Issue of the Week

WHY COSTCO CAN'T WORK

by John Fisher

Moving into Manhattan twenty years ago, some of my first questions were: Who repealed the law of supply and demand? Why was everything so damn expensive east of the Hudson. And why weren't there any discount stores?

But over time as a Manhattan resident, you weigh the costs and benefits of urban living and consider the tradeoffs. So when I first heard about the plan to put a Costco on Tenth Avenue, I had to do some hard thinking.

The prospect of lower prices in a neighborhood being gouged by Food Emporiums was, and is attractive. The initial reaction to the proposed Costco by area residents was positive.

But the issues being raised are not about affordable food or the need for additional(and competitive) neighborhood supermarkets. We need both. To clarify what was really at stake, we went to Queens to find out exactly what a Costco is.

FIELD TRIP TO COSTCO

We took the N train to Astoria, walked several blocks and came upon The Costco Behemoth: acres of jammed parking lots, cars clogging Vernon Boulevard waiting to get in. Thank God we were on foot, or we would still be waiting. (See our trip to Costco at http://hellskitchen.net)

Costco is a huge warehouse that you must pay $35 for the privilege of purchasing a even pack of gum, except that they don't stock small items. It's bulk shopping. We saw lines of people stocking up with shrink-wrapped 48-roll packages of toilet paper and the like.

But how would I get this huge package home and where would I put it in my tiny Manhattan cubicle? I was walking! I didn't have a car and it was too large to put in a shopping cart even if I had brought it along. Our trip was cut short by Costco security guards who attempted to seize our cameras and followed us all the way back to the subway.

Further research showed that a warehouse-sized Costco in Hell's Kitchen would be a disaster for many reasons.

The most obvious problem is the potential increase of up to 3,200 additional car trips per day just going to Costco, as if our neighborhood streets aren't clogged enough. This would be in addition to traffic caused by the City's trucking of solid waste through the Lincoln Tunnel, and in addition to the proposed Fedex/Airborne terminal at 48th and Eleventh. Most customers would come from outside the neighborhood especially worrisome since Costco was planning to set up shop without any parking at all!

Though no one is against lower prices, one needs to weigh costs against benefits. We discovered that Costco only stocks about 4,500 items (SKU's) compared to a normal supermarket that carries about 50,000 items. Costco is a non-union shop. They charge a membership fee of $35. They do not accept Food Stamps or Electronic Benefit Transfer (EBT) cards. And they actually profile customers!

According to an article in Forbes and Costco's own filing with the Securities and Exchange Commission, if you aren't the right sort of person, you may not get the required membership. So someone with a healthy credit rating and good income might make the pick, but others, especially in this low-income neighborhood, might be denied for their financial situation.

REALITY BITES

Costco reportedly claimed that most of their customers would be walk-ins from the neighborhood every 3-4 days, purchasing on average 3-4 items. According to Costco, their Astoria, Queens store average customer comes by automobile every ten days spending an average $120 per visit.

Real Estate Weekly recently reported (Dec. 1, 1999) that superstores often have profit expectations of $1,000 per square foot (per year). At 70,000 square feet, Costco might expect gross revenue of $70 million/year or $1.3 million/week. How many cars or neighborhood walk-in shoppers would be needed to meet that number? Of course, numbers can be crunched any number of ways, but here's something to chew on: If all patrons are walk-ins with an average purchase of $20, about 65,000 people per week would tromp over to Hell's Kitchen Costco. Has anyone bothered to tell Costco that there aren't that many people in all of Clinton/Hell's Kitchen? Who benefits and who suffers the burden?

But, according to a local traffic engineer, if 70% of customers came by car, then automobile traffic would add 3,200 additional car trips per day. Costco is not planning on providing parking, because that would trigger the Uniform Land Use Review Procedure (ULURP).

It would likely be a mess whether the customers are drivers or walkers. If customers come by car from areas outside of the neighborhood, then there will be extreme gridlock. If they are primarily neighborhood walk-ins, how would that impact area merchants?

In addition to traffic, the biggest problems are:

Impact on small business. With the Times Square Real Estate pressure (cost per square foot in Times Square is commanding around $250/SF.), rents are doubling and tripling on 8th and 9th Avenues. That's why the Camelot Restaurant (at 45th Street and 8th Avenue) was replaced by the Chicken Ranch 1. Stores that are still hanging on, or whose leases have not yet expired (or who do not own their buildings) could get a nail in the coffin from Costco. That might mean better prices, but it's not good for the fabric of the neighborhood. If Costco's customers are neighborhood walk-ins, then that will hurt our small business. If not, then it's a traffic nightmare.

The New York Times (Nov. 13, 1999) reported that a Bravo market on 126th Street and Fifth Avenue closed after an uptown Pathmark opened. Another store (Park Avenue Supermarket) said sales were down to $5,000 a week from $18,000, forcing it to dismiss four of the six employees. Barbara Askins, the president of the 125th Street Business Improvement District, estimated that about a half-dozen stores would go out of business this year.

Crains (Nov. 15, 1999) echoed the impact of the Pathmark on small business and added that two-thirds of the Pathmark jobs are part-time, some paying less than $100 a week. Employees say they can't get full-time jobs at Pathmark, but instead earn $6 an hour for 20 hours of work.

Avoidance of community review. Unlike the 8th Avenue zoning, Costco is claiming their store will be "as-of-right." But no one will know until they present a plan to the Department of Buildings how they plan to straddle two zoning districts (one of which does not allow supermarkets). Will they put 40,000 square feet underground (as expected) to avoid ULURP for exceeding the allowable Floor-to-Area-Ratio (FAR)? Will they put in sufficient pilings for a two-stage development -- Costco first without ULURP, then parking and a luxury residential tower later? Where will Costco shoppers park their cars? Only DOB plans will shed light on what they are up to. Costco has been asked for this information (by the elected officials, by the Community Board and by Clinton Special District Coalition) and they are not providing it. Whatever one thinks about Costco, their plan should go through a community review process.

Clean Air. It's not a stretch. How many trucks, deliveries (and at what time of the day) and garbage trucks will it take to keep Costco fully stocked and operating? The NY State Department of Environmental Conservation has designated 57th and 10th as a "non-attainment" area hot-spot -- meaning it doesn't meet federal EPA standards. The state claims to have remediation plans, but Costco might not be within those guidelines.

SUPERSTORE POLITICS

Area politicians met with Costco representatives on December 17th, and Costco promised to come back by January 15th with information on what they see as the traffic impact of their proposed superstore on 10th Avenue and 55th Street.

Most area elected officials (Gottfried, Duane, Quinn and Stringer) understand that although this neighborhood would benefit from increased grocery competition, the reality of a Costco on Tenth Avenue is simply too much of a price to pay.

Councilmember Ronnie Eldridge has disappointed many with her support for Costco. She says she believes the store will bring affordable food and drugs to the neighborhood. She likens the 70,000 square foot Costco to the smaller [sic] Pathmark uptown, indicating her feeling that the Pathmark's impact was not too terrible. But by not taking food stamps or EBT cards, Costco locks out those who need affordable food the most! And the comparison with Pathmark isn't fair; as a full-service supermarket, Pathmark carries many more items than Costco does.

Somewhat of a mystery is the position of recently-elected State Senator Eric Schneiderman. We hear that he might be against the project "as it was proposed," but no one in the neighborhood has even seen Senator Schneiderman in many moons, so it is difficult to confirm this.

WHAT'S NEXT?

Now Costco claims to be re-evaluating its plans. That could mean the company hasn't done its homework, or that the existing traffic numbers are greater than it initially thought, or that it's just jerking the community around.

Late word is that Costco is planning to put a residential tower above the proposed megastore. This raises zoning issues as the site straddles commercial and manufacturing districts. Here's the dual project scenario: First, get the store in the ground (40,000 feet will be underground in order to escape ULURP), put in strong pilings, and later put up a tower and/or parking, both of which could trigger ULURP.

There's no question that Costco will benefit some, but can or should this neighborhood pay the price in order to get those benefits? If Costco were to come into the neighborhood with a reasonably-sized market that would not present these severe impacts, they would be more than welcome, but at 70,000 square feet (five to seven times the size of Food Emporium), the impact is too costly.

John Fisher is a member of Manhattan Community Board 4 and President of the Clinton Special District Coalition. Additional information is available on Hell's Kitchen Online.