Warehouse giant makes success story in Korea


The giant warehouse Costco Korea chief has criticized the country’s new regulation forcing large retailers to close one or two days a month or to cut operating hours, contending that the measure will not help small merchants.

“This will hurt the very people they are trying to help,” Costco country manager Preston Draper told The Korea Herald last week.

“We disagree with (the new regulation) because we fundamentally supply products to the small merchants; they are the majority of our clients,” he said.

The government took the measure in response to complaints by mom-and-pop merchants who have seen dwindling sales amid the nation’s three giant retailers’ ― E-Mart, Homeplus and Lotte Mart ― expansion of operating hours with some branches open 24 hours a day, seven days a week.

“People that would normally go to small marts to buy milk or eggs do not visit Costco to buy those small items,” he said. “We don’t think this will provide benefits to the small merchants.”

Costco plans to announce the changes as soon as the government decides the schedule for the closures. Draper only hopes that the government gives them more than a week’s notice so that they have enough time to prepare their workers’ schedules and inform their customers of the changes.

For the wholesale giant, their Korean branches have recorded record sales worldwide, record turnovers and record lines of shoppers, or members, waiting to find parking.

On any given weekend, it can take easily an hour wait to find parking at their Yangjae branch, the busiest Costco in the world.

For Draper, his top priority is to find solutions and one of them is to open 2-3 locations a year for the next decade all across the country.

“We always want to be busy, but members shouldn’t have wait long to get into the store, so the goal is to open more stores,” he said.

The warehouse giant currently has seven locations in the country with more on their way.

Costco Korea is presently looking at opening warehouses in Anyang, Anseong and Bundang while also searching for land to be used as parking spaces for their Yangjae branch.

Currently, Costco is building stores in Ulsan and Gwangyang near the KTX station.

Yongin City is also another possibility once the necessary paperwork gets hammered out.

“We will never be an E-Mart in terms of 130 locations, our business model is different,” he said. “We would hope to be situated in a way to have a pretty good geographical draw.”

Draper did say that the Korean real estate market does represent challenges not seen in other countries but, “At the end of the day, you can get the deal done, it just takes longer.”

In the southern part of the country, Costco is thinking of opening another 3-4 stores in Busan and looking at other cities such as Masan, Gwangju and Jeonju.

Costco Korea’s year-on-year record sales, the highest of all their branches worldwide, are a success story that has spawned competitors such as E-Mart and even Lotte Mart.

The difference between E-Mart and Costco is that the U.S. warehouse giant charges a membership fee.

Costco’s store brand Kirkland Signature has been extremely popular with members, prompting E-Mart to launch their own in-house brand Traders.

“That’s the price of being successful, you spawn imitators,” he said. “Competition should make us better. It forces you to focus on the business.”

Draper noted that Costco has some inherent strength such as strong support from their North American operation plus a global purchasing power unmatched in Korea.

“For example we will call the U.K. on a regular basis and we’ll get items from Europe, Japan, Taiwan, Australia and North America to sell in our stores here,” he noted.

Draper will also keep looking for popular and sought after brand name items, and continue to work closely with their domestic suppliers, be it large companies or small and medium size operations.

“The other way you compete is the people that work for us. We make sure to offer a compensation package that is a minimum 5 percent above whatever the industry is paying,” Draper noted.

“The feedback I get from our customers is that our people are friendly, capable and can do the job.”

Costco Korea recently introduced its own Kirkland Signature brand diapers that are locally produced.

They also recently opened a hearing aid center at their Yangjae branch with more to open in the near future.

“We would like to open pharmacies and optical shops just like in North America but right now there are some regulatory issues with that,” he said. “Since we can’t offer a value, then we need to be looking at something else.”

But the next big thing for Costco will be selling their products online.

“Relative to that next step, we need to make sure that we have the people and talent in place,” Draper said.

The challenge for them right now is also their success.

The Korean branches sell record amounts of fresh produce. The Yangjae branch for example sells the highest volume of meat products from any of its stores worldwide. Their bakery section is second only to Japan.

“The challenge with fresh is that you want to make sure you keep the cold chain 100 percent unbroken,” he said.

By Yoav Cerralbo  (yoav@heraldcorp.com)