Australia’s love for Costco sends its sales to $2.6bn

Australians have enthusiastically embraced US warehouse retailer Costco to deliver it record sales of $2.59 billion in 2020.

CEO Patrick Noone at the Costco in Moorabbin. Picture: The Australian

Australians have enthusiastically embraced US warehouse retailer Costco, the chain that sells everything from coffins to giant jars of pretzels, to deliver it record sales of $2.59 billion in 2020 as it continues to siphon off sales from the leading local supermarkets and discount department stores.

Once viewed as an oddity and with many believing its membership-style warehouse format would never work in Australia, Costco has now established itself as a major retailing force in the market with its sales rocketing more than fourfold since 2013.

Latest documents lodged with the Australian Securities and Investments Commission reveal the growing market power of Costco which sells thousands of products across traditional supermarket and grocery categories, general merchandise, consumer electronics, hardware as well as an eclectic range of goods such as coffins, hearing aids and wedding rings.

According to Costco Wholesale Australia’s latest financial results its sales for the 52 weeks to August 2020 hit $2.59 billion, up from $2.16bn for 2019.

It posted a gross profit of $309.24m for 2020, up from $264.4m.

A hugely popular retailer in the US, it was never a sure bet that the chain known for its ‘buying in bulk’ retail philosophy would work in Australia but after opening its maiden store in Melbourne in 2009 the US interloper has struck a chord with Australian shoppers. Since that first store in Melbourne’s Docklands Costco has rung up cumulative sales of almost $13bn.

Now operating from 12 warehouse stores in Australia and looking to open more, Costco has built itself up as a major threat to established players such as Woolworths, Coles and the range of discount department stores such as Big W, Target and Kmart.

In 2013 Costco only pulled in sales of $612 million but by 2019 it punched through the $2bn level and is now in its way to annual sales of $3bn.

Unlike normal stores where anyone can walk in and buy, Costco charges shoppers an annual membership fee and sells groceries and general merchandise in bulk, including such diverse categories such as groceries, seafood, wine, petrol, hearing aids, wedding rings, tyres, coffins, clothing and toys. In recent years Costco has also branched out into online shopping, launching a pilot program for online deliveries for businesses based near the Melbourne CBD.

And Australians have fallen in love with the unique shopping experience. Costco’s sales leapt 18 per cent in 2019 and 14 per cent in 2018. Its sales in Australia have risen fourfold from 2013 and are up more than 30 per cent since 2017.

The latest ASIC accounts show Costco’s profit in Australia was $22.2m, down from $25.55m in 2019, with the weakened earnings driven by the change in accounting treatment to certain assets and liabilities on its books.

The COVID-19 pandemic and restrictions on movement did however have an impact on the business, especially for its four warehouse stores in Victoria. In August Costco chief executive Patrick Noone said he expected strict travel limits imposed by the Victorian government as part of stage four restrictions to hit sales as more than half his customers in Melbourne live further than 5km from his warehouse-style stores.

With only four Costco stores in Melbourne, including one in the CBD and another nestled among industrial parks at Moorabbin Airport, the US retailer is seen as a “destination shop” and lives on its shoppers travelling long distances to shop at the store. However, severe regulations on the distances Melburnians could travel from home put the Costco sites out of reach for tens of thousands of its members.