Costco a new retail force as Australian sales race towards $5bn

Costco, the quirky US retailer that sells everything from diamond rings and coffins to meat trays and sushi platters, emerges as a new force in Australian retail.

Costco is quickly racing to $5bn in annual sales in Australia and more than 1.5 million paid-up members at its warehouse-style supermarket stores, as the chain emerges as a new force in Australian retail with sales that now easily eclipse retail heavyweights Myer, David Jones, Target and Officeworks.

Its sales in 2023 lifted almost 20 per cent – at a time when supermarket majors Woolworths and Coles could only manage sales growth in the region of 5 per cent – with the US-based retailer also slashing its prices in Australia last year to counter fresh competitive challenges from its key supermarket rivals.

Costco Australia and New Zealand’s recently appointed chief executive, Chris Tingman, an American and 28-year veteran of Costco, told The Australian that the retailer known for its quirky array of goods – from coffins and hearing aids to diamond rings, jumbo packets of toilet paper and sushi platters – was helping Australian households stretch their dollars at a time of financial stress.

“We want to be the ‘go-to place’ – when you have money you shop at Costco, when you don’t have money you shop at Costco,” Mr Tingman said in his first interview as the local Costco boss.

“So we are not saying we are recession proof. We just make sure that we are just consistent in the quality aspects, the differentiations in the market where it makes sense … and I’m learning the landscape here pretty quickly and everybody is the competition here.”

The latest accounts for Costco Australia reveal the $US292bn ($430bn) US retail giant made the right decision in 2009 when it opened its maiden Costco in Australia at the Docklands in Melbourne, with it throwing off a trail of double-digit growth and an exploding membership base.

Costco Australia reported total sales of $4.4bn in 2023, up 19.8 per cent from $3.67bn in 2022 which represented a 30 per cent increase on the sales performance in 2021. Costco Australia operates 15 stores locally as well as one in New Zealand and since its opening in 2009 it has raked in cumulative sales of just under $25bn, all of which has been taken from local chains that it competes against such as Woolworths, Coles, Bunnings, JB Hi-Fi, Harvey Norman, Target and Kmart.

Kristin Eather and Maeve Hudson from Caboolture fill up with petrol at Costco in North Lakes, Queensland. Picture: Annette Dew

With its Costco stores only accessible to paid-up members, it also makes money from selling memberships starting at $65 a year. It is believed that each of Costco’s 15 stores across the country have 100,000 members, giving it a total membership base in Australia of 1.5 million.

Costco Australia’s annual sales of $4.4bn are minor in comparison to the nation’s largest retailers like Woolworths ($64.3bn), Bunnings ($18.54bn), the combined Kmart and Target ($10.64bn) and JB Hi-Fi ($9.63bn), but it is now bigger than traditional stalwarts Myer, David Jones and Officeworks, and is close to eclipsing Big W.

Mr Tingman said in 2023 he witnessed increased competitive pressures from some of its main rivals, such as Woolworths, with Costco lowering its shelf prices to maintain its competitive credentials.

“When our competition makes a move, we own it. Let’s make sure the value and the understanding of our value is the most intrinsic part of our business, so it can’t be a second-guess purchase.

“Woolworths has made some adjustments recently. So take frenched cut lamb cutlets. When they (Woolworths) made a move on that I shopped every lamb cutlet that was out there, we did cuttings, looked at the protein content, the fat content, the bone weight. And I was very proud of our team that our quality standards were there but we still had to take a price (cut) to show value because that is the perception of our members.

“So that is where we have to make sure that the differentiation, that value proposition, is never lost and our customers don’t second guess purchases.”

Russell Bennett as the Gold Coast's first Costco. Picture: Glenn Campbell

Mr Tingman said in the current economic environment “everybody is going after everybody” as “dollars are harder to come by”.

He said categories for Costco that had performed strongly recently included food, fresh food, bakery and its petrol offer with some discretionary items – like consumer electronics, clothing and toys – also resilient despite the pressures on household budgets from cost of living pressures.

“We had some good results in that area, and the discretionary spend is the hardest and it doesn’t matter what (income) level, everyone is pinching their pennies and making sure that purchase makes sense for them.”

Costco is currently in the process of shifting its original Docklands store to give it more space while Mr Tingman also sees growth potential for the chain in New Zealand.

Mr Tingman replaced former Costco Australia boss Patrick Noone, who opened the Docklands store in 2009 and led its growth in the region before retiring.

In terms of future store rollouts in Australia, Mr Tingman wouldn’t disclose what Costco believed was the maximum capacity store numbers the local market could support but said the nation’s more densely populated cities were showing the ability to have more Costco stores without cannibalising each other.

“If you look at Sydney, when we put a new warehouse in between two other warehouses that do very well, and are 40 minutes apart, and we add one more in the middle we don’t skip a beat because sometimes our business is so strong and there is an opportunity for us.”

Mr Tingman, who previously had a role in Costco’s international business and has been visiting Australia since its maiden store in 2009, said one of the biggest challenges to further growing the Costco network in Australia was access to land.

“I think real estate is the biggest challenge. I’m learning that it is not easy, and we are constantly out there looking for opportunities … there is no forecast that we can share but you can see our growth path and our growth plans have been pretty consistent.”

Originally published as Costco a new retail force as Australian sales race towards $5bn