How Significant Is Australia For Costco’s Growth?

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After opening its first store in Australia in 2009, Costco (NYSE:COST) has been steadily expanding in the region. The company will be opening three new warehouses in the region this year, taking its total store count to 11. Australian’s spent nearly $ 1.5 billion on its stores in 2016, averaging around $200 million per store for its eight existing stores. This accounts for around 5% of Costco’s total international revenues in 2016.

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The company’s U.S warehouses generate nearly 60% of its total revenues. However, we expect this contribution to decrease to around 53% by the end of our forecast period. We expect the contribution of Costco’s international warehouses to increase from 23% to 25% over our forecast period. While the company is witnessing strong growth in Australia and expanding in the region, it does not form a very significant part Costco’s total revenues. According to our estimates, the international segment accounts for around 20% of Costco’s valuation and we expect Costco’s international warehouse clubs to increase from 228 in 2017 to 278 by the end of our forecast period. With 11 warehouse clubs, Australia accounts for around 5% of Costco’s international presence.

However, a strong foot holding in the region can give the company’s international business a much needed boost. Costco has a nearly 2% market share in the $90 billion grocery market in Australia. It has more than 150,000 members in the region and attracts a flood of new members every year. The company offers a diversified range of products in the region and has been enhancing its value offering consistently in the region. The company has made significant progress in its seven years of existence in Australia, threatening local grocery stores with its growth.

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Costco’s international stores are less than half of the total warehouses it operates in the U.S. This indicates that US revenues are critical for Costco’s growth. While the company has made significant progress in Australia, the region does not significantly impact Costco’s growth and revenues.

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