Costco won't be boxed in by rivals

As construction workers scurry around in yellow fluoro vests putting the final touches on Costco's newest discount warehouse, a giant teddy bear throws a vacant gaze across countless rows of food, clothing, diamond rings and a 10-kilogram block of Cadbury chocolate.

As construction workers scurry around in yellow fluoro vests putting the final touches on Costco's newest discount warehouse, a giant teddy bear throws a vacant gaze across countless rows of food, clothing, diamond rings and a 10-kilogram block of Cadbury chocolate.

Its stores in Australia sell a $10,000 diamond ring every week, and its range of T-shirts and jeans sits comfortably next to hearing aids, slabs of salmon and bottles of Penfolds Grange wine.

The Australian-born executive who looks after Costco's growth in the region likes to think of it as a Bunnings-style warehouse with the best quality and premium brands in the market place.

A little like walking in the land of the giants, the US discount retailer will next week open its second Sydney warehouse format store, after Thursday's opening of its second Melbourne store, in the city's outer eastern suburbs.

Costco believes the latest outlets, including the new Casula store, will be "ground zero" in its battle with Woolworths and Coles. Its other Sydney site is at Lidcombe.

Costco's local boss, Patrick Noone, says the US company has an ambition to grow its store footprint in Australia, with capacity for a few new stores to be built around the country each year.

"Certainly there is an opportunity in Melbourne for another couple of buildings, there is an opportunity in Sydney for sure for another couple of buildings, and then Brisbane," Mr Noone said.

"In the next couple of years we will try to grow at a nice pace where we get one to three openings per year."

Costco is building its sixth store in Brisbane, with another to follow in Adelaide.

Mr Noone said the discount chain would take the fight right up to the majors and force prices lower to compete if necessary.

Mr Noone, who started his retail career working for Woolworths, said attitudes toward Costco were changing, with shoppers recognising the value and quality proposition it offered to the market.

"When I first started the business here and was talking about Costco the only comparison was with [German discounter] Aldi and so when I describe Costco's concrete floor, wholesale warehouse with high ceilings they say it's got to be Aldi or Bunnings," he said.

"But in fact this is high-end quality brand merchandise in a Bunnings-type of atmosphere and when you experience it once or twice you get it. You couldn't buy Grange wine in a Bunnings, for example, but now you can because this is the place you would come to get that best deal.

"And diamonds fit in with the Grange, so the same guy who is buying a bottle of Grange is buying diamonds and a TAG watch and Fendi bags."

And as for the giant teddy bear, Mr Noone believes it will be popular with grandparents looking to spoil their grandchildren - and probably upset their own children, who have to make space for the massive stuffed toy.

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