“Costco and Standard Foods share the same business values. Our
passion for our consumers is the fuel that enables us to capitalise on
growth, as we continue to drive excellence in quality and innovation.
The process is challenging but fantastic.” – Arthur Tsao, CEO, Standard
Foods Corporation
more expensive markets are, the more we can
show people how they can save, and the more
they embrace it.
With 55 stores across Japan, South Korea and
Taiwan, as well as a major presence in Australia and
Asia–Pacific, Richard says the regional base is strong.
“That’s without even looking at South-East Asia
where we don’t currently have stores. We’ve been
strategic by going into affluent markets and offering
value. It helps that there aren’t many department
stores in the region, and shows the reach we can have
in these markets.”
Having now pegged more than a dozen extra
stores to open in South Korea, Richard admits that
Costco is not overly zealous about expansion; it’s
conservative, only expanding when it knows an
opportunity is available.
means everything we sell has to be the best and the
cheapest. That’s why when somebody asks why we
don’t sell something like Tabasco, I have to explain
that I’d love to sell it, but the reality is we can’t sell
it at a price that is of value.”
Consistent delivery of value is important at
Costco. That’s why Richard says a good measure of
whether the company is successful is if membership
renewal rates are high, as opposed to high rates of
new memberships. “Our report card is evaluating how
many people come back to us and keep signing up
for memberships. It’s like going to a restaurant once
and then knowing if you’ll ever go back there.
“Globally, we have a renewal rate of around
88 per cent. In Taiwan, it’s closer to 90 per cent,
which tells me that of every 10 people who shop at
Costco, nine will be coming back in the next twoto five years. Without members, we have no sales.
We employ a lot of analytics to see how much
members spend per length of membership, and
we’ve seen that customers who’ve been with us for
years will spend more money at Costco because we
build trust and a relationship with each member.”
While Richard is excited about the markets in
Asia, he does confess to some trepidation when
asked about ongoing trade tensions between the
US and China. In years past, executives were eager
to talk about international partnerships, he notes,
especially the trade relationship between Asia
and North America. Now, as President Trump has
sunk into tit-for-tat tariffs, that enthusiasm has
dampened considerably.
The most recent spate of tariffs has been a
particular sore point for Costco; in 2017, company
CFO Richard Galanti openly said that increased
taxes on imported goods would lead to huge costs
being passed on to consumers. So urgent was the
threat that it chose to include tariffs as a risk factor
in an annual filing to the US SEC. “Tariffs are bad
for everybody,” says Richard.“I’d never promise to open 500 stores in three
years. What we do is open one warehouse at a time,
and if that’s successful, then we’ll open our second,
third, fourth and fifth. That’s our method; we don’t
bite off more than we can chew,” he says.
“You can see that in a country like Australia,
where we were able to leverage existing success
to benefit local operations,” Richard explains. “When
we open a store in South Korea, we have the leverage
of those other stores and the 20 years we’ve been
operating in the market.”
He says ongoing success depends on whether
consumers in individual markets can embrace the
paid membership model. “Having said that, we still
have to deliver on our value proposition. We’ve got
the legacy and it’s up to us to maintain that.
“It’s easy to not be the cheapest in the market,
and we’re cognisant of that. We’re always challenging
ourselves to become the authority on price, and that
theceomagazine.com | 43“We’re always challenging ourselves
to become the authority on price, and
that means everything we sell has to
be the best and the cheapest.”