The rise of Costco in Australia is creating a new breed of shopper: The captive consumer.
When the US bulk-buy giant this week unveiled a new distribution centre in one of Sydney’s western suburbs, it bolstered its power in the online shopping space.
Costco works on a membership basis, where shoppers pay an annual fee of $60 to buy until their trolleys are content.
It’s this method, plus the locations of the country’s 11 Costco outlets, that’s crafting the mould of the captive consumer, Deakin University marketing lecturer Michael Callaghan told The New Daily.
Dr Callaghan explained: First, by signing up shoppers as members, Costco has a first look at their wallets through direct marketing and insights, plus tailored offerings and specials.
Most of the Australian Costco stores are in the capital cities’ suburbs: places like Marsden Park and Cross Roads in Sydney, Ringwood and Moorabbin in Melbourne, and Ipswich, west of Brisbane.
While the company requires large parcels on land to build its gargantuan outlets, which will typically be in satellite industrial sites, it’s also a marketing benefit.
To get to most Costco stores, Dr Callaghan said, people had to plan to get there.
“It’s not a case of nipping around the corner to buy some milk at Costco,” he explained.
“People who go there plan to spend one, maybe two hours there – maybe more – and that’s why they have their cafeterias there.
“If you can lock people in your store for three hours, it’s going to increase their spending. You wouldn’t find many people who walk out of Costco having spent less than $200.
“Make them a captive consumer and they will buy something.”
Not all over
However, Costco’s growing presence Down Under doesn’t spell immediate market dominance and the end to all other retailers, Queensland University of Technology’s Associate Professor Gary Mortimer said.
There are still some barriers the company must figure out how to overcome, the leading retail expert told The New Daily.
Solidifying its online presence can only be a good thing, Associate Professor Mortimer said, especially given the stores’ somewhat isolated locations.
“This move to go online removes that tyranny of distance or barrier of geographical isolation,” Associate Professor Mortimer said.
“Suddenly their market becomes everywhere in Australia.”
The retailers who will feel the pinch, Associate Professor Mortimer said, will be discount department stores like Target, Kmart and Big W.
“Despite (Costco) going online, that will increase their market for them, but there’s still barriers in place … the $60 membership fee, and the psychological barrier of a consuming saying, ‘Why am I going to sign up for another service?’,” he said.