Costco’s Australian plans not impacted by economic turbulence

Posted by Daniel Palmer on 22nd October 2008

Costco, one of the world’s top ten retailers by sales, remains committed to their expansion plans in Australia in spite of economic concerns.

The company is due to open their first site at Docklands in Melbourne next year and Sydney is slated as the next market for the American giant to enter. They remain coy about their future expansion in the country, but are not too concerned about the softening in consumer demand witnessed in Australia this year.

“We still plan to have one site in Melbourne and one in Sydney, and we’re still going full-speed to achieve that,” Manager of Costco’s Australian operations, Patrick Noone, told Reuters.

Costco, which charges 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. They are America’s largest wholesaler and offer a one-stop shop where everything from groceries to electrical goods and bedding can be purchased. Over half* of their sales are attributed to product categories often displayed in Australian supermarkets, while they will also provide competition for electronic and variety retailers.

Renowned for low prices, they often sell products that their competitors don’t offer and are attractive to businesses due to their discounts on bulk purchases.

It is their low-cost model that Mr Noone believes will shield the company from any downturn in consumer spending. “We have a robust business model. Costco does well in a down market and an up market because we are a discount brand name and people see bargains with us,” Mr Noone told Reuters.

And success of discount grocery retailers like Aldi during the downturn in a number of markets including Australia and the UK suggests that Costco’s confidence is justified as a downturn may instead help them gain a foothold in the areas in which they set-up.

* Sundries (including candy, snack foods, tobacco, alcoholic and nonalcoholic beverages and cleaning and institutional supplies) (23%), Food (including dry and institutionally packaged foods)(19%), and Fresh Food (including meat, bakery, deli and produce) (12%) made up 54% of the retailer’s sales in 2007.