Costco Expands Its Global Reach

Many retailers aim for global expansion, but not all cases are synonymous with profitability. Fortunately for Costco, its Australian expansion has been profitable and shows great promise.

Jan 4, 2014 at 8:30AM

Costco Wholesale (NASDAQ:COST) has delivered 3.2% top-line growth and 4.6% net income growth over the past year. The stock has appreciated approximately 22.9% over the same time frame, and currently yields 1%. These aren't astronomical numbers, but they're solid across the board. Interestingly enough, Costco is no longer simply a North American enterprise. Given Costco's aggressive and so-far profitable expansion into Australia, it's a positive sign that Costco is capable of successful global expansion. Let's take a look at Costco in Australia as well as all the benefits and potential that come along with this expansion.

Aggressive growth
Costco first established a presence in Australia in 2009. In 2011, it seemed as though Australian consumers weren't taking to the new brand well, as Costco suffered a $13.2 million loss in the land down under. In 2012, things changed quickly, when Costco delivered a $9.7 million profit, but this was primarily due to a $13.4 million tax benefit. The year 2013 offered the most realistic results, with Costco delivering a tidy $1.8 million profit. On the top line, Costco saw $612 million in 2012 and 2013. 

Any company seeing these types of numbers is going to want to grow in that geographic area. Costco recently opened its fifth store in Australia -- in Melbourne to be exact. This store will serve the Eastern suburbs of Melbourne, which complements Costco's other Melbourne location that serves the Western suburbs. Looking ahead, Costco aims to open its third store in Sydney as well its first stores in Brisbane and Adelaide. The idea of a third location in Melbourne has also been mentioned.

All of this information might pique your interest in Costco's Australian prospects, but we still haven't covered the most important aspect of this operation, which is competition ... or lack thereof.  

Different competition
When you think of big-box retailers operating on an international level, it's highly likely that Wal-Mart Stores (NYSE:WMT) is the first company that comes to mind. Though Wal-Mart has explored the idea of entering the Australian market, and despite Aussies calling for Wal-Mart to set up shop on their home turf, Wal-Mart doesn't have a presence in Australia. This fact alone is an enormous positive for Costco.

Not only does this eliminate the threat of the largest retailer in the world, but it gives Costco a significant head start if Wal-Mart does eventually decide to enter the fray. It took Costco 18 months to get its latest Melbourne warehouse approved to be built. Wal-Mart would face the same type of time constraints, making Costco's head start even larger. 

If you search for Target (NYSE:TGT) stores in Australia, you will find them. While you will find everything from clean aisles, broad product diversification, and even the Target symbol in front of these stores, they're all owned by Wesfarmers, not the Target you're thinking of. Wesfarmers owns the rights to Target Australia as well as Kmart Australia.

These Target and Kmart stores will still present competition for Costco, but the real competition will come from Woolworths and Coles (the latter not to be confused with Kohl's). The good news for Costco and its investors is that Costco uses parallel sourcing. In other words, instead of using a single vendor, different sources are used for a family of related items. This allows Costco to pass on the best deals to consumers, which drives foot traffic and makes Costco successful. Therefore, Costco is likely to achieve market share gains in Australia.

Global domination?
Investors should not get carried away. Costco is still one-fifth the size of Wal-Mart in regards to capitalization, and Wal-Mart has a much larger global footprint. However, while Wal-Mart has delivered 17.70% top-line growth over the past five years, Costco has grown at a faster 45.93% on the top line over the same time frame. In addition, Costco's bottom-line growth over the past five years of 71.42% is superior to Wal-Mart's 28.33%. In addition, Costco offers more growth potential, as it looks for profitable opportunities and exploits them Australia being a prime example. Costco's business model and highly strategic upper management make it worthy of investment consideration by all Foolish investors. 

Long-term investments without worry 
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 


Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers