Costco confident ahead of launch

Posted by Daniel Palmer on 8th July 2009

Costco’s arrival on the Australian retail arena is edging ever closer and their Australian boss remains steadfast in the belief that their offering will appeal to Australian consumers.

Making their mark

The world’s ninth largest retailer is destined to make an impact based on their previous expansions beyond their home base in America, but what works overseas doesn’t always work here in Australia. Starbucks is now all too aware of that.

Costco offers a much wider range of goods than supermarkets, including electronic and bedding goods, and sells goods in bulk – something not seen in Australia outside business-only stores. Their diverse assortment of goods ensures they provide competition to everyone from Coles and Woolworths to Campbells Cash & Carry and Harvey Norman.

Their profit is largely derived from an annual membership fee ($60 in Australia for individuals) – again, something Australian consumers are not accustomed to, making their progress an interesting case study.

The warehouse operator will be buoyed, however, by the success of Aldi – which has a similar no-frills approach to presentation – and also excited that they can enter the market at a time when consumer confidence is rising but job losses ensure many shoppers are intent on looking at new options for value.

Patrick Noone, Costco Australia’s Managing Director, has already reported that membership sales have exceeded forecasts – a positive sign as they head toward next month’s grand opening in Melbourne’s Docklands precinct. The company is still hunting for their first Sydney site, and maintains that, despite planning difficulties, their business is well suited to the Australian marketplace.

“Australia has a great diversity of lifestyles and a relatively affluent population, which presents a lot of opportunity,” he told Property Australia. “Plus, offering value for money is cross-cultural.”

Slow expansion

How much competition they provide to the market leaders in the supermarket sector remains to be seen – especially given their expansion will be constrained by the amount of land they need to set up each store. Analysts suspect they will have no more than five stores by 2014, although the ACCC is hopeful they will add competitive pressure to the Australian heavyweights.

“We’re starting to see some more entry there, particularly with Aldi. Now Costco is coming into Melbourne and then into Sydney,” ACCC Chairman Graeme Samuel said in a recent interview. “There’s a range of different competitive tensions that are taking place.”

The potential for success has been boosted by comments made from the competition watchdog and governments, extensive media coverage and word-of-mouth from previous visitors to America. As such, there are plenty of reasons to believe they will succeed, after all, as Mr Noone notes, they have “come a long way to prove that it will work.”