Costo hit hard by Victoria’s stage 4 restrictions

As a ‘destination’ retailer with only four outlets in Melbourne, Costco has a particular stage four lockdown problem.

Shoppers outside a Costco outlet in Melbourne last week. Picture: AFP

Costco chief executive Patrick Noone expects strict travel limits imposed by the Victorian government as part of stage four restrictions to hit sales over the next six weeks 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”.

However, severe regulations on the distances Melburnians can travel from home have put the Costco sites out of reach for tens of thousands of its members.

It is another example of the winners and losers created by the state government’s stage 4 restrictions within the retail sector, which has created a number of anomalies such as clothing stores being forced to close while liquor outlets continue to trade.

Mr Noone told The Australian he had approached the Victorian government a number of times through a state-based supermarkets taskforce to see if there was any leeway he could gain due to the unique geographic spread of his stores, but had not won any concessions. “We only have four warehouses in Melbourne and we are a destination shop.

“We are not really a ­neighbourhood store and probably at least half, more than half, of our members lay outside the 5km travel zone,’’ Mr Noone said.

Given it sells groceries, fresh food, seafood, meat and dairy as part of its supermarkets offer, Costco is able to remain open under the current stage four restrictions.

However, unlike grocery rivals such as Coles, Woolworths, Aldi and independent supermarkets supplied by Metcash, its stores are not in local neighbourhood shopping strips.

It has eight other stores in Australia outside of Victoria.

Costco has a membership model where customers need to sign up for annual membership cards to shop at the stores.

It has a very limited online ­service that previously only ­delivered produce — mostly to restaurants and other businesses — in the CBD.

Its large warehouse stores are usually situated in industrial parks, far from suburban homes and more than 5km from major population centres and its Costco membership base.

“I have discussed this with the government, and they are holding firm to that 5km radius right now,’’ Mr Noone said.

“There is a supermarket taskforce the Victorian government has and I put it to them a couple of times now but they are still holding firm.”

Costco will attempt to broaden its e-commerce platform to divert more traffic to its online store, but Mr Noone said this would probably be limited.

“We are going to add a few more products on our e-commerce website but we can’t put the entire range of food up there — it is just not practical,’’ Mr Noone said.

Costco has a diverse range of products, ranging from coffins, hearing aids and clothing to ­hardware, consumer electronics, camping equipment and even alcohol.

Last year Costco punched through the $2bn sales barrier in Australia for the first time.

Its most recent financial results for Costco’s Australian operations, lodged with the corporate regulator, revealed annual revenue increased to $2.16bn for the 52 weeks to September 2019, up from $1.82bn for 2018.

From its 12 stores in Australia, Costco’s profit for 2019 was down to $25.5m from $29.5m over the same period.

Under stage 4 restrictions other supermarkets and grocery stores can remain open, although non-food general merchandise chains such as Big W, Target and Kmart must close.

The leading supermarket chains — Woolworths, Coles and Aldi — last week lobbied the state and federal government to ease parts of stage 4 restrictions that would have cut by one third the number of workers allowed at distribution centres and warehouses, to ensure continuity of food supplies.