More than just a retailer
Retailers bring value to the consumer by offering a broad range of goods, assurance of quality, lower prices, and convenience.
TradeMe users will appreciate the access it brings with just a button click, from second-hand baby gear to sports equipment to limited-edition collectables, like a P12 Martin Jetpack. There is something for everyone.
Convenience depends on circumstances. Some items you want right away and would drive to a store to pick it up, some you want to touch and feel before committing, while others can wait to have it shipped.
The industry jargon ‘omnichannel’ refers to enabling the choice between pick-up in-store or delivery as you buy online or just shop in stores the traditional way. ‘Omni’ covers all bases and, importantly, entails a role for the physical store.
On opening day at the Shanghai store, patrons clamour for Kirkland Signature roast chickens. Will Kiwi enthusiasm trump the Chinese on opening day?
Hypermarket operator Costco scores well on these measures. With nearly 600 warehouses in the US (a total of more than 800 globally), each with a floor area at least twice that of a Pak’nSave, it offers a wide range of items from diamond rings to $1.50 hotdogs to petrol, as well as pharmacies and travel agents. On price, the most intuitive form of value, many of Costco’s products are sold in bulk directly off the pallet, hence the ‘wholesale’ descriptor. It sells to retail customers at wholesale prices for an annual membership fee.
This subscription feature is not widely adopted by retailers as the scheme is difficult to get going. In asking for $60 upfront, Costco loses the casual shopper who might otherwise have dropped in and spent a few dollars but creates exclusivity for its members to access its low prices. It is potentially a virtuous cycle that sees low prices attract new members; more members drive better economics and purchasing power over suppliers, which results in lower prices and member loyalty. Members who have already paid their dues feel compelled to extract value by shopping more at Costco. Costco has 63mn paying subscribers generating $4bn in fees with a 90% plus renewal rate. This highly recurring income underpins its financials and valuation.
Despite being available only at Costco stores, Kirkland Signature has annual sales that rival major global consumer brands
Another reason Costco can offer wholesale prices is product selection. While it aims to provide breadth across categories, it focuses its purchases on fewer options within each category; a typical Costco store will have 4,000 different products, whereas a Walmart might have 100,000. This gives it more bargaining power over its suppliers than other retailers. Furthermore, unlike some overt discounters, product quality is not sacrificed. Its house brand, Kirkland Signature, is ubiquitous in its stores and makes up c.30% of customer baskets, generating $59bn in revenues! While many retailer house brands are seen as inferior to branded goods, Kirkland has been positioned as premium products at discount prices over the past two decades and Costco continues to add to the Kirkland range. Despite being available only at Costco stores, Kirkland has annual sales that rival major global consumer brands.
Steadily growing subscription revenues and having one of the largest consumer brands are attributes that make Costco more than just a retailer. Still, retailing risks are many, including labour and competition. An area of focus will be international expansion, particularly in China which has seen many Western grocers turn tail. Closer to home, Costco already has 13 stores in Australia and is opening its first in NZ in the second half of this year.