Costco sets its sights on failed Masters warehouses

COSTCO has big expansion plans, threatening to disrupt Australians’ shopping habits. Its latest plan involves Woolies’ failed Masters stores.

Will Costco start to take over failed Masters sites? Picture: Chris Eastman

FAILED Masters Home Improvement sites are once again being looked at by big box stores as hot property.

Discount bulk supermarket Costco is the newest contender with its eye on the abandoned ghost stores, which closed down earlier this year due to Woolworths’ failed multibillion-dollar experiment.

New reports show Costco is turning a solid profit in Australia, and expanding would be a smart move, according to retail analyst and managing director of Marketing Focus, Barry Urquhart.

“There’s no question about it, Costco has been warmly accepted in Australia,” he told news.com.au.

There are currently about eight Costco supermarket stores across Australia, with three more expected to open this year.

But could the American discount retailer start to take over?

Masters couldn’t compete in the big box market but Costco could be what Australians are looking for.

Will Costco move in to abandoned Masters sites? Picture: Brendan Radke

Mr Urquhart said Australia is an attractive market place and Costco should want to grow it.

He said Costco needed to re-evaluate its locations in Australia however, and said consumers were very different from those in America.

“Costcos in America are primarily sited on major arterial roads and high-volume freeways,” he said.

“Americans are happy to drive to shop and what they would be looking for is easy access on main arterial roads.

“People will drive to Costco because it’s not a store you go to every week, it might be that you visit it to bulk buy once a month.”

Mr Urquhart said the Australian government has given a good indication of what would be a successful template for Costco, which is different to America’s.

“Australians don’t travel as far to do their shopping, therefore the word and concept ‘local’ is very important,” he said.

“The Prime Minister has said we need more 30-minute cities and 30-minute suburbs. You’re not going to travel more than 30 minutes to go to work or to go shopping.

“What Costco is going to need to do is recognise they will need to probably have five or six outlets in most of the mainland capital cities.”

Costco could expand in Australia. Picture: Chris Eastman

Mr Urquhart said Australian consumers also still preferred shopping centres and said Costco would need to consider that when looking for new store sites.

“Costco isn’t going to fit into a shopping centre so it needs to be in relative proximity to major retail outlets,” he said.

Purchasing the abandoned Masters stores would be a logical plan, according to Mr Urquhart, as they were built for shopping in bulk.

He also believes purchasing the former hardware sites would not be a risky move for the discount supermarket.

“Simply, Masters wasn’t around long enough to establish an image or position in consumers’ minds. Masters was not successful, all the stores had annual sales that never exceeded the annual profit of Bunnings, so there’ll be a lot of ‘virgin’ consumers walking into these stores that used to be Masters.”

Mr Urquhart said Costco had a place in Australia because people were more savvy when it came to bulk shopping and were looking for value.

“Two decades ago value shoppers driven by price was about 16 per cent in Australia,” he said.

“Now, about 68 per cent of Australians are value shoppers and price is important.”

Retail analyst and managing director of Marketing Focus Barry Urquhart says it would be a smart move for Costco to take over Masters sites. Picture: LinkedIn

But Mr Urquhart warns Costco has a long way to go before it can fully reach its potential in Australia and he believes the biggest challenge over the next 18 months would be getting people to the door.

“They need a massive launch and education program, a lot of people aren’t aware of the Costco model and what it means to be part of their club and membership,” he said.

“They’ve got far greater potential than sales show at the moment and a lot of people don’t understand what they’re really about.”

Costco won’t reveal exactly what its plans are with Masters stores and Costco Australia managing director Patrick Noone told Fairfax Media it would grow the business organically.

“We’re hoping to open one [store] in Marsden Park in Sydney next year, in July. And [the northern Melbourne suburb] Epping is probably going to be 2018, I think. That’s the horizon right now. There are a number of other opportunities around the country but those are the two that we have in the works,” he said.

Mr Noone hinted at Masters stores being part of the plan but said nothing was confirmed.

“We’re always interested in new sites but right now it’s pretty confusing so I don’t know how it’s going to work out,” he said.

Fairfax Media revealed Costco Australia made a revenue of more than $1.32 billion this year.