Costco, an American warehouse-style discount store, is accelerating its expansion in the domestic market. Following the confirmation of its first store in the Honam region in Iksan last June, it recently signed an investment agreement to enter Cheongju. With Homeplus, which is undergoing corporate rehabilitation, announcing the closure of 15 stores nationwide this year, there are analyses in the market suggesting that significant changes in the retail industry are imminent.
According to the related industry on the 4th, Costco Korea signed a memorandum of understanding (MOU) with the Chungbuk Development Corporation on the 2nd for the entry of premium retail facilities. It plans to build a warehouse-style discount store with a total floor area of 15,700 square meters (approximately 4,750 pyeong) on a 44,000 square meter (approximately 13,310 pyeong) site in Millennium Town, Cheongwon District, with an investment of about 80 billion won. The goal is to open in 2028 after going through land sales contracts, distribution development councils, and construction permits.
This year, Costco opened the Pyeongtaek store and confirmed its new locations in Iksan and Cheongju. According to the related industry and local governments, it is reported that new openings are also being considered in Jeju and Suncheon Pohang.
Currently operating 20 stores in Korea, Costco continues its steady growth despite sluggish conditions in the hypermarket sector. Costco Korea's sales for the 2024 fiscal year (September 2023 to August 2024) are forecasted to reach 6.53 trillion won, an 8% increase from the previous year. During the same period, operating profit is expected to rise by about 16% to 218.5 billion won. Considering that Homeplus, the second-largest hypermarket in terms of sales after Emart, has consolidated sales projected to be 6.9919 trillion won for the fiscal year 2024 (March 2024 to February 2025), this is comparable to the third position in the industry.
However, with Homeplus entering corporate restructuring this year and deciding to close 15 stores by the end of the year due to unresolved rent adjustments, there are forecasts that Costco will leap to the number two spot in the industry. Considering that Costco has shown nearly a 10% increase in sales each year, continuously opening new locations, and increasing membership fees by 15%, it is highly likely that they will surpass Homeplus's sales in the next fiscal year.
Since entering the domestic market in 1994, Costco has grown by implementing a low-margin, high-volume sales strategy, selling large items at prices 10-15% cheaper than hypermarkets. Instead of maintaining high margins, it sells to paid members, thereby securing membership revenue.
Koreans have a special affection for Costco. The Yangjae store once recorded daily sales of 1.3 billion won, ranking first among 700 Costco locations worldwide, while the Sejong store topped global sales on its opening day.
Although it has fewer stores compared to larger hypermarkets, the industry evaluates that Costco has high competitiveness per store due to strong customer loyalty. As of the end of last year, Costco's sales per store reached 343.6 billion won, which is about 4 to 5 times that of domestic hypermarkets. Its operating profit also significantly surpassed those of the three major retailers (Emart, Homeplus, and Lotte Mart). Some in the industry predict that the speed of new openings for Costco is likely to increase, given that several local governments are actively working to attract Costco for the purpose of revitalizing the local economy.
Competitors also seem to be expecting a spillover benefit from the mass closures at Homeplus. They have also resumed new openings, which had been stagnant. The number one company in the industry, Emart, has launched its warehouse-style discount store, Traders. This year alone it opened stores in Magok and Guwol, increasing the total number of locations to 24. According to the industry, new openings are also planned in Uijeongbu and Cheongju.
The Guwol store, set to open on the 5th in Namdong District, Incheon, will be the largest among Traders stores at 15,438 square meters (approximately 4,670 pyeong). It is expected to showcase over 1,000 differentiated products, including Colgate toothpaste, Lay's snacks, and Aro-Pool Paris capsule detergents.
Last year, Traders achieved sales of 3.5495 trillion won, a 5.2% increase from the previous year. During the same period, operating profit increased by 10% to 665.1 billion won. Sales per store reached 161.3 billion won, which is double that of Emart. For the first half of this year, sales grew by 6.8% and operating profit rose by 38% compared to the same period last year.
Lotte Mart is gearing up to launch its 'Grand Grocery', which strengthens its grocery offering. It opened the Cheonha store in February and the Guri store in June. Notably, the Cheonha store has gained attention as Lotte Mart's first new store in six years. It has filled over 95% of its space with food, expanding the selection of fresh products and reducing prices by up to 40-50%. In the first half of this year, Lotte Mart's sales reached 2.5777 trillion won, a 3.8% decrease from the same period last year, and it recorded an operating loss of 35.4 billion won.
Park Sang-jun, a researcher at Kiwoom Securities, noted, 'If the sale of Homeplus does not materialize by September or October, there is a significant possibility of continued liquidity pressures and further store closures. If meaningful store restructuring occurs, the spillover benefits for competitors could expand, resulting in an upward adjustment of discount store growth rates next year.'