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The Honolulu Advertiser
Posted on: Sunday, July 29, 2007

Costco's Iwilei store top outlet in chain

Photo galleryPhoto gallery: Iwilei Costco
Video: Iwilei Costco one of company's busiest

By Curtis Lum
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser

Costco is a buying club that stocks its goods almost to the ceiling. Members who pay a yearly fee may shop there. The store buys in bulk and claims to pass on savings to the customer.

Photos by DEBORAH BOOKER | The Honolulu Advertiser

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COSTCO IWILEI

  • 6,000 Rotisserie Chickens sold weekly

  • 13,000 Hotdogs sold weekly at concession

  • $300 Million in 2006 sales

  • 800 Parking spaces

  • 575 Employees

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    Hawaii news photo - The Honolulu Advertiser

    Shoppers load up on goods at the Iwilei Costco outlet, which ranks as the sales-leading store for the nation's fourth-largest retailer.

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    Hawaii news photo - The Honolulu Advertiser

    Jim Sinegal

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    Costco Iwilei manager Robert Loomis gets a little uncomfortable when asked about the success of his store, saying he wants to remain humble because there's still a lot of room for improvement.

    But Loomis can't hide the fact that the Iwilei store is the top outlet in the Costco chain of 512 warehouse stores and has been No. 1 for nearly two years. Costco Iwilei boasts more than $300 million in sales last year, more than double the $129 million that the average Costco warehouse brings in annually.

    Of O'ahu's 450,000 Costco card members, about 200,000 nearly a quarter of the island's population signed up at the Iwilei store. Inventory at the warehouse turns over at a faster rate than the company average of every 2 1/2 to three weeks.

    The popular take-out hotdogs sell at a rate of more than 1,800 a day, while inside the store 6,000 whole chickens are roasted golden brown on a rotisserie each week.

    Still, with all these impressive numbers, Loomis doesn't want to brag.

    "One thing for us is not to become arrogant," he said. "Yes, we're one of the biggest, but we try to stay humble so that we take care of the members that we have."

    Back in Costco's home office in Issaquah, Wash., chief executive officer Jim Sinegal was a little less shy about the Iwilei store's success.

    "It's our number one sales location," the 71-year-old Costco co-founder said matter-of-factly.

    That's number one for a company that's ranked as the nation's fourth-largest retailer, with almost $60.2 billion in sales during its last fiscal year. Costco's total sales are more than McDonald's, Office Depot, Circuit City and Amazon.com's combined. Besides operating in the U.S., the company's growing operations include those in Canada, the U.K., Taiwan, Korea, Japan and Mexico.

    FAST START IN THE ISLES

    Costco was the first major club store to enter the Hawai'i market when it opened in Salt Lake in 1988. For an annual membership fee, people were able to make their way through Costco's no-frills warehouse that was stocked with pallets and tables piled high with merchandise. Customers strolled the concrete-floor aisles with oversized shopping carts, tossing in bulk-sized food packages sold at discounted prices.

    The concept was new to Hawai'i, but was an instant success and the Salt Lake warehouse was consistently one of Costco's leaders in sales.

    Sinegal traced the early popularity of Costco to transplants from the Mainland and residents who were familiar with the warehouse chain.

    "We get so many people shopping there from most particularly the West Coast who travel over there and that's such a big percentage of the tourist base that comes in," Sinegal said. "Then so many people from Hawai'i travel to the West Coast so they got to see us over here. I think it's natural that we would have been a little bit of a known commodity."

    Although the Salt Lake warehouse was tops in sales, Costco knew it could do better. In 2002, operations moved out of the original 130,000-square-foot warehouse to the 152,000-square-foot site in Iwilei after purchasing a 12-acre lot off Alakawa Street for $31 million.

    Sinegal said moving to the Downtown location was a big factor in boosting sales. He said the Iwilei store got the best of all worlds, being situated nearly halfway between the airport and Waikiki and near the heart of the Downtown business district.

    "You not only have all the businesses that purchase from us in Honolulu, but you got all those visitors who are Costco members," Sinegal said. "They have condos, they have timeshares and they're going to stock up for the week."

    But Costco also was a hit among Honolulu's budget conscious residents with its markups that top out at 14 percent. Other retailers markup items several times that amount. Gasoline is typically 7 cents a gallon cheaper than the island's average price, helping attract drivers and making Costco one of the largest gas dealers in the state.

    Soon warehouses followed in Hawai'i Kai and Waipi'o on O'ahu, in Kona on the Big Island, Kahului on Maui, and most recently in Lihu'e on Kaua'i. A fourth O'ahu store is scheduled to open in Kapolei next year.

    Sinegal said Costco is able to keep prices down because of the sheer volume that the stores do. Costco's no-frills approach to retailing also keeps costs down. Stores double as warehouses as inventory is stacked on shelving towering over the sales floor. Skylights are used to keep lighting costs down, and cardboard boxes that once cradled merchandise are given to customers to carry their purchases home.

    Prices in Hawai'i, as well as Alaska, are slightly higher than in most Mainland stores because of the cost to ship in items.

    "It all revolves around the fact that we generate such significant volumes that we can reduce the markup because we're more efficient," Sinegal said. "If you have a set amount of rent that you're going to pay, the more business you do the less that is as a percentage of your sales."

    FAMILY ATTRACTION

    Qimei Chen, chairwoman of the marketing department at the University of Hawai'i's Shidler College of Business, said Costco has done a good job of promoting itself in the Islands. Although the outlets are just large warehouses, she said Costco is able to attract families with its large, broad selection, friendly employees and outdoor eating area that features $1.50 hotdog/soft drink offerings and other fast foods sold at some of the lowest prices in town.

    "This is more like cross-selling because when people are eating, very likely they'll drop by to see what's happening in the store and they'll purchase," Chen said. "If you're in Minnesota, for example, you can't do that very successfully because a big part of the year people can't eat comfortably outside."

    Chen, who earned her Ph.D. at the University of Minnesota, is a Costco member. She also said that being able to buy in bulk is appealing to Hawai'i's large families. The 2000 U.S. Census reported that the average Hawai'i household was 2.92 people, compared with the national average of 2.59.

    "There are a lot of big families, or big 'ohana, here and Costco's business model is to provide the discount for big packages of products so it really matches the culture here," Chen said.

    George Whalin, president and chief executive officer of Retail Management Consultants in California, said the Hawai'i Costco stores, particularly the one in Iwilei, do well because they lack competition.

    "All over the Mainland you look at where Costco is located, they're generally not far from a Sam's Club or Wal-Mart super center or one of the other major discounters like Target that they have to compete with," said Whalin, a frequent visitor to the Islands. "There's just not a tremendous amount of high-volume, discount-type stores in Hawai'i."

    Whalin also said that Costco does a good job of building its merchandise mix to fit the needs of the local residents.

    "That rice and Spam thing that's popular in Hawai'i, you don't find that anywhere else in another Costco," he said.

    SHOPPER FRIENDLY

    Katherine Sakai of Aliamanu was shopping at the Iwilei store recently with her daughter, Katie, to pick up items for Katie to take back to school in California. The 21-year-old University of Redlands student said she was stocking up on chocolate-covered macadamia nuts and other goods that she can't get at the Costcos on the Mainland.

    Katherine Sakai said her family became Costco members soon after the Salt Lake store opened because she had heard about the prices and ability to buy in bulk.

    "I expected good prices, but I was surprised at the quantity of the items. They don't have a lot of big brands, but the quality is good," Sakai said.

    Lyle Matsuo also was shopping with his daughter, Kelsi, as she prepared to head back to Creighton University in Nebraska. The Hawai'i Kai resident said he usually shops at the Iwilei store because it has larger parking stalls.

    Although he buys his bulk items at Costco, Matsuo hasn't abandoned local markets such as Time's and Foodland for smaller goods.

    "I heard people are concerned that a lot of the smaller stores may go out of business. But if they have good service, then they shouldn't worry about that," Matsuo said.

    Matsuo and Katherine Sakai said they shop at Costco about twice a month, which store manager Loomis said represents the typical Costco shopper.

    LOYAL SHOPPERS

    Sinegal said that in addition to the prices and variety of merchandise, he believes Costco is successful in Hawai'i because Island consumers are loyal to businesses that provide good service at low prices. He pointed to the popularity of the California-based Longs Drug Stores, which many Hawai'i residents perceive as a locally owned chain.

    "Look at how successful that chain is there," he said of Longs. "That portion of their business has always been the most successful portion and they've built a great reputation over there."

    Loomis said he believes the service at the Iwilei warehouse also is an attraction, where the average employee earns more than $17 an hour. The 575 full- and part-time employees have been with Costco for an average of 11 years, he said.

    "It's all about taking care of our customers," Loomis said.

    Added Sinegal, "We've built a very good employee base and our employees are loyal to us and I think the customers are very loyal as well. When they find somebody that they trust, they stay with you."

    Sinegal said Costco is keeping a careful watch on the influx of new competition, including retail giant Target, which plans to open two stores in 2009, including one at the old Costco warehouse in Salt Lake. But Sinegal said it's not likely that Costco will change its way of doing business.

    "We'll just do our thing and do it well," he said.

    Reach Curtis Lum at culum@honoluluadvertiser.com.


    Correction: The Costco warehouse store in Hawai‘i Kai opened in 1992, after the Salt Lake Costco opened in 1988 but before that store moved to Iwilei in 2002. A previous version of this story suggested the Hawai‘i Kai store opened after the Iwilei branch.