Costco going for lucky 13?

Posted by Daniel Palmer on 13th June 2008

Costco’s imminent arrival to Australia is set to shake-up the retail sector but just how quickly will they expand?

Costco is anticipated to open their first store in Australia in the Docklands precinct sometime in 2009. The first store is reportedly awaiting approval from the Department of Planning and Community Development but development could begin later in the year.

There had been intense speculation about the entry of Costco into the Australian market before the official announcement in May this year but the company has remained coy about expansion plans. However, they have told shareholders that they are planning to open 13 stores in countries which they do not currently operate in over the course of the next decade. They do not elaborate on the countries they have identified for expansion but rumours have been mainly limited to Australia, perhaps indicating that many of the 13 will be here.

Costco, who charge customers an annual membership fee to shop at the store, is the fourth largest retailer in the US with a market capitalisation of about $30b and they currently operate in North America, Asia and the UK with 538 warehouses spread across eight countries. They are America’s largest wholesaler and offer a one-stop shop where everything from electrical goods to bedding to groceries can be purchased. They are renowned for low prices and selling products that their competitors don’t offer.

Their revenue primarily comes from membership fees, which are expected to be about $50 here in Australia, and they offer generous discounts for bulk purchases – meaning that they also have great appeal to business.

The extent of the Costco expansion in Australia is likely to be limited by the lack of suitable development sites but, with strong cash reserves and a proven formula for success, expect them to become a noticeable presence in the Australian retail landscape in the decades ahead.