Costco’s online store should have JB Hi-Fi and Harvey Norman worried


Wholesale powerhouse Costco has expanded its Australian footprint to the web, last week entering the online marketplace and creating ripples in the retail landscape.

Although its bricks-and-mortar store attracts a certain kind of shopper, the membership-based outlet’s digital store will rock the sales of key market players, namely JB Hi-Fi and Harvey Norman, retail experts have told The New Daily.

It’s an important move for the US-based giant and came in the same week it opened its 12th store in Perth.

Retail marketing expert Gary Mortimer said Costco had executed its entrance into Australia in a very calculated manner — spearheaded by a slow rollout of physical stores that was supported by the establishment of a large distribution centre in Sydney last year.

“That’s facilitated them moving online,” Queensland University of Technology Associate Professor Gary Mortimer said.

“They’ve taken a very strategic approach to everything and penetrated the Australian market.”

Its online presence will only benefit and recruit more Costco customers, who will no longer have to trek to satellite suburbs to shop, removing a physical barrier, Professor Mortimer said.

But it’s not so-good-news for retailers who have been enjoying a reasonably uninterrupted share of the online dollars.

Electrical goods are where Costco’s sharp price point is going to sting JB Hi-Fi and Harvey Norman, Professor Mortimer said.

Thanks to strong relationships with suppliers, Costco is able to offload electrical goods for up to hundreds of dollars less than a recommended retail price.

Deakin University marketing lecturer Michael Callaghan said he’d done his academic research perusing Costco’s online offerings, and found the biggest bargains to be in the tech department.

Dr Callaghan specifically singled out a BENQ 4K overhead projector that Costco is slinging for $3665 — well below JB Hi-Fi’s $3995.

“There are a few items (like TVs) that Costco is pricing far cheaper than other retailers,” Dr Callaghan told The New Daily.

“That will have people like Gerry Harvey crying about grey importing.”

But what about shoppers?

Costco Australia works on a membership model — individuals sign up and pay $60 to be able to shop at Costco.

While Mortimer said Australians were still struggling with the concept of having the pay for the “privilege” of shopping, it still meant they were getting products at a better price.

Australians with a current membership will automatically be rolled onto the online platform — yep, you’ll still need a membership to shop online.

Costco regulars will immediately notice things online aren’t as cheap as they are in stores, and Callaghan thinks this might be a sticking point for shoppers.

“They’ve had to say, ‘our online prices will be slightly higher than in-store’,” Dr Callaghan said, because of the costs associated with operating an online outfit.

One thing that Costco is known for is its insanely cheap household products — think toilet paper, laundry liquid. So far, they’re noticeably missing from the online shop.

Why? Costco just can’t compete with the other gladiator in the Colosseum: Amazon.

Amazon Australia, from the get-go, set itself up as a purely online business so it has been on the front foot in terms of operating with the lowest possible margins, Dr Callaghan explained.

So despite Costco’s sharp price points on tech, fashion and more, Mortimer said consumers will still be left doing the math on whether a $60 membership fee — plus delivery fees — means shopping online with Costco is financially worth it for them.

By the numbers

When the first Costco stores opened, they were the most profitable in the shopping giant’s empire.

From September 2017 to 2018, its Australian revenue grew 14.8% to $1.8 billion.

Costco didn’t respond to The New Daily’s request for membership numbers, among other information, but we know that as of January 2017, there were more than 150,000 Aussies signed up.

Neither expert The New Daily spoke to knew the up-to-date membership numbers — and didn’t expect Costco would let it leak any time soon.

But Callaghan said he highly suspected the sign-up rate would have plateaued since the initial bang.

As for the future, Callaghan expects Costco will look to synergising its physical stores with its new-found delivery abilities.

Expect to see the company jump on bulky items — furniture, outdoor goods and white goods — with a showroom-style display in-store so customers can get a hands-on feel for what they’re buying, purchase it in-store via a kiosk or online later at home, and have it delivered to their door.

Costco’s online store is up and running now.

This article was first published by The New Daily.

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