Diamonds are Costco’s best friend as sales in Australia race to $3bn

Once shunned by sceptical shoppers, Costco Australia is now doing a roaring trade in diamonds and gold necklaces as locals embrace the retailer.

A growing number of Australians are buying jewellery from Costco. Picture: AAP

Costco, the quirky US supermarket known for selling everything from coffins to sushi platters, is beginning to win over Australian shoppers to its jewellery range with diamond earrings priced at as much as $15,000 and gold necklaces selling strongly at its warehouse stores through the pandemic this year.

Consumer electronics, clothing, fridges, televisions, washing machines and other bulky items have also boomed for Costco’s 13 stores in Australia, bolstered by a burgeoning online platform, that is quickly propelling Costco Australia to annual sales of almost $3bn and a growing slice of the Australian supermarket sector.

Despite it suffering a sales hit from travel limits put in place in Victoria and New South Wales to deal with Covid-19 outbreaks over 2021 – which hurt Costco as an overwhelming majority of Costco shoppers live more than 5km from a Costco warehouse and were unable to visit a store – the retailer has posted another record full-year revenue and profit result.

Latest results lodged with the corporate regulator reveal that for the 52 weeks to the end of August 2021 revenue for Costco jumped to $2.824bn from $2.59bn in 2020. A fast-growing online store and the opening of its 13th store during the year helped Costco Australia to more than double its profits as net profit hit $46.39m in 2021 from $22.217m in 2020.

Costco Australia managing director Patrick Noone said Costco had performed strongly before and after the worst of the Covid-19 travel and movement restrictions, while the jewellery category was starting to capture higher sales as sceptical Australian consumers, once circumspect about buying an engagement ring at Costco, are now embracing the idea.

“Jewellery has done exceptionally well for us this year, I think people are at home and getting married, having babies and a lot of diamonds have been selling,” Mr Noone said.

“Diamonds did well, we sell gold, and that surprised us a bit as well in terms of selling well, I think it is mainly we are getting traction with the quality of the goods, we are seeing $10,000 diamond rings being sold for weddings, $15,000 earrings and things like that and when people compare the quality out there in the market place and the savings it has proven popular.”

Costco Australia managing director Patrick Noone.

Once shunned by couples who had preferred to pick an engagement ring or anniversary present from an established jeweller, Costco’s pick of diamonds, necklaces, rings and gold is now emerging as a challenger to traditional jewellery stores. With its mix of other categories typical of a general merchandise store, Costco is also now a threat to established players such as Woolworths, Coles and the range of discount department stores like Big W, Target and Kmart.

A retail oddity with its membership model, bulky goods and eclectic mix of products from fresh food and groceries, clothing, hardware, toys as well as coffins, hearing aids, petrol and car tyres, Costco has now become a serious player in the $100bn Australian grocery sector.

Since opening its maiden store in Melbourne in 2009 it has rung up cumulative sales of almost $16bn, its sales have risen almost fivefold since 2013 and while its membership numbers are kept highly confidential it is believed it has well over 150,000 members who pay an annual fee for the right to shop at its stores.

Mr Noone said it is now setting its sights on growth in Queensland where the US-based company sees huge potential for that economy with plans to open up its first Costco site on the Gold Coast in 2022 to complement two existing stores in Brisbane.

“Queensland absolutely is a growth area for us and we need to be in that Gold Coast market, we will have three up there once we build Gold Coast.”

Costco also wants to open a second Perth store next year and its first store in New Zealand which will be in Auckland.

The warehouse-format supermarket is also increasingly dipping its toe into online and this has delivered strong returns for the last few years.

“Online is growing very nicely for us and we are seeing that grow year over year, and that is mainly non-foods such as refrigerators, TVs and kitchen goods things like that being bought online, it is pretty small still and only our second year but it is growing.”

Its business was bruised by lockdowns, especially in Victoria. With only four Costco stores in Melbourne, including one in the CBD and another operating from an industrial park at Moorabbin Airport, the US retailer is a “destination shop” and has built its strategy on members travelling long distances to shop at the store.

This wasn’t always possible this year with restrictions on movement.

“During those 5km lockdowns it was a tough year for us, but before and after it was very strong,” Mr Noone said. “Most of our membership resides between 5 and 30 km away from a store.”