts Costco would need for a standalone club are available.

The mall movement hasn't yet caught on with Costco's largest competitor, Sam's Club. The Wal-Mart Stores Inc. unit has one club in a mall anchor slot at the Auburn Supermall in Auburn, Wash.

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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