Nearly a year after it opened its first New Zealand store, US retail giant Costco Wholesale has attracted more than 150,000 members, changing the face of retail with its subscription shopping model.
Located in Auckland’s Northwest, the megastore initially created heavy traffic jams when it opened on September 28 with nearby shops posting signs banning shoppers from using their car parks to access the store.
Dave Hargreaves, who owns Mitre 10 Mega Westgate near Costco, said the announcement of the American big-box retailer initially received mixed responses from local retailers.
“Very early on, we expected Costco to bring more traffic to the area which it has done,” Hargreaves said.
It had also brought more shoppers to the area.
“I always knew it would increase our customer count because it just brings more people to our doorstep … [Costco] is very complementary [to our business].”
He said customer numbers at his store were up, despite economic headwinds hitting retail in recent months.
“Retail generally is tougher and you just have to work harder, but generally our customer numbers are positive and a really good contributory factor to that is the presence of Costco.”
Westgate is also home to Pak’n’Save, owned by Foodstuffs, and Australian-owned Countdown.
Foodstuffs did not respond when approached. Countdown declined to comment.
Other local retailers, however, voiced support for increased competition in the area.
Bunnings New Zealand general manager Melissa Haines saw the retailer as a positive.
“We compete with thousands of retailers across our store network and believe healthy competition and choice is good for consumers.”
The Warehouse Group chief executive Nick Grayston told the Herald in a statement: “Costco is good at what it does, but our businesses are different.”
He said the store’s subscription-based model was a barrier to the bargains available to Kiwis every day through the Warehouse stores, which has expanded its grocery product range throughout this year.
“Unlike their subscription and wholesale-based approach, our focus continues to be on offering great value to all Kiwi families across our 88 stores,” Grayston said.
He said, “Our Westgate store has continued to perform strongly and demonstrates that there is clearly room for both as Kiwis look for more affordable options.”
Costco Australia and NZ managing director Patrick Noone told the Herald he was delighted with the chain’s debut.
“We are excited to be celebrating one year in Westgate. To mark this anniversary, we will serve a celebratory cake for members shopping on the day. We are also running a series of Westgate-exclusive member savings until October. Members can sign up to our mailing list to be notified, or see them on the ‘Warehouse Savings’ section of our website.”
Kiwis had “steadfastly” adopted the Costco concept, he said.
“Our strong membership sign-up and daily foot traffic tells us that our merchandise and pricing is resonating with the people of Auckland. We will continue to be a strong competitor in the market with our wide range of quality products and sharp price points,” Noone said.
In March, Noone cut a cake at the Westgate shop which said ‘Congratulations, 150,000 members’.
Costco Wholesale NZ’s $100 million-plus store has been “a juggernaut” according to the boss of a business that sold the Americans the land.
Campbell Barbour, general manager of NZ Retail Property Group which owns Westgate, said: “It’s exceeded everyone’s expectations, been stupendously successful!”
How many members paid $60/year and the numbers renewing their membership when it expires at the end of this month remains unknown, but last year, Costco Warehouse globally said it had more than 118 million members.
Chris Wilkinson, the Wellington-based managing director of specialist consultancy First Retail Group, said Costco’s effect on Auckland could be gleaned from examining a 2020 economic impact assessment report on a new Costco at Newcastle, 109km from Sydney.
Consultants Ethos Urban prepared a 42-page report for the chain to analyse the effects of the construction and operation of a big store in that area.
It forecast total annual sales of A$150m or only 0.7 per cent of available retail spending by residents in the total trade area by 2022.
Ethos Urban emphasised how Costcos were vastly different from regular supermarkets.
Costcos typically have about 4500 individual products or stock-keeping units known in the trade as SKUs on the floor at any one time, “considerably fewer” than the 30,000 SKUs typically on the shelves of a full-line supermarket at any one time, or the 40,000 SKUs on offer from large discount department stores like Kmart, Big W or Target.
“The range of products at a typical Costco warehouse is very wide, from fresh food (eggs, bread, meat, vegetables, etc) to clothing, jewellery, leisure goods (tents, BBQs, etc) whitegoods, dry groceries, frozen food, funeral caskets, electrical equipment, wine and liquor, sheets, towels and pet food,” Ethos noted.
The Westgate shop has never been able to sell alcohol due to it being in the West Auckland liquor licensing trust area.
A not-unexpected bottom-line loss of $12.5m was recorded for the August 2022 year from Costco Wholesale NZ. That’s due to the business not being fully operational. While its petrol station was open, its warehouse had yet to sell a single item by balance date.
Costco Wholesale New Zealand opened its first NZ store last September and its fuel outlet last April.
It had total revenue of $20 million for the year to August 28, 2022.
That included money from the thousands of people who signed up for $60/year fees. Cost of sales was recorded as $20.3m and general and administrative costs were put at $13.3m.
An operating loss of $13.2m was recorded for the year, although a change in fair value of financial assets was put at $484,000.
Noone’s point about Kiwi manufacturers and producers being encouraged to talk to Costco about their NZ products with the potential to sell into overseas stores is a factor cited in the Ethos Urban report: “Costco also provides the opportunity for local suppliers to export goods to Costco Warehouses in other countries. For example, Australian meat and dairy products are currently being exported to Costco stores in Japan, South Korea and Taiwan,” the 2020 study said.
It also pointed out the differences between a typical Costco to a supermarket: Typically, Costco is not used by consumers as a replacement for shopping at the local centre, store, or the nearby supermarket. This is reflected in an average basket size at Costco of more than A$200 per transaction compared with an average basket size of between A$35 and A$45 at a traditional Australian supermarket, it said.
On average, Costco members visited a warehouse eight times per year, compared with once or twice weekly supermarket visits.
Supermarkets might be around 4500sq m whereas Costco floorspace was vast at 13,000sq m. Costco staff numbers were also much higher, at around 275 per store compared to full-line supermarkets at 60 to 80 staff.
So the idea that one store would provide competition for our supermarket duopoly seems unlikely.
As for what happens next, insiders say Rolleston on Christchurch’s southern outskirts is the area for our second Costco.
Last year, briefing papers marked ‘in confidence’ and to be forwarded to then-Prime Minister Jacinda Ardern tell us so much more about what is going on behind the scenes.
The vast, flat Canterbury plains and land zoned for business development is earmarked as Costco’s second home: a $100m-plus 13,900sq m store with 847 car parks, already consented. A territorial authority has signed off an application for plans for Costco to open in Canterbury.
Christchurch developer/investor Carter Group’s Rolleston Industrial Holdings won approval from the district council for the scheme that could mean Cantabrians get access to Kirkland-labelled food, life-sized teddy bears, discounted hearing aids and tyres.
Wellington, meanwhile, is not in line for Costco any time soon, those same insiders say.
Anne Gibson has been the Herald’s property editor for 23 years, has won many awards, written books and covered property extensively here and overseas.
House prices will be 20% lower in real terms by the mid-2030s than in 2021.