Watch out! Costco Japan snaps at the heels of industry giants Aeon and Ito Yokado

How times have changed! 

Early in my Japan career I remember when Costco’s arrival into the retail market was sneered at, even dismissed by the cognoscenti. “It will fail,” they said, “Japanese don’t buy bulk, their homes are too small.” 

Costco Amagasaki, Japan

Well in 2019, twenty years after its first arrival, Costco Japan has sales over JPY500b (US$4.4b) and is poised to enter the top 10 ranking.

Anyone who has been to their stores over the weekend knows a long queue awaits at the car park. Some of their bigger turnover outlets average a million shopping carts a week; Costco has become a destination shopping venue. 

It runs a laser focused operation: 3,500 SKUs per store (an Aeon or IY GMS average 4-5x more); pallet only displays; and negligible POS. Staff numbers are far lower not to mention rents. Costco Japan has 26 stores, all located in low cost suburbs.

Costco Japan, fresh food & meats

There is over US$200m revenue from membership fees, members number over 6m households, a massive 80% renew. 

When Costco Japan started, direct trading was almost unheard of. The cross shareholding links between retailers, trading houses and large wholesalers were a closed shop. Costco started bringing in well known brands from overseas which forced suppliers to review trading arrangements. Costco likes exclusive packs and many big brands produce exclusive SKUs, further driving traffic.

Toblerone: Costco Japan exclusive SKU (it was massive!)

Whether Costco is the best way to expose a new brand to the Japanese shopper is debatable. The retailer’s supply chain focus is so acute that popular items can be out of stock and slower sellers are never invited back. The company also strongly encourages suppliers to use its “Club demonstration services” – which is a separate business unit, and reportedly expensive.

Costco Demonstration Services

Most of the publicity about Japan’s changing retail landscape has focused on Amazon which is over 3x bigger. However, in food and household products where Amazon Japan is struggling to build scale, Costco has been much more successful.

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