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Costco Finds a New Stomping Ground

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Warehouse retailer Costco (Nasdaq: COST  ) may eventually show up in a most unlikely place: your local shopping mall.

According to The Wall Street Journal, Costco is accelerating plans to insert some of its stores into malls, following a long history of mostly plopping down its locations on massive stand-alone lots.

Needless to say, its stores' large sizes will require Costco to take up mall spaces previously reserved for major department stores. These "anchor stores" include Sears Holdings (Nasdaq: SHLD  ) , Macy's (NYSE: M  ) , and J.C. Penney (NYSE: JCP  ) , which typically draw large amounts of customers who then venture out into the rest of the mall.

You've probably noticed that department stores such as the names above no longer hold the magical mystique they once did. Competition from savvy discounters such as Wal-Mart (NYSE: WMT  ) , Target (NYSE: TGT  ) , and yes, Costco has rapidly deteriorated their magnetic pull with shoppers. Recent earnings from Sears and ongoing malaise from Macy's reflect this fact.

Financial troubles for these once-mighty retailers stink for their shareholders. You can count BonTon and Dillard's among the department-store stocks facing major challenges these days.

But their tough times can become big opportunities for rivals, which may be the case with this Costco move. Ailing mall operators that are losing retail tenants may beg for a big, successful company like Costco to move into vacant spaces. In their desperation, they might even cut reasonable rates on leases. Malls could also give Costco an easy way to penetrate more urbanized areas than it usually targets for expansion. One of the new Costco locations will hunker down in a former Dillard's mall space in Sarasota, Fla., for example.

This is still a pretty new concept for Costco, so don't expect a store to move into your local mall tomorrow. However, such excursions could be a big success for the warehouse retailer, and help rejuvenate some of the ailing shopping malls it will occupy, not to mention other retailers residing in those malls. Costco at the mall seems like a winning proposition -- for everyone except the department stores.

Costco and Wal-Mart are Motley Fool Inside Value selections. Costco is a Motley Fool Stock Advisor pick. The Fool owns shares of Costco and Wal-Mart.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (18)

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  • Report this Comment On August 26, 2010, at 6:17 PM, Atrossity wrote:

    Costco in a mall? Gosh, that is an interesting picture. When I think of malls, I picture people carrying bags showing off the trendy stores they had made their luxury purchases at. Bags that they may reuse so their peers may note their expensive taste, in addition to their environmental awareness.

    But to me Costco symbolizes the save in bulk idea, a concept that seems antithetical to malls. Could be exactly what malls need, not to mention Costco. I'm going to the mall has more bourgeois flair then I'm going to Costco, but soon it will be the same thing.

    Thanks for bringing this to my attention Alyce!

  • Report this Comment On August 27, 2010, at 2:16 PM, amamimus001 wrote:

    The Costco nearest me is housed at the end of a smaller strip mall, across the street from a huge mall complex. It is not only convenient to a major highway artery; pedestrians can use pubic transit to get to this location. It puts a limit on their purchases (who's bringing steaks on the subway from VA to DC?), but for smaller purchases, it's convenient.

    So, you can pick up an outfit from the Limited brand stores and your Sony accessories from one side of the street--then you can cross the street, pick up some groceries and some accessories for your home electronics. Hmmm...that's a lot of stuff to carry on the subway. I hope Costco still finances vehicles.

  • Report this Comment On September 03, 2010, at 12:32 PM, SoccerDee wrote:

    I can see arguments for and against.... but whatever happens - I would NOT want to be near a mall with a Costco between Thanksgiving and New Years!!! That is just parking insanity waiting to happen.

  • Report this Comment On September 04, 2010, at 8:48 AM, antonioq wrote:

    Actually, Cumberland Mall in Cobb County, Georgia has had a Costco (same space, where Sears used to be) for about two years now.

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