The new Goliath - why there is room for Costco

Published on Tue, 31/05/2011, 03:45:28

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By Claire Reilly, Current.com.au

In a market ruled by supermarket giants like Coles, Woolworths and Aldi, the arrival of a new mega-retailer is not exactly a David and Goliath story. It’s more of an epic battle of the Titans.

So with the arrival of Costco on Australian shores in 2009 and the scheduled roll-out of more stores in July of this year, Current.com.au asks whether we really have room for another giant.

Costco certainly has a large footprint – its website shows images of cavernous warehouses and seemingly endless floorspace, packed with enough shelves of bulk stock to give Raiders of the Lost Ark a run for its money.

But it’s not just the physical space that has retailers thinking. The question remains whether there is enough space in the retail market for a new player like Costco.

In a report released yesterday by Macquarie Equities Research, analyst Rob Blythe argues that Costco will be welcomed by consumers because of one key thing – it offers a new shopping experience for consumers.

“While Australia has an abundance of retail space, it is an abundance of similar retail space,” said Blythe. “Costco offers Australians something different– a vastly different business model, shopping environment and format that is different from any other retailer in the market.”

Costco works on a members-only model that requires customers to purchase a yearly membership ($60 for individuals and $55 for businesses) to gain access to the store. Once inside, they are greeted with a vast array of products (on average up to 4000 different SKUs per store) that are sold in bulk for prices “below manufacturers’ suggested retail prices,” according to Blythe.

Furthermore, customers can buy everything from fresh produce to whitegoods, appliances, tyres and even hearing aids in the one store. But it is expected that up to 60% of sales in the Australian stores will be food sales.

The first Australian Costco store was opened in Melbourne’s Docklands in August 2009. Further stores are scheduled to open in Auburn, NSW and Canberra in July.

The ACT site, located near the Canberra International Airport, may be a risk for the retail giant considering the recent failure of the Brand Depot megamall nearby. The Canberra Times reported that only 12 stores were operating on the expansive Brand Depot site as of mid-May.

However, Blythe expects that Costco will be popular with consumers, even in smaller cities like Adelaide and Canberra. “Despite small populations, cities like Adelaide and Canberra are attractive for Costco as they are characterised by too much of the same retail,” said Blythe.

“Costco, with its membership model and warehouse format, has the potential to be successful given it offers a different and unique experience to the customer.”

This article first appeared on Current.com.au


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