When you think of a typical Costco member, you probably picture someone like me: an overworked, perpetually tired suburban mom with a house full of hungry people to feed.
But Costco actually caters to shoppers across a range of demographics — and incomes.
Budget-conscious shoppers like Costco for the bulk savings and are therefore willing to stretch a bit to cover the store’s membership fees. Average earners like Costco for the great deals and can generally afford the cost of access. And higher earners tend to appreciate Costco’s eclectic array of products.
In fact, it’s members with more wiggle room in their budgets who are best suited to take advantage of Costco’s famous treasure hunt-style shopping experience.
During Costco’s Q3 2024 earnings call, CEO Ron Vachris talked about how important that element is to the company.
“We never want to compromise the treasure hunt of Costco,” he said.
Costco courts a new group of customers with a unique store location.
Costco’s latest store location could target a new type of customer
Costco is a company that knows its audience well. As such, it tends to open new warehouse club stores in, or just outside of, suburban areas.
Finding room to build a Costco store can be a challenge due to its giant footprint. But now, Costco is building a whole new type of store that could attract a whole new type of customer.
Related: Costco members angry about one strict store policy
Costco is building a warehouse club store in South Los Angeles, located directly beneath an affordable housing complex. The project, located in Baldwin Village, is expected to include 800 apartment units, almost 25% of which are reserved for low-income residents, Fox reported.
The development is expected to open in 2027.
Governor Gavin Newsom praised the initiative, calling it “an incredible collaboration that uses our new state laws to transform an underutilized space into a prosperous housing project and retail center.”
This development will not only be the first in the U.S. to use Costco as an anchor tenant for a mixed-use housing project, but will also create up to 400 permanent jobs, not to mention many more during the construction phase.
In addition, by serving as an anchor tenant for the complex, Costco is making itself easily accessible to the residents who end up living there. That could drive more shoppers to the store.
Will budget-constrained shoppers flock to Costco?
Costco’s foray into a mixed-use development is a smart idea in theory. But due to the nature of the development where it’s opening, the results could be mixed.
The reality is that while Costco has long attracted budget-conscious consumers, lower-income shoppers may have a harder time getting on board with Costco’s business model.
And it’s not just the entry fee. Costco’s cheapest membership costs $65, and some lower-income households may be able to justify that expense for the promise of continuous savings.
The problem, rather, lies in the fact that lower-income shoppers don’t tend to have the wiggle room to stock up on bulk purchases or grab treasure-hunt finds on impulse. And so even if they can get past the idea of having to pay a fee to enter a store, they may not see the value if most of Costco’s bargains are off-limits due to financial constraints.
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Put another way, Costco is not a good store for people who live paycheck to paycheck. People who may only be able to afford buying a few rolls of toilet paper at a time can’t benefit from the discount that comes with buying a pack of 30.
So while Costco may be hoping to expand its membership base with its new initiative, it remains to be seen whether it succeeds.
And even if Costco does manage to attract new members in and around the aforementioned new housing development, those with income constraints may be less likely to embrace the store’s treasure-hunt experience, leaving the company with limited upside.
Maurie Backman owns shares of Costco.