Why Costco has been dubbed the 'anti-store'

by Graham Adams / 12 June, 2019
Opinion
costco

A Costco store in the U.S. Photo/Creative Commons/https://www.flickr.com/photos/jeepersmedia/15433538162

RelatedArticlesModule - stores

The world’s second-biggest shopping chain, which is opening a store in Auckland, doesn't operate like a typical retail store.

There was an air of jubilation in the air across Auckland on Tuesday afternoon. Bulk retail giant Costco — with nearly 800 stores around the world, including 11 in Australia — announced it is setting up shop in Westgate in the city’s northwest.

Most of us who have never had the pleasure of shopping at one of the chain’s megastores didn’t know exactly what to make of this announcement. And the exuberant media coverage didn’t entirely illuminate why we should be so happy about the arrival of the world’s second-biggest retailer (after Walmart) either.

Groceries, we were told, might be as much as 20-30 per cent cheaper — but only if you want to buy 200 toilet rolls at a time, as one wag put it.

Business writer Rebecca Stevenson highlighted the fact anyone shopping at Costco will likely have access to cheaper petrol and hearing aids, which is a very weird combo to highlight (although I’m sure her research into savings to be made on hearing aids was indicative of the whopping discounts available in general — and you can safely assume you won’t need to buy 200 to get the cost benefits). 

Others pointed out that the range of cut-price goods available at Costco warehouses overseas includes coffins, diamonds and giant teddy bears.

The development is going to be huge, apparently — 14,000 sq m — which, nearly every commentator, in a deeply patriotic gesture, likened to the size of two rugby fields.

When the development is completed in 2021, it will have three floors, with the ground floor housing the store and the next two levels offering more than 800 car parks.

Eight hundred car parks! Julie Anne Genter, the cycle-crazy Associate Minister of Transport who is the Green Party’s spokesperson for Auckland issues and urban development, will be having sleepless nights at the thought of all those cars drawn irresistibly together in one place.

Couldn’t people do the decent thing and arrive at the mega-store from across Auckland on their cargo bikes and buses to lug their purchases home?

Costco Australia and New Zealand managing director Patrick Noone didn’t seem to be much interested in the cycle set. He told the launch party that the store is positioned to take advantage of Auckland’s tremendous “freeway system” (which perhaps only a blow-in from Australia could say in public without raising a laugh).

He reckons it will be able to “pull people from as far south as Hamilton and from the north of the island and the entire city will be able to come and shop here”. 

No one seemed to notice the fact that the development of this mega-magnet for cars was announced on the very day that Auckland Council declared a “climate emergency”, which among other things will presumably want decisions to be viewed through the lens of climate change, including encouraging more public transport and fewer trips by car.

The good news for the ecologically minded, however, is that Costco is counting on customers buying a lot of stuff when they visit so they will visit less often.

Cut-price goods at Costco include giant teddy bears. Photo/Creative Commons/https://www.flickr.com/photos/75885098@N05/31605652361

Cut-price goods at Costco include giant teddy bears. Photo/Creative Commons/https://www.flickr.com/photos/75885098@N05/31605652361

As Robert Price — co-founder in 1976 of Costco’s forerunner, Price Club — told NPR’s Planet Money podcast, it is costly for the company to provide services such as parking, door attendants, and a cashier and so on. So it is more profitable to have a customer “who comes, say, once a month and spends $400 rather than the person who comes every week and spends $100”. 

Planet Money’s 15-minute episode, “The Anti-Store”, is the best and most entertaining introduction you’ll find to the chain’s idiosyncratic — but highly successful — retail strategy.

Most stores adhere to tried-and-true laws of retail — “Have a convenient location. Advertise the store. Welcome people in” — but Costco does the opposite. It has a membership fee, doesn’t do much advertising, and it wants to make customers feel as if they belong to an exclusive club — much like a Prohibition-era “speakeasy”, as Price says — even if it has 100 million customers worldwide.

Once you have paid your membership fees — starting at around $60 in Australia —  you’ll feel like an insider with privileged access to the vast, multinational “speakeasy”, and you’ll also want to shop there as often as you can to recoup that initial joining fee.

Yes, it’s downright manipulative — something Price happily admits to. In exactly the same way there are no aisle signs in the store to help direct you to what you want to buy. “I was adamant that we would not have signs telling people where things were because it would make it likely they’d wander through the aisles and find other things to buy.”

And the fact that the range of items is limited? Price explains that in a normal supermarket there is a lot of choice but that means employees have to stack a huge number of individual items on the shelves by hand. Costco does that by shifting pallets on forklifts — “so they’re not touching individual items. They’re touching a pallet.”

It is certain that Aucklanders will love it. The jam-packed Sylvia Park complex in Mt Wellington is proof enough that if Auckland is the City of Sails for the rich, it is the City of Sales for the rest of us.

What will spur Aucklanders as much as anything to drive across town on an often slow motorway system to get cheaper groceries in bulk is the deep resentment many feel towards the cosy duopoly of the supermarket chains.

This was aptly summed up by economics Professor Tim Hazledine, of Auckland University, in a recent essay for NOTED on the “Wellbeing Budget”.

Among “various elephants lurking in the shadows of our lives”, his examples included “monopolistic pricing, such that the franchiser of my local supermarket is able to squirrel away enough money from this asset alone to appear in the National Business Review Rich List with a fortune assessed at $50 million.” 

And many Queen City citizens feel much the same way about petrol prices. In fact, Rebecca Stevenson notes: “If Costco wants to win our hearts and wallets, it needs to come in hard with a discount petrol offering.”

She references the fact petrol prices haven’t fallen in tandem with the recent drop in crude oil prices and says that Costco “can probably afford to take a bit of a hit [on petrol prices] to buy some loyalty. I bet they’ve heard how Westies love their cars.”

Aucklanders may be only the first New Zealanders to feel the disruptor’s presence. Noone reckons stores will follow in Wellington and the South Island.

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