(Editor’s note: This post has been updated with new information about Costco’s plans for Spain.)
This is good news for American and British expats who like a bargain … and who like to buy in bulk.
Costco – arguably the most popular retailer in the United States and verifiably the world’s third-largest retail chain – is continuing its aggressive push into Europe with plans for a fifth store in in Spain. This all comes after Costco announced a plan in 2013 to expand its operations by opening 150 warehouse clubs globally, with a specific focus on previously untapped international markets.
A concrete indication of the retailer’s ambitions comes in the form of a huge new Costco fulfillment center – its first logistics center in Europe – in Torija, Spain, 75 kilometers northeast of Madrid. The project is designed to be 140,000 meters squared, or 1.5 million square feet, according to media reports. That’s about 35 acres for our American expats and the footprint of the typical Costco fulfillment centers in the U.S.
The fulfillment center will be on a major transportation artery for southern Europe, the Henares Corridor, connecting Zaragoza, Barcelona and France.
Since 2016, various Dispatches staffers have tried to talk with Costco executives about their plans, but they declined. While Costco is forthcoming with industry analysts and major conventional financial publications such as the Wall Street Journal, its executives rarely grant interviews to the digital media. So, we’ve pieced together the clues via media reports and Costco earnings reports in the United States.
Oh, well ….
Insider has a great photo essay on just how similar the shopping experience is in the U.K. compared to the U.S.
Local media are reporting in late March 2022 that Costco is opening a store in Málaga, the port city on the Costa del Sol. The big box will go into the Málaga Nostrum Shopping Center – managed by Bogaris Retail – where the owner is demolishing a former fashion outlet center. (Honestly, there’s not a complete post on this, and we checked Costco media releases and earnings reports. The most consistent date we can find in media reports for the opening of the new store is sometime in 2024.)
Costco will take an estimated 13,000 meters square (about 140,000 square feet) of the total 22,000 meter square site at Málaga Nostrum.
This will be Costco’s fifth store, with original in Seville back in 2014. There are also Costcos in Madrid, Getafe and Bilbao, the latest store, opening last year. You can see all locations here on the Costco Spain website.
Quartz reported in 2017 that Icelanders have embraced the American warehouse discounter, because consumers believe Costco’s low prices prove what they’ve always suspected: Local retail chains colluded to keep prices artificially inflated.
Costco’s entry into Iceland has been so popular that more than 95,000 people – almost 30 percent of Iceland’s population – had joined the retailer’s Iceland Facebook page (Keypt í Costco Ísl.—Myndir og verð).
The move into tiny Iceland (population 332,000) came only three years after the Kirkland, Washington-based retail behemoth first entered continental Europe with a store in Seville, Spain in 2014. (Costco has 29 stores in the United Kingdom, but with membership restrictions, those warehouse stores operate essentially as wholesale suppliers to qualified business owners.)
In 2018, Costcos executive told equities analysts the big box chain would open 15 units in France by 2025. With only two stores as of early 2022, and factoring in the bureaucracy and French reluctance to embrace American retailers, this seems unlikely. That said, the retailer is on track to have as many as six in Île-de-France and one or two in other large cities outside Paris, according to beverage trade website Rayon Boisson (in French.)
Rayon Boisson quoted Costco’s top executive in France, Gary Swindells, as saying he’d submitting plans for two projects by the end of 2018. In 2021, Swindells (a French-speaking Canadian) told CEO Magazine that he’s been meeting with mayors around France “to explain the concept.” And, we’re guessing, take the temperature of local officials, as to their support for stores.
So far, there are two stores:
• A Costco opened last year at Les Quatre Chênes shopping centre in Pontault Combault, east of Paris. The location has 10,300 meters square of sales space (about 111,000 square feet or 2.6 acres under roof.)
The Atlantic has the best post, “An American Mastodon in Paris,” that explains the phenomenal growth in a country with completely different retail culture than the U.S.
In 2016, Costco opened a store in Wembley, just northwest of central London. It was the company’s third in the London area and the last store the big box opened in the U.K.
In the 2013 announcement, CFO Richard Galanti said Costco’s plan was to build 32 new stores in fiscal 2016, 13 of those outside the United States. Which it did.
As of Q1 2022, there are 29 total stores in the U.K. You can see them all here.
Canada has been the primary focus of international expansion for the retailer, with more than 100 locations. But other pins on the Costco map include Taiwan and South Korea (where it already has about 16 locations) and Australia (13 stores currently).
“We are interested in investing in the obvious four – Germany, Italy, France and Spain,” Costco’s international executive vice president James Murphy said in 2015 at a consumer goods forum in Istanbul. Murphy said the retailer is “seeing some reductions in expensive real estate” in Europe.
The slog through Europe has been slow, CFO Galanti said, because it’s “a tough place to get into, what with all the rules, regulations and permitting process, but we’re pretty interested in continuing that process.”
Cultural and market differences are always a challenge for the American retailer. In Seville, Costco’s first Spanish location, Galanti said Costco found it had stronger sales in non-food items than it expected, while fresh-food sales were disappointing.
Hurdles in Europe
“It’s usually the opposite in new markets,” the executive said. Another ongoing hurdle is convincing suppliers to change their packaging in order to ship their items in three-pack or 12-pack containers on the big pallets Costco uses. Making these changes costs money and represents a leap of faith, although many are doing it.
Among other challenges, it takes longer to open warehouses abroad, unexpected foreign-exchange moves can impact U.S. dollar earnings and it takes time to get into the local groove. “You learn what sells and doesn’t sell,” Galanti said.
At home, Costco has grown to become the second-largest U.S. retailer only behind Walmart. But what has fueled Costco’s growth is its unique straddling of the marketplace.
On the one hand, it is seen as a high-volume big-box discounter, like its bigger competitor. On the other hand, its actual model from its inception in 1976 as Price Club is as a purveyor of unusual one-of-a-kind items that aren’t likely available anywhere else.
In the early days, it often described its model as a “treasure hunt.” It didn’t necessarily carry every brand, or even every category, but it had enough variety to win shopper loyalty and inspire return trips.
If there were a third hand to its strategy, of course, it would be the “price club” model of shopper membership. (Interestingly, the “price” in its original name did not describe the cost of its merchandise but the names of the two brothers who founded the company. Still, it was a serendipity that certainly helped drive its success.)
Surprisingly, the Costco membership fees – not sales – are the retailer’s primary source of profit. The company generated $2.6 billion in subscription fees for 2016 as the number of paying members rose to 47.6 million from 44.6 million. By 2021, the revenue from memberships had risen to almost $4 billion and Costco had 105 million members.
In 2015, the membership renewal rate was an amazing 91 percent in the U.S. and Canada, and approximately 88 percent worldwide.
Unlike Walmart, Costco adapts to local cultures
Costco has also been smarter about international expansion than Walmart was in its heyday. Walmart tended to go into foreign countries without well-thought-out signage translations or clear understandings of how people shop in other locations. In 2006, the Bentonville, Ark.-based retailer suffered an ignominious – not to mention costly – withdrawal from Germany after it couldn’t figure out German shopper culture. (Walmart never figured out Germans – and most Europeans – prefer to bag their own food at checkout.)
In Mexico, company executives failed to realize Mexicans didn’t drive large SUVs or have large refrigerators or freezers in their home – exactly counter to the Walmart model of volume shopping. Also, Mexicans shop daily for fresh ingredients for each night’s dinner fare, rather than buying pre-packaged or frozen items. The scale of the Walmart stores was also overwhelming to Mexican consumers, used to smaller supermarkets and neighborhood bodegas.
Costco has gone to school on Walmart’s flubs. At the original Spanish Costco store in Seville, the meat section carries Spanish specialties such as octopus, rabbit and piglet, depending on the season. The store also carries Spanish olives, tuna made by Ortiz, a locally famous brand, and rows of hanging jamón ibérico, Spain’s answer to prosciutto.
A bigger challenge than local fare might be the size of Spanish families, which are small, and getting smaller. The fertility rate amounts to 1.3 children per woman, according to the World Bank, well below the 1.9 seen in the U.S. That means bulk purchasing is gradually losing popularity and packages are getting smaller.
So will Spanish customers or Icelanders, living in apartments and small houses, have need or room for 12-packs of paper towels and the like?
Costco insists its model will work because, as it has spread across Europe, it has managed to be successful in places teeming with condo and apartment dwellers – a little bit like Florida.