How Costco Australia will change Australian retail

How will Australian customers react?

Of course, none of the analysis means a thing if Costco Australia cannot attract enough customers willing to stump up $60 to shop in its store.

Rob Lake isn't sure Australians are ready to embrace the retail giant. He says the membership fee is one hurdle, but a bigger hurdle could be Australian shopping trends, which have moved away from one big weekly shop and towards a series of smaller visits to the supermarket each week.

He also wonders whether Australians will embrace buying in bulk as readily as Americans, who often have basements in their home which are perfect for storage.

"There are people who like to buy bulk and save. What we don't know is what the extent of that is in the community. How many people want to buy 48 rolls of toilet paper?"

But Patrick Noone is quietly confident. "Are Australians different to the rest of the world?" he asks, pointing out that Costco operates in eight very different countries (including Japan, Mexico, Britain and Taiwan) with eight very different cultures.

He says the key to luring customers will be to demonstrate the $55 or $66 they pay in membership fees will be quickly returned to them through savings. Costco's stats say that shouldn't be hard.

"Around the world, 88% of the members renew because they get that membership fee repaid," Noone says.

Logically, the downturn should help Costco as shoppers look for cheaper alternatives, although few retailers would relish the prospect of launching in a recession. Noone believes he and his team can grow the business in any environment.

"Certainly I wish everyone had more money walking in the door, but there seems to be possibilities for us to show greater value."

Phil Bonanno says the first customers will find the Costco experience "very American" at first, but believes customers will get used the model. He expects business customers could be the early adopters, and predicts they could account for 60% of sales in the first year. 

"I think on balance it will great for consumers and I think it will be great for the market place."

Kevin Moore expects Australians to be drawn in by Costco's love of theatre, such as in-store demonstrations and short, sharp sales where goods are offered at big discounts. ‘They understand that it's all about shopper experience," he says.

He also expects Costco's strong private-label brand Kirkland will be a hit. "The private label space just keeps growing worldwide and there's no let up in it."

The future

How big an impact Costco has on the Australian retail sector probably depends on how quickly it can expand. The short-term plan is for a store in Melbourne and Sydney, although Bonanno expects the retail giant may eventually aim for around 30 stores.

The big hurdle will be acquiring sites that are well located and big enough for Costco's warehouse-style store (with appropriate car parking), which will not be easy; already Noone has reported problems finding a site in Sydney.

"The rules that define the game in Australia are retail zoning," says Moore. "Everybody who has come into this market has struggled to get sites," and he points to the experience of German supermarket giant Aldi.

"They are so far behind where they wanted to be because they just can't get sites."

One solution could be to use multi-storey sites in inner suburbs and the warehouse model in outer areas.

"They will adapt," Moore says. "They are very good at doing whatever it takes to put a great shopper experience in front of people."

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• First Costco Australia site identified

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written by Man Lan, May 08, 2009

I have been shopping at Costco for 10 years now and my fuel purchase savings alone make up for my entire membership cost within 4 months. Imagine my savings for all other purchases.

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written by Peter Graham, June 14, 2009

I can't wait for Costco to open up its doors and crush the monopoly that Coles and Woolworths have on the Australian consumer.

This article is a great read.. thank you for posting such an extensive write up. If you like Costco join my facebook group ..

http://www.facebook.com/group.php?gid=5612794418

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written by Henk Wolthuizen, July 26, 2009

I have Just read you article on costco and as a shopper my wife and I bought our membership back in April. we are looking to the opening and the chance to save some money. My wife and I have always tried to buy in bulk to save money so this will be a good opertunity to continue to do the same

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written by Buckscoop., August 19, 2009

Prices are not easy to find as they don't publish catalogues or advertise.

Price list at http://www.buckscoop.com.au/fo...rison.html

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written by smartshopper, May 23, 2011

A follow up article on this would be nice as Costco has been in the market for a little while now. Can consumers really save the money that is suggested in the media hype? I know a number of people that continue to overspend at this store which is nice for the retailer but not really that great for the hip pocket. Prices are not overpriced but simply the need to buy bulk means that you tend to overspend. Bigger trolleys make you feel that you haven't purchased much, slow checkout aisles, membership costs and user pays parking surely warrants another look. Buying in bulk isn't always the solution but buying smarter is.