Costco eyes online market

By: Ruza Zivkusic-Aftasi


With the recent launch of its tenth store in Australia, Costco Wholesale looks to open an online offering

Costco eyes online market
Costco’s Epping store

 

Ten years since entering the Australian market, Costco Wholesale has become one of the country’s leading discount store, having opened its fourth warehouse in Victoria, this time in Epping, north Melbourne, on August 29.

The $55 million facility comes with a fuel station and has taken six years to plan, Costco Australia managing director Patrick Noone says.

The company chose Epping in a bid to capture Melbourne’s northern suburbs market, with stores already open in Moorabbin, Ringwood and Docklands, where the first Australian store opened.

The 13,788 metre warehouse is located at Daveny Road in Epping, some 20km from Melbourne’s central business district (CBD).

Noone says the company was always interested in the north part of Melbourne because of the fast growth corridor.

"It’s a great opportunity for us to be in that market," Noone says.

"There’s a lot of potential for new development and population growth; for us it looked like a nice distance between Docklands, Ringwood and Moorabbin and it seemed to be perfect for our business."

The Epping store is the seventh warehouse in Australia that comes with a fuel station – an offering that Costco members highly appreciate, Noone adds.

"Our members really enjoy the ability to buy fuel with the membership card at a great value; for us it adds to the competitive environment, we can sell another item at a great price to our members."

Whilst he was unable to reveal the number of its members in Australia, Noone says the figure lies in the thousands.

A yearly membership of $60 for households and $55 for businesses is similar to the American prices, he adds.

"It’s part of the company’s offer around the world; it’s roughly equivalent to the US exchange for the US price."

With each store opening, Costco has seen an increase in membership numbers across Australia.

"For the most part we are getting new members each year, for every new development and new outlet we open we pick up even more memberships," Noone, pictured below left, adds.

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ONLINE MARKET

From coffins to bulk toilet paper and diamond rings, Costco is already known for offering Aussie shoppers products in every weird and wonderful category.

Now, the retailer has its eye on the online space to give shoppers wider access to products.

The company will open its own $108 million distribution centre in Sydney next March, opening the door to further expansion, including an online store.

The facility will allow the retailer the ability to establish a "dotcom business", Noone says.

"That facility will have some space for online so we are looking at bringing online part of our business sometime in the next 12 months or so," he says.

"We’ll have an online business very similar to perhaps the United States’ online business and that will be for merchandise of which some of it is in warehouses now and some of it will be new merchandise we’ll put online and delivered to members’ homes.

"It adds another mix of merchandise; it gives the member more opportunities to buy at Costco."


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Meanwhile, another warehouse will be open in Ipswich, 40km from Brisbane’s CBD, on November 29.

"Thrilled" to have the opportunity to better service their members in south-east Queensland, Noone says it’s "full steam ahead at Costco this summer".

Work started on the 13,750 square metre site in November last year, with the petrol station expected to open before the warehouse.

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RAIL OPTIONS

Moving merchandise from Sydney to its stores across the country, Costco is now looking at rail options.

"I think Perth will need a rail component to ship across the country – that will be the one market we’re looking at," Noone says.

"It is relatively straight forward; we’re looking for the most efficient way to move merchandise so that’s always going to be part of our thinking."

With a cross docking facility in Sydney, Costco sends merchandise daily into warehouses across the country.

"It’s a very efficient operation; we don’t tend to hold a lot of merchandise, but we do a lot of cross docking, that way we continue to keep the warehouses in stock," Noone says.

"We use forklifts and pallets to stock, we really don’t handle stock too much, everything is on pallets and we are very efficient at bringing the merchandise onto the floor and selling it on to members.

"By doing that we have low overheads, which means we can have low margins and some terrific value on the merchandise."

Costco sends up to 50 trailer loads of freight from Sydney each day via subcontractors.

"We have some good relationships with a couple of long-term companies right now, working together in partnerships we’re always looking for efficiencies between us and our delivery systems," Noone adds.

Each warehouse is fitted with six Crown forklifts and multi-pallet transporters that move merchandise from trucks onto the floor, and run on an in-house AS400 system.

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PRIVATE LABEL GOODS

Planning to stock more Australian-made private label goods to offer better value to its customers, Costco’s biggest selling single item is in-house Kirkland brand toilet paper, made in Mount Gambier.

"It’s 20 per cent better value than we had on the previous Kirkland item," Noone says.

"We’ve experienced strong growth in Australia over the past decade because we can offer more and more value over time; we bring merchandise [and] great brands to the market place at a great value," Noone says.

Costco had been eyeing Australia for a while before entering the market in 2009. With Noone transferring from the US in 2006, he was scoping out potential business locations.

"There was no magic number in terms of the date; it was just an accumulation of events that took place," Noone says.

"I was able to transfer down here and we were able to get our first site in Melbourne’s Docklands – that was our first approval that we had."

With just under 3,000 employees across Australia, Costco’s progress has been consistent, he adds.

"We’ve been building the business and building our employee base, making sure we have the right people at the right spots and always trying to drive more value into the merchandise we sell.

"By doing that, we can continue to expand our membership base and go into new markets in the country."

 

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