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Costco Canada is testing a new two-day grocery delivery service in southern Ontario.

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Costco Japan has announced plans to launch an online store next year.

New online store in 2019

Costco's new ecommerce service will aim to capitalise on growing popularity of online shopping in Japan. It will be particularly relevant to those looking to purchase in bulk, taking advantage of home delivery for heavy but essential items such as water and rice.

Full details of the service such as product range and exact launch date are still being finalised. Customers using the online store will likely have to pay an annual membership fee as in physical stores, currently JPY4,752 (US$43).

Establishing stronger presence in Japan

In preparation for servicing online orders, Costco plans to expand its existing distribution network. The retailer also plans to expand its store network in the country from 26 to 50 outlets by 2030.

Costco in Asia

Costco Japan offers a differentiated shopping experience compared to many domestic Japanese retailers. Stores are quite American in style, in terms of store format, range and customer service.

In Asia, Costco operates physical stores in Japan, Taiwan and South Korea. Last month, the retailer announced plans to establish a physical presence in China, building on its existing operations on Tmall. It aims to open its first brick-and-mortar store in Shanghai’s Minhang district in 2019.

Following its third quarter results, we look at Costco’s ecommerce highlights.

Strengthening performance across the business

Costco’s third quarter revenue increased by 12.1% to $32.4bn, with net income up 7.1% to $750m. Comparable store sales, excluding fuel and currency impacts, increased by 10.2%. This was almost twice as strong as its performance in Q2. The retailer’s ecommerce sales were up 36.8%, accelerating from an increase of 27.3% in the previous quarter.

Grocery delivery services growing

Ecommerce continues to be a highlight for Costco. In addition to benefitting to the improvements it has made to search and checkout functionality, the retailer is seeing a strong response to improvements to its ranges and its email marketing campaigns. Personalising and tailoring offers is resonating with members. Its two-day grocery delivery service and its same-day fresh delivery partnership with Instacart also continue to grow, following their launch last October.

Benefitting from new ecommerce programs

The retailer has also started a store pickup service for high-ticket items, including jewellery, laptops and handbags. It has been pleased with this service, with around half of the customers picking up items, also shopping in the club at the same time. It has also seen a major benefit from being able to carry items online throughout the year, compared to eight to 10 weeks previously. In furniture, it has seen its incremental business grow by several hundred million dollars. Given its improved ecommerce capabilities, Costco is also putting new initiatives in place within its clubs to raise awareness of its various digital programs.

Patrick Noone, Managing Director of Costco Australia, has provided an insight into what the retailer has planned for its supply chain, online operations and future expansion.

Potential for over 60 Costco stores in Australia

Costco currently has nine stores trading in Australia, with two new stores opening in Melbourne and Brisbane by the end of the year and its first Western Australia store due to open in Perth in 2019. The current opening rate of 1-2 stores per year is expected to continue for some years to come. However, Noone did says that with 25m people between Toronto and Vancouver in Canada and 65 Costco stores, there remains significant growth potential for network expansion down under, over the next 30-40 years.

New DC to help underpin online growth

Costco will also be opening a new AU$108m distribution centre in Sydney next year, paving the way for new store expansion and also the opening of an online store. Costco has already been testing a B2B online service in Melbourne, but has yet to roll out the service more widely. With online operations in the US, UK, Taiwan and South Korea, the retailer clearly sees Australia as a future market for the service. This is likely to involve further B2B reach, home delivery services, as well as click and collect in stores. Noone commented that before any role out, it was important the business had the right infrastructure in place.

Presentations

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Check out the key news stories and the emerging trends from retailer's supply chains for the 1st half of 2015 including network improvements, technology enhancements and a couple high-profile company mergers.

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