By James Covert
NEW YORK (MarketWatch) — Costco Wholesale Corp. (COST) is exploring furniture, home-installation and landscaping businesses with a handful of new warehouse-club prototypes, an analyst says.


The Issaquah, Wash., retailer is operating a giant store in Hillsboro, Ore., with a sales floor that displays furniture and mattresses in vignettes, allowing customers to lounge in sofa-love seat combos and recline on mattresses to test their firmness, Stifel, Nicolaus & Co. analyst David Schick says.
“It’s a category where they think retailers have very high margins, and they think they can deliver a value to the customer,” Schick said in an interview Friday. “If there’s a couch for $1200, they might deliver it for $700 because they can pump the volume through the store.”
The new store, which was opened in November, also has a spacious area devoted to special orders for kitchen and closet installations as well as landscaping services, said Schick, who described the findings of a recent visit to the Hillsboro store in a Friday research note.
The new store – which occupies 205,000 square feet versus typical Costco stores that range between 140,000 and 150,000 square feet – also carries a wider selection of prepared foods, an expanded deli and bakery area, and a refrigerated room for produce, Schick said. The store also has a better selection of high-definition televisions and has allotted more space for outdoor equipment and patio furniture.
There could be room for 20 to 40 of the giant stores, with one or two making waves in each of the company’s major markets across the U.S., Schick said. But if Costco rolls out any new formats, it likely won’t begin to do so until 2015 or 2016, he said.
The larger point, Schick said, is that Costco is experimenting with new product categories to boost profit and drive customer traffic. Schick noted that Costco also has been testing a home-furnishings retail format it calls “Costco Home.” But while it has been testing the concept since 2002, there are still only two locations in Seattle and Phoenix, and it is unclear whether Costco has an intention to further develop it.
“While those stores are working, they wanted to try the best of what’s happening in those stores and add fresh and prepared foods (at the Hillsboro store),” Schick said. “I think it shows the flexibility of their product mix. I would have to guess they’re going to take the learnings from these stores to introduce some better products at the regular stores.”
Stifel, Nicolaus & Co. makes a market in Costco securities.
Costco officials couldn’t immediately be reached to comment on the analyst’s report.
In recent trading, Costco shares were up 24 cents, or 0.4%, to $55.51 on volume 673,000. Average daily volume is 3 million.