Costco reported to be eyeing New Zealand

US discount giant Costco Wholesale Corp is eyeing setting up in New Zealand, according to a report in The Independent today.

Three top executives from the multi-billion-dollar US discount retailer visited Auckland last weekend using a helicopter to investigate potential commercial sites in Auckland, the business weekly reported.

They had also been viewing potential sites in Sydney and Melbourne.

Executives of the Issaquah, Washington-based company were not available to respond to inquiries.

The company, the largest wholesale "club" membership operator in the States, runs nearly 412 stores where shoppers who have paid a US$45 ($83) annual membership, can buy in bulk.

It has expanded in the US to include service stations, photo shops, pharmacies, travel agencies, hearing aid centres, bakeries, fresh meat centres and furniture stores as adjuncts to its discount stores. It also has a profitable online business. Ranked 44th in size in the US, Costco has sales of over US36 billion ($66 billion) -- about half of New Zealand's GDP -- and a net profit last year of US$699 million.

Through their vast bulk-buying capability, Costco's hyper-stores offer cheaper goods than regular retail outlets.

Following Progressive's recent purchase of Woolworths, the New Zealand supermarket scene last year contracted to just to two operators -- Progressive, run by Perth based Foodlands and the cooperative Foodstuffs -- an entrance to the market by Costco would be a welcome addition for consumers.

In some areas Costco would compete with The Warehouse, which has partially modelled its operations on Costco. Warehouse chief executive Greg Muir told The Independent he was not concerned about the prospect of Costco's arrival and doubted it could operate here.

He said analysts estimate that to operate the kind of business Costco runs, requires a population of at least a million.

Mr Muir doubted the economics stacked and noted it had been tried before without success.

In 2000, listed United States bulk retailer Cost-U-Less withdrew from this country after only six months with consumers here not really taking to the bulk purchasing concept.

Mr Muir said Costco works well in the US because it sold goods in bulk packs. Costco customers, for example, buy soap powder in packs of nine or chicken legs in packs of 36.

He said no New Zealand or Australian manufacturers did lines like that. Costco had huge lines and worked on incredibly thin margins. Bringing lines from the US would be costly.

- NZPA

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