Why Costco Succeeds When Others Fail?
Costco opened its first warehouse in 1983 in Seattle, Washington. Since then it’s opened hundreds of other locations, in and outside the U.S.
In 2013 the company announced it will be opening stores all across the world and specifically in untapped markets, most recently in France where the first Costco is set to open on June 22.
Costco’s plan to expand internationally and accelerate growth has proved successful. It now operates more than 720 locations in America, Australia, Mexico, Japan, Canada, Spain, South Korea, Taiwan, United Kingdom, and Iceland as of May 2017 and it’s become an international retail chain.
Undoubtedly Europe has seen the first wave of expansion, Costco looking to establish a stronger presence in Spain and also enter Italy, Germany, and further into France.
What drives this international expansion is customer response
The retailer has received positive feedback from customers in every area where it opened internationally, both where it already had a presence and in new markets. Within as little as twelve weeks since openings, Costco memberships grew to as many as 40,000 in Japan.
In Reykjavik, Iceland 35,000 people had already acquired a Costco membership before the official opening in May this year. And not only is the retailer expected to maintain these memberships but is also expected to see new members signing up every month.
It costs the company time, money and effort to push into un-entered European markets. The European economy is inconsistent and financial flaws affect even the most economically competitive countries.
In addition, there are socio-cultural challenges particular to every market. One of the biggest challenges that Costco faced in new markets was to convince suppliers to sell their merchandise in different sized, higher-volume packaging.
Warehouses clubs are much less common in Europe compared to the U.S., so most of the merchandise is sold as for conventional retail outlets, whereas Costco sells in x-pack containers. Convincing suppliers to change the way they do business is something that requires time and financial investment that the retailer is willing to embrace.
The underlying cause that encourages Costco to grow its presence internationally is – surprisingly – the membership because the company’s primary percentage of profit doesn’t come from sales but from the membership fees.
The reason(s) Costco sees and maintains memberships in new markets consistently
Costco learned that one of the main reasons for retail companies having to withdraw their presence in new markets just shortly after entering is little to no knowledge of local shopper culture.
People in every country have their own shopping sensibilities not to be ignored, therefore every time it’s set on opening locations in un-entered international markets Costco makes sure it has the facts straight before pushing into the market.
This means it looks into special factors particular to that market, it researches what people are interested in buying, and it provides customers with products that originate locally, only in different packaging and at bargain prices.
It is able to acquire memberships and retain them long term because it operates strategically with offering a different shopping model, yes, but at the same time including offerings that appeal to local communities.
And Costco ensures that people feel justified to pay for the membership with adding benefits to the stores. For example, Costco has the lowest price for gasoline in Iceland in addition to rock bottom prices for food.
And most Costco locations include revered food courts, optometry offices, self-service petrol stations, plus the membership comes with the very best return policy. Costco members can return any item whenever for whatever reason.
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