Oversized and over here: Costco targets expansion

As workers scurry around in yellow fluoro vests putting the final touches on Costco's newest discount warehouse in Melbourne's outer east, 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, rings between $10,000 and $20,000 every other month, and its range of T-shirts and jeans sit 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 in the marketplace.

It's a little like walking in the land of the giants, and the US discount retailer is about to open its second warehouse-format store in Melbourne, its fifth in Australia, and believes the latest one in Ringwood will be "ground zero" for its battle with Woolworths and Coles.

For the first time in Australia a Costco, which sells a vast array of foods, clothing, and furniture at steep discounts, will have two stores in the same city (its other site in Melbourne is in the Docklands) and will also sit alongside both supermarket heavyweights, as well as a Target, Kmart and Myer in the nearby Eastland shopping centre.

The buzz around Wednesday's opening of Costco's Ringwood store has already generated 8000 new members, with the US retailer estimating its immediate catchment area for shoppers to be about 1 million.

This adds to the nearly 100,000 Victorians who have already taken out membership to shop at the members-only Costco store and another 100,000 in New South Wales.

Costco's local boss Patrick Noone says the US company behind the warehouse supermarket group wants to quickly expand in Australia, with capacity for a few new stores a year to be built around the country. "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," he said.

"I think 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 set to open its second store in Crossroads, New South Wales, and is building its sixth store in Brisbane, and another in Adelaide.

Mr Noone said attitudes towards Costco were changing in Australia, with shoppers recognising the value it offered.

"When I first started the business here, the only comparison was with Aldi," he said.