Costco unveils West Australian expansion plans: will it crush the competition?

US retail giant Costco has confirmed it is headed west, opening its first Perth store by 2020.

The company announced on Facebook this weekend that it had secured its first Western Australian site, with the news prompting thousands of comments from excited shoppers.

The West Australian reports the $55 million project in conjunction with Perth Airport will produce up to 475 jobs in retail and construction. Construction is expected to begin in 2019 and the doors are expected to open in 2020. The site will be 14,000 square metres and include an optical centre, hearing aid centre, tyre centre and petrol station.

The Perth site will be Costco’s tenth store in Australia, with confirmed locations in every Australian state apart from the Northern Territory and Tasmania.

In a statement provided to SmartCompany, Costco Australia managing director Patrick Noone said the shopping centre will be based at a prime location.

“Perth Airport is the obvious place for us to invest given its proximity to the CBD, the great transport links, and the way it is growing into a consumer-focused retail hub.”

The news is another indicator that the discount grocery market is expanding not just on the east coast, but across Australia.

Earlier this month, research from UBS suggested that the rapid expansion of discount brands might present their own challenges: analysts highlighted that the impact of Aldi in South and Western Australia was not as significant as could be expected, because when it expanded West there were a number of other grocery options fighting it out for dominance there.

Will Costco have competitors?

Associate Professor Gary Mortimer at the Queensland University of Technology School of Business tells SmartCompany that Costco’s lack of a direct competitor in Australia could be an advantage as it expands to the West Coast.

Currently no other retailer replicates the membership and bulk-buy retail model in Australia, he says.

“Because Costco is a membership model, and the majority of products are in bulk, ideally you’ve got a big family or a small business that wants to buy and then on-sell it. That’s the market they’re extracting,” Mortimer says.

“A reasonable shopper wouldn’t go to Costco to do their grocery shopping that you’d do in an Aldi, but you might go there once a month to stock up.”

In August 2017, SmartCompany reported Costco was looking to set up and Australian online store within 12 to 18 months, as well as establish a distribution centre in Western Sydney by 2019. The retailer made $1.3 billion in sales in December, 2015 from its eight stores at the time, a $445.49 million increase on the previous year.

Mortimer also points out the consumer culture Costco has built up because of its membership loyalty and need to get a return on investment. He says there are neighbourhoods in which multiple houses chip in on a Costco membership to reap the rewards.

“They’ve done well in all of the states they’ve opened up, they have a loyal customer and the loyalty has been cultivated from the membership card. If you’re paying sixty dollars you’re encouraging yourself to get the money back,” Mortimer says.

NOW READ: Costco to open local online store, but is it too late to the game?