Costco back on growth trajectory by 2011
After two years of slowed growth, Costco plans to ramp up its expansion plans over the next five years. At its investor conference, Costco said that the majority of new stores will be in the US, although internationally Asia will be a key growth region. In Japan, Taiwan and Korea, Costco said it has the capacity to trade through 100 stores. In Australia, where it opened its first store in August, the warehouse club operator believes it can reach approximately 20 stores. As a result, Costco expects to open 15 to 20 stores in fiscal 2010, up to 20 stores in each of its fiscal years 2011 and 2012 and more than 25 in fiscal years 2013 and 2014.
Costco said that it is seeing demand return for discretionary items such as sporting goods, clothes and cameras. "We are still cautious but are keeping our fingers crossed that people are buying a little bit," said Chief Financial Officer Richard Galanti. CEO Jim Sinegal added that the company does not plan to raise prices to boost margins. Instead, Costco will look to innovate around merchandising and supply chain to reduce costs (for example by making round jars square so that more can fit on a shelf or reducing the size of packaging). "We prefer to make our additional margin by being smarter, by buying better and being more efficient in our business," Sinegal said.
Separately, the company has high hopes for its first Manhattan store which opens today. In an interview with Bloomberg, Joe Portera, Executive Vice President and COO of Costco’s Eastern and Canadian division, said that the Harlem warehouse is expected to be its highest-volume store within three years, with USD600 sales per square metre, which is double the company’s average. However, Portera added that profitability is likely to be half that of a typical store because of Manhattan’s higher costs. “This is a big deal for us,” he said. "We’ve been trying to get in forever. It’s very important that we do another one.”
Costco executives have searched for an appropriate Manhattan site for years but has had difficulty finding affordable real estate. The retailer is now leasing the Harlem space for 30% less than initially proposed after the company backed out of it several years ago. According to Portera, household income in the three-mile radius around the store averages USD100,000 (compared to about USD85,000 for the retailer’s typical American shopper). The Manhattan store will carry more premium products to appeal to the area’s affluent shoppers such as Ugg boots, Rolex watches and a USD255,000 3.43-carat diamond ring. The Manhattan outlet is Costco’s fourth within New York City, with the others in Brooklyn, Queens and Staten Island. Another store is slated to open in Queens next year.
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