Costco announces first Australian store

Large-format retailer Costco has confirmed plans to open its first Australian store in Melbourne’s Docklands precinct by mid-2009.

Costco has announced it will occupy a 14,000 square metre warehouse format store in the Waterfront City area of Docklands being developed by ING Real Estate, with construction to commence in September 2008 (artist’s impression of new complex below).

The arrival of Costco will introduce a new style of retailing to Australia, with memberships required to shop in the stores, and a product offering across the grocery and consumer electronic goods segments.

Costco Australia managing director Patrick Noone says the location and accessibility of the Docklands site were key reasons for its selection.

“It is a natural transport hub, with the freeway running right by and tentacles stretching to Melbourne’s suburbs and the Spencer Street station very nearby; so to have those advantages and be very near the Melbourne CBD is fantastic,” Noone says.

Noone says Costco is now looking at Sydney for its next store, although no date has yet been set, with further outlets around the country to follow.

The Australian membership fee is also yet to be confirmed, but Noone says it is likely to be in the vicinity of the $US50 fee charged in the US.

Rob Lake, an analyst with retail strategy and research firm Orex, says the ability of Costco to persuade Australian shoppers unfamiliar with the concept to pay a membership fee will be a key test. “We’re all guessing what the membership fee in Australia will be, but if it is the $50 to $100 we have seen elsewhere it will be interesting to see how Australian consumers will respond,” Lake says.

The membership fee provides a constant revenue stream to Costco, helping to flesh out the razor thin margins it earns on its largely high volume, low cost product strategy.

The arrival of Costco will present a challenge to major companies in the relatively settled Australian retail landscape such as Woolworths, Coles and Harvey Norman, Lake says.

“It is a very basic shopping environment – all the products are displayed on pallets, often in bulk form – so it is a very low cost warehouse style; but Australians love a bargain,” Lake says. “The existing retailers will be watching this, and taking it very seriously.”

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