Costco Sydney site approved, and local retailers must adapt

Retailers surrounding the future Costco site in Sydney’s western suburbs must adapt to the new competition or face being made redundant, a retail expert has warned.

The comments come after the New South Wales Planning Department gave the $58 million project its approval yesterday, with the company set to begin construction within the next few months and an opening date slotted for mid-2011.

The announcement comes after several tense weeks of negotiations, with several groups, including the Shopping Centre Association of Australia and AMP, criticising the development. Opponents said the land on which Costco intended to build was not meant for a “bulk-goods retailer”, and that giving the company that description would consist of anti-competitive behaviour.

Costco Australia managing director Patrick Noone says the first stages of approval have been confirmed and that the company will now look forward to construction.

“Concept approval has been given. There are a couple more hoops to jump through, but hopefully we’ll be able to start building in the next few months and have an opening date for the middle of next year.”

“We need to have some more project assessments done, that all has to go through and that should take a couple of more weeks. The opponents to the construction have time to put their appeals in, but we are optimistic about the process altogether.”

Premier Kristina Keneally said in a statement the approval will see the area of Auburn become an important “emerging location” for businesses. “The site itself is part of the Auburn Council’s strategic vision to revitalise this area as a large format retail precinct and will help council as it finalises its local environment plan.”

But local retailers aren’t so sure. The Shopping Centre Association of Australia pointed out in its submission that the development could result in “key retail” activities disappearing from the area.

Retail Doctor chief executive Brian Walker, however, says the development will bring solid competition and that retailers within the area of the development shouldn’t view the new warehouse as a threat.

“My view is that as a general premise, competition is healthy. It will actually bring more activity to the area, there will be more patronage to the area, higher visitation and that should benefit all the retailers involved.”

Walker also points out Costco’s unique model compared to other stores. It is categorised as a bulk-goods retailer, and sells massive amounts of everyday products such as tissues and cleaning products for prices up to 10% less than other retailers.

He says surrounding retailers would be more focused on a service-type model, and not a product-focused offer, allowing them to offer types of service a Costco development can’t emulate.

“Yes, it could be problematic that Costco is not a high service model, it is primarily a volume-product-price model. It is not designed in the same way as other retailers.”

“But what does that mean for the business model of competitors, or perceived competitors? I think it means that retailers engaged locally will need to look at Costco and strategically deliver offers based on that. They will need to look at what Costco is doing and adapt accordingly.”

“This is all about adapting. Retailers will need to grow, and I think it’s a fair fight… but the two are very different, and whether it’s Costco or any other multinational retailer, businesses need to adapt and grow.”

Retail expert Phil Bonanno says there will definitely be competitive pressure. However, he warns that despite the new offering in the area, savvy retailers will adapt and be able to take advantage of the growth in foot traffic.

“I think with Costco, there will actually be a benefit in the area now. It is no doubt a big retailer, it’s going to have an impact on traffic patterns and flow, but that is also bringing more people into the area.”

“Also keep in mind Costco is not a one-stop shop. It’s a fairly narrow range there, despite how big it is…and also the idea of Costco is not so much to give you everything, but take items out of your shopping basket. I wouldn’t do all my shopping at Costco and then not go to Woolworths.”

Noone also said the company has plans to move into other cities across the country, but it will be focusing on the Sydney development “for now”. The project will take up over 13,000 square metres of gross floor area, nearly 2,000 square metres of commercial office for the company’s headquarters and will provide 745 car parking spaces.

The development, which is located in Auburn on Parramatta Road, has been granted on the basis Costco will include some changes to its development proposal including an amended car park, and an entirely new intersection with traffic lights to manage car flow.

This would address problems pointed out by opponents in various submissions given to the planning department. Many said the area of the development would make traffic flow in the area even worse.

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