Patrick Noone, managing director of Costco Australia, says finding land for a site in Sydney is arguably harder than anywhere else in the world.
Speaking at ONE80TC’s annual FMCG charity breakfast in Sydney earlier this month, Noone said securing real estate in Sydney is probably worse than France – where Costco has been battling the courts for five years including going through no less than seven appeals in the courts to get planning permission for new stores.
“We’re looking in the north and south Sydney markets, we’d love to be in those areas,” he said.
The world’s second largest retailer has all but secured two sites in the south and west of Brisbane and is “very close to announcing” a site in Newcastle.
“Perth is the big diamond with two million people there, which brings up all kinds of logistics issues. But we have to be in that market,” said Noone.
Costco also has its sights set on smaller demographics containing approximately half a million people across Australia including Tasmania, Darwin, Cairns and Townsville. These are all options for the retailer as they seek out smaller markets in the future.
“When we think of Costco Australia we think of eight buildings, over a billion dollars in sales and great growth…there’s also 40 or 50 Costco’s in Asia that we are now starting to export a lot of merchandise to,” said Noone.
The bulk discount retailer carries ‘only’ 3600 items and is “unafraid to sell anything.” The retail giant’s merchandising strategy revolves around adapting to the local surrounds and learning from what each country does differently to shape their strategy. “Everyone went ‘oh my god, you can’t sell hearing aids in supermarkets – I think at this point in time we sell more hearing aids than most of the world per location and why is that? Because we can offer $5-6 thousand value,” said Noone. “Can we raise the price on those things? Absolutely but we are always going to have the best price that we can offer.”
Noone said Costco can sell a hearing aid for $5000 and make a $4000 profit.
“The comp out there is about $7-8k but we’re Costco so we know that we can make a decent margin on it…we can sell hearing aids for $2000 for a set of two and we do that here in Australia.”
Citing a story involving Noone’s older brother, who was going to fly to Hawaii to buy a hearing aid from a Costco because purchasing the plane ticket and hearing aids would save him $3-4k instead of buying locally, Noone ‘right away saw an opportunity.’ “When you hear that you know there’s a massive business there – our hearing aid business has been off the charts.”
Costco members typically have better incomes, own houses that have 3-4 kids “have lots of cash to shop and drop 200-300 dollars a visit.”
Talking broadly about Costco’s merchandising, Noone said the private label, Kirkland Signature globally outsells all other brands including Coca-Cola, Pepsi and Nestle. “We do toilet paper, bathing suits, polo shirts, ladies workout gear and if you look at the items there they are high quality goods…the comp price is $98 and we sell them for $17 – great savings for our members so we are always looking to get those goods at the very best price.”
When walking into a Costco buying office, potential suppliers should know that the retail giant will “look at the great quality merchandise you have but we’re going to be pricing at the best price in the market – as a membership warehouse club there’s no ifs or buts about that we have to just be the best price all the time.”
Last year’s global sales for Costco hit $113 billion with 708 stores representing the most accurate number of stores given the number changes by 30 every year.
Noone thinks the warehouse format has “legs in every country in the world” and doesn’t see growth for the company stopping anytime soon.
“Australia has eight [warehouses] for 25 million people,” he said. “If you take Toronto to Vancouver, there’s about 22-23 million people in that area and there’s about 60 warehouses.
“We have almost 50 million households around the world who pay to shop at Costco, 85 million cardholders which in a couple of years will be 100 million for sure…our renewal rate in US and Canada after 30 years is 91 per cent – ours [Australia] is a bit less than that as we still grow but that’s our aspirational goal.”
