At a Glance
Location
Issaquah, WA
Founded
1983
Employees
147,000
Specialty
Efficient construction of retail warehouses
Annual Sales
$88.9 billion
There are a lot of ways Costco Wholesale Corporation distinguishes itself from its competition, and yet the average consumer would probably never know it. For example, consider its advertising. Can’t remember a recent Costco commercial? That’s because it doesn’t have any, yet somehow it became the second largest retailer in the United States and the seventh largest in the world. Quickly and cheaply, word about Costco just gets around.
According to Ali Moayeri, the company’s senior vice president of construction, those differences are just the tip of the iceberg. How Costco designs, builds, maintains, and staffs its almost-identical warehouses (not “stores”) is distinctive, too, and it has a lot to do with the firm’s relatively rapid success. “The biggest costs in running our warehouses are in utilities and maintenance,” Moayeri says. “That’s why we started using an energy-management system for cost control 20 years ago.”
That system, routinely referred to as the EMS, is multifaceted and begins with how Costco’s buildings are designed and what materials are used. For example, the company did away with cinderblock walls, which are used extensively for retail outlets; instead, it uses off-site-manufactured sandwich walls made of heavy-gauge steel on the exterior, lighter-gauge steel on the interior, and polyurethane foam in between. “Cinderblock needs resealing every five years, adding to maintenance costs, and it provides little room for insulation,” Moayeri says. “This wall system holds up well to seismic disturbances and works in all climates.”
One footprint, all countries
The funny thing about the no-frills, great-deals, bag-it-yourself nature of Costco shopping is that it doesn’t feel cheap. Is it the branding, with clean graphics and wide, clutter-free aisles? Or does it start in the parking lots, where rain gardens catch runoff and provide a habitat for trees, indigenous plants, and pollinator species?
The fact is that Costco building practices create a high-quality consistency from country to country. In Canada—where the company has existed for 25 years and where 82 warehouses are spread throughout almost every province—contractors, subcontractors, and building materials can be sourced from across the border in the United States to keep projects in the same hands. The company’s pre-engineered wall systems and American general contractors were also used to build nearly three dozen locations in Mexico, in both urban and suburban locations—including concentrations in tourist areas such as Acapulco, Puerto Vallarta, and Cancun as well as along the US-Mexico border in Tijuana, Mexicali, and Juarez.
The company’s Asian warehouse stores—13 in Japan, seven in South Korea, and eight in Taiwan, with at least eight more being added this year—initially had to adapt to tight space and multilevel units. But newer suburban locations are more in the American style, occupying 16–18 acres of land.
None of these countries currently use solar panels to generate their power. However, because electricity costs in Taiwan might rise by 30 percent in the near future, rooftop photovoltaic arrays are looking more attractive there. And in the meantime, because the sun shines everywhere anyway, energy-saving skylights will continue to provide bright daylighting at all Costco warehouses in the world.
In-warehouse EMS measures include wrap-around air curtains on coolers and freezers and nighttime curtains for meat and deli cases, which are major energy users. Additionally, skylights that cover about six percent of rooftop space are accompanied by light-sensitive, controlled electric-lighting that can vary its energy output in accordance with the amount of sunshine filtering in. “About two-thirds of the 500–550 light fixtures in each location shut off entirely on sunny days,” Moayari says. In recent years, Costco has also been able to scale back use of 400-watt high-intensity discharge lamps in existing warehouses to 350- and 210-watt bulbs.
The EMS ensures efficiency once a warehouse is completed, but Costco also works to make the construction process itself faster and cost- and eco-friendly. “Because the [sandwich-wall] components are manufactured off-site, we can erect the walls of a 148,000-square-foot warehouse with two six-person crews in 2.5 weeks,” Moayari says. “Compare that to using 30- to 40-person crews over a month to six weeks. Plus, there’s no weather impact on the construction schedule.” The method also reduces overall costs by $500,000.
The company saves by building nearly identical buildings across its worldwide system, which currently comprises 600 units (see the sidebar on the righthand page). Additionally, only 16 general contractors, including Robinson Construction of Portland, Oregon, are familiar with the building plan and the construction process, and they work on all warehouses in the US, Mexico, and Canada. Each new location is open to competitive bids from subcontractors (who negotiate with the general contractor), and Costco insists that the general contractor pay its employees and its subcontractors the prevailing local wage. This same approach to fair wages is why the company has one of the lowest turnover rates in retail, which in turn leads to more efficient operations.
The warehouse concept requires ceiling heights of 22–30 feet, which limits the company’s ability to renovate existing structures. Instead, Costco demolishes old buildings or builds on greenfields. But green practices take no backseat when a demolition is required: concrete, wood, and metal are separated; metal is sent to recyclers; and old asphalt and concrete are pulverized for reuse in the building pad and for parking areas.
New warehouses open for business 110 days after the building pad is ready, which is remarkably fast for the industry, and then the recycling mentality carries into day-to-day operations. Instead of plastic bags, store customers use shipping boxes located near cashiers to lug home their purchased items, an initiative that also prevents excessive disposal of cardboard bales. And, grease generated by in-warehouse cooking—chicken, pizza, and hot dogs are sold ready-to-eat on-site—is made purchasable for biofuel recyclers, thus reducing use of fossil fuels down the line. Also, about 60 Costco warehouses in California, Hawaii, and New Jersey collect solar energy on their massive roofs, including the company’s 1.6 million-square-foot distribution center in California. Moayari says only those states make photovoltaic arrays affordable through the tax structure.
Smart construction, maintenance, and utility-management practices might break the retail paradigm in significant ways, but really, because Costco is a for-profit entity, they are all driven by cost-consciousness. It’s a fair lesson to all that sustainability has a lot to do with smart money, and more businesses would do well to follow the retail giant’s example. ABQ
