Shoppers change their ways to be part of the Costco club

27 September 2012

Melbourne shoppers changed a number of ingrained habits and by doing so contributed to a successful first year for warehouse club retailer Costco, Deakin University research has found.

“In the first 12 months of operation, Costco's Warehouse in Docklands became one of the chain’s top five stores in the world, challenging not just analysts’ predictions about its survival but also demonstrating to other international retailers that modifying an existing way of running a business to suit local conditions is key to survival,” said lead author Dr Stella Minahan.

Dr Minahan who works in the University's Graduate School of Business said unlike most research into international retailing which looked which looked at the experiences of the international firms coming to a country this research, published recently in The International Review of Retail, Distribution and Consumer Research, looked at how consumers in the host country reacted to the store.

“The early years of a company’s entry into a new market are particularly difficult and many companies fail,” she said.

“One of the contributing reasons is that of newness and customers seeing them as a legitimate shopping option.

“While Costco was known by Australian expats and those who had travelled to America, more Australians didn’t know about Costco than knew about it.”

Dr Minahan said analysts predicted Costco’s move into the Australian market, would fail on four fronts, it would not be able to change the shopping culture with the number one issue being Australians wouldn’t pay to shop, shopping in bulk would not fit the Australian culture, coupon shopping was unknown in Australia and there were doubts the Costco CEO could convince shoppers to come in and try the store.

“Interestingly membership of Costco was presented as a rule to Australian shoppers – that is it was an integral part of the Costco offer and not open to change,” she said.

“Shoppers voted with their wallets with more than 100,000 people signing up to be members.

“In the end membership was seen as acceptable so long as the cost was recovered on the first visit.

“The Costco membership along with the oversized Costco store shopping trolley became a sign of membership to a larger community.”

Dr Minahan said Costco’s location in the Docklands and the ‘barely adequate’ car parking was bug bear for customers.

“In the US it is the norm to travel by car to shop, but this not necessarily the case for Australians who may walk or catch public transport,” she said.

“However bulk shopping is integral to Costco and a car is required to participate.

“So the car park is regularly full.

“Some customers have made concessions to not being able to find a car park by adjusting the timing of their shopping trips.”

Dr Minahan said people enjoyed shopping at Costco because they could make it a family day out and they enjoyed being surprised by the different products on offer.

“One person was particularly surprised to find diamonds for sale in amongst the toilet paper and books as it was inconsistent with what they expected to find on a shopping trip,” she said.

“Bulk purchasing requires customers to change their shopping habits, particularly as they need extra money to buy the larger sizes, transport to get it home and have the extra space to store the goods they have bought.”

Dr Minahan said one of the areas Costco had made concessions to the Australian market was with the gradual elimination of one of its key marketing strategies – coupons.

“The US culture has a strong culture of coupon shopping, but despite Costco using coupons as part of their opening, the coupons seemed to be invisible when we were interviewing people – no one mentioned them,” she said.

“It may be that they will return but for the moment they are invisible.

“Costco also made the decision, prior to opening in Melbourne, not to offer a Costco card and to accept a range of payment options expected by Australian customers.

“The Australian shopping norm is for all major retailers to accept a full range of credit/debit cards, EFTPOS and cash and Costco seemed to have realised that any attempt to change this would result in angry customers and lost business.”

Further information:

Costco and the Aussie Shopper: a case study of the market entry of an international retailer, Stella Minahan, Patricia Huddleston & Constanza Bianchi The International Review of Retail, Distribution and Consumer Research

News facts
  • Shoppers change their ways to shop at Costco
  • Research looked at how customers reacted to the store in its first year
  • International firms' ability to adapt to local conditions key to survival

Media contact

Sandra Kingston
Deakin Media Relations
03 9246 8221/ 0422 005 485

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27th September 2012