BJ’s Wholesale Club will open up their 49th warehouse in New York state on April 25th, 2025.
Located at 85 Bricktown Way, this location is located just 5 miles from Costco’s existing warehouse.
Costco has maintained, until now, a monopoly on warehouse retail in Staten island with a single location. In operation since the mid 2000s, residents of Staten island, boasting a population of just under 500,000, have long clamored for an additional Costco outlet to fill their shopping needs.
Prior to the opening by BJ’s, a population of roughly 500,000 would have justified at least a total of 2 Costco locations on Staten Island, without running any business risk of revenue bleed at the current location. On a per capita basis, Costco had, proportionately, provided 33% more warehouse space for the people of Iceland, than they did for the residents of Staten Island.
Differing from Iceland, Staten Island is not in the middle of nowhere. Differing from Iceland, Staten Island is connected to New York City mainland by 4 bridges. No logistical or construction challenges existed to either prevent warehouse development or result in an uneconomic build.
An almost 20 year wait for a second Costco warehouse on Staten Island, with zero traction, represents roughly 15 years of foregone opportunity.
Claiming to have no productive uses for accumulated cash balances, since the start of the 21st century, Costco has paid out more than $13.2 billion in special dividends.
Is that true? Was there truly no better, no more productive use for that money than ship it out to shareholders, for many, a taxable event?
At an average building cost since the start of the 21st century running about $35 million (higher now, but far cheaper at the start of 2000) all in, per location, more than 375 additional Costco locations could have been added to the present US warehouse count with that $13.2 billion, generating a likely incremental annualized revenue in the range of $100 billion, with annual incremental profit of $2.8 billion.
Annual dividend hikes could have accelerated significantly beyond the current payment, all flowing from that enlarged store footprint. I estimate that shareholders would have been provided with almost the same aggregated dividend payments to shareholders over that 24 years, had the historic payout ratio of dividend to profits been maintained, without the need for special dividends. Best of all, Costco would still have that incremental 375 stores to show for it, with simple planning.
Costco chose to do one thing, hoard cash and pay out irregular special dividends, not the other (opening a lot of stores quickly). Yet, as pent up retail warehouse store demand exists today, existed in every year for the past quarter century and will likely persist some time into the future, they could have simultaneously accomplished both goals without adding any financial leverage.
A more assertive growth plan by Costco would have left no viable path for a competitor to build scale, let alone scale up in regions widely assumed to be “hands off, this is our turf” by Costco executives.
The newest retail warehouse to soon open on Staten Island, in very close relative proximity to a Costco key location, taking on a flagship warehouse in terms of profit; that sudden appearance of a BJ’s, indicates that BJ’s has ZERO fear of Costco as a retail competitor. It also wrecks, forever, the economics that had previously justified a second Costco warehouse in the NY borough.
Costco could have “locked up” all the potential warehouse retail in the NY borough had they, at any time during the past 2 decades, built that second location. They failed to do so. A second location was an absolute slam dunk, an easy lay-up, a no-brainer, a barn-door closer. Therefore, it may be inferred, in this very specific circumstance, that brains were lacking. This failure is far from a one-off oversight. The missed opportunities for growth, noted by this author in blogs past, were quite recently exploited by BJ’s in the Carolina states, Virginia, Tennessee, Indiana, Alabama, Michigan, Kentucky, Florida, now, New York City and soon in metro regions of Texas; a pattern exists.
This is not an issue of indecision. The executives atop Costco decided, in almost 40 instances representing tremendous locations, within the past 3 years, in markets where they already maintained warehouses, to NOT build. I know this to be the case as these ideal locations, bustling at the seams, represent the newest warehouses operated by BJ’s. Costco chose to not build out their brand where demand was strong. Costco chose to not build out and capture, on an advertising free basis, practically free market share. They chose to not protect existing territories from external competition. And, about every month, Costco management continues to decide to not build additional warehouses in cities where prospective customers are practically begging, in some cases, petitioning local officials to bring in a warehouse retailer.
These prime locations are being snapped up by BJ’s. Granted, Costco maintains more than 2.4X the total number of US retail warehouses as BJ’s and when added to the other warehouses in other parts of the world, has almost 3.6x more total stores. But Costco has a market cap almost 28X that of BJ’s. Despite this supposedly (to most investor’s eyes) insurmountable lead, Costco opened fewer US warehouses than BJ’s in 2023, opened fewer in 2024, will likely not match the US new opening rate of BJ’s for 2025 and is likely to fall back further in the US new warehouse retail development race for 2026.
On Staten Island, BJ’s has made a very audacious move.
Costco maintains 8 locations in the metro NY/NJ area. This metro basin has a population of roughly 10 million persons. That would indicate the ability to support a total of 50 potential Costco warehouses, yet there are just 8, a ratio of 1 warehouse for every 1.25 million customers.
In California, I recently noted 3 Costco locations defending a market of roughly 100,000 customers, in total.
At what point does a business become so convinced of their invulnerability that they move beyond a policy of indifference, to one of market share negligence?
Costco now has shut itself out of further monopoly growth on Staten Island. Were I a Costco shareholder, and I am not, I would be particularly furious at Costco management for the entirely preventable ceding of monopoly status, in a New York borough, to a competitor.
There may be an anchoring belief within Costco management that a single location represents a moat. Should that represent the head office mindset, an act of putting up one store, a “frontier outpost”, is sufficient, in their view, to prevent any competitive pressures in a city or region, allowing Costco to press ahead elsewhere.
Increasingly, I believe, these single locations represent an an easy identifier for BJ’s, a buoy marking a figurative shoal teeming with bluefin tuna. BJ’s is quickly determining that, with the exception of the state of California, many additional warehouse retail locations can profitably be built wherever a Costco already exists, often within a short drive. Costco considers too many of their locations to represent a flag in the ground; in fact, they are just beacons, for a competitor, signage for unserved and available market share. These warehouses represent relatively far-flung, largely undefended outposts, for BJ’s to exploit.
The inaction by Costco seems reminiscent of a colonial power trying to hold as much territory as possible, busily trying to expand with new colonies overseas, yet wholly unprepared for incursion: “we don’t really care if you set up shop in NYC, our corporate capital is going towards Spain, so we won’t be building more stores to maintain our advantage“.
BJ’s reaction: “thanks so much for identifying the growth opportunity here in the USA. Keep your single outpost, we won’t attack. But, we are going to build 4 stores around that location, leaving it landlocked. Good luck in Madrid, keep it up.” “Hey, since the majority of your new store capital is to be earmarked for overseas builds, have you considered spending a few hundred million on a new division to build a single warehouse in Crete?…..after all, Crete has almost 2x the population of Iceland.”
To a prospective warehouse retail shopper, clustering of warehouses represents a benefit, even when warehouse clusters are at competing warehouse retailers. When one drives by a Costco, sees a parking lot without an available space, a gas bar lined up 30 cars deep, rather than curse at Costco for not building enough stores or trying to time shopping for off-peak hours, why not just continue driving, 5 minutes away, to the newer BJ’s, where the line-up isn’t out the door, where the hours of operation are more convenient, where a parking space is available, where the gas bar is just 4 cars deep and where the grocery shop is cheaper?
With a two pronged location strategy designed to gather their preferred demographic and potentially capture disaffected Costco shoppers, BJ’s starts out as the overflow retailer for existing Costco members, but, after a time, with lower prices, more parking, easier access, cheaper gas, longer hours, more locations within an easy commute, a much greater percentage of floor space devoted to groceries, BJ’s has the potential to become the primary shop. This is why Costco should fear the expansion and encroachment of BJ’s in America.
Costco, in contrast, cannot readily poach BJ’s customers, because, increasingly, Costco cannot effectively service all the customers they have with their US store base, let alone take on new ones. Further, Costco cannot respond with a price war, because of the two business models, Costco carries, by far, the higher fixed cost and, oddly, has historically failed to produce economies of scale. Colonial expansion is very expensive. The United States represents a cash cow to permit international outpost buildouts and a domestic price war could hurt the cow. For these reasons, BJ’s no longer has any fear of Costco.
More than 40 other potentially viable new locations remain available, underserved, in New York boroughs and adjacent New Jersey metro area, for a dynamic warehouse retailer.
If Costco HAS messed up the clustering model, is increasingly reliant upon the maintenance of “outposts” and is distracted by overseas potential, to the point that a measurable number of American customers are becoming disenchanted by the shopping experience, then it should be highly advantageous for BJ’s to build their new locations surprisingly close to existing Costco locations, to not just gather their own customers, but to also capture the spillover traffic from Costco. In warehouse retail, 5 miles of separation is more than close, it is practically adjacent.
BJ’s executive office is far from timid, the format is popular and the demand is there.
When Costco refuses to build a warehouse and serve a population, BJ’s is prepared and capable of swooping in.
You snooze, you lose.
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