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Costco confirms Australian expansion as big-box retail continues to thrive

American retailing giant Costco's Australian subsidiary has recorded a stellar year for subscriptions, with the company planning a suite of new locations across the country.

Local managing director Patrick Noone told SmartCompany while the company isn't necessarily having trouble looking for the large locations which house Costco buildings, the expansion brings with it new challenges.

"We're an item-based business; we're focusing primarily on our items. So we're always looking for new suppliers, always looking for new products. We're just trying to stay ahead of the curve."

The big-box retailing sector has been given a kick-start since Costco entered the local market, with Wesfarmers, Woolworths and Aldi ramping up activity in the wake of its presence.

In an earnings call, Costco said the Asia-Pacific region is becoming a key area of growth for the business. It also confirmed another seven locations are set to open within the Asia-Pacific by the end of its current financial year in September.

Chief financial officer Richard Galanti said memberships around the world were up 1% during the most recent quarter, and that, as reported by Fairfax, "it's mostly reflective of the very strong sign-ups we had internationally, most particularly in Australia and Asia".

The results come after Costco confirmed the Australian business recorded a profit of just under $10 million in 2011-12, at just three locations. A second location is currently being built in Melbourne, with the local division confirming multiple locations are set for capital cities.

Last year, the American parent company gave the business $140 million to fund its expansion and a further $50 million this year.

Since the business launched in 2009, hundreds of thousands of shoppers have opened subscriptions at the Melbourne, Sydney and Canberra stores. The company earns most of its revenue from subscription fees, which allows it to reduce prices for other grocery items.

Speaking with SmartCompany, Noone says the business is always looking for new locations, but says hiring becomes a challenge as the company expands.

"We've got lots of opportunities now, but finding good people is always a challenge as we expand."

The big-box retailing market has made a huge splash in the last few years with the rise of Costco, alongside the expansion of Wesfarmers' and Woolworths' dual hardware strategies. ALDI is also planning more expansion.

The shift has caused a furore within politics, with the Victorian government even reforming legislation based around the bulky goods sector. Costco has previously said it has been a challenge finding good locations.

But Noone says the company's arrival in Australia didn't so much start the big-box revolution as make it more visible.

"There has always been a very well developed bulky goods business here in Australia, I think we just add to that."

Costco's latest location, a second store in the Melbourne suburb of Ringwood, is set to open later this year.

 

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