In 1999, when U.S. wholesaler opened its first warehouse in Japan in Hisayama (Fukuoka), many Japanese people thought the concept wouldn’t work in Japan. They were wrong. Today, the wholesaling giant has more than 2 million members in Japan, and is operating in 9 locations – Hisayama, Makuhari (Chiba), Tamasakai (Machida), Amagasaki (Hyogo), Kanazawa Seaside (Kanagawa), Kawasaki, Sapporo (Sapporo) and two in Saitama (Iruma and Shinmisato), as well as a depot in Ichikawa.
Three more are planned to open this year and the company is looking even further ahead for land and has targeted key markets for expansion such as the Tokyo Bay area, western Tokyo, Nagoya, Hiroshima, Kyoto, Sendai, Shizuoka, Kita-Kyushu and many others.
Worldwide, Costco currently operates 582 warehouses, including 425 in the United States and Puerto Rico, 80 in Canada, 32 in Mexico, 22 in the United Kingdom, 9 in Japan, 7 in Korea, 6 in Taiwan and 1 in Australia.
Heading the Japan operations is Representative Director and Country Manager Ken Theriault. Born in Saskatchewan, Canada, Theriault has been in the retail business since he was 15 years old. After working with a supermarket chain in Canada, he went into a private supermarket distribution business before joining warehouse store operator Price Club, which joined with Costco in 1995.
Japan Today editor Chris Betros visits Theriault in his offices above the Kawasaki warehouse to hear more.
When did you first come to Japan?
That was in 1998. The CEO asked me if I would open Costcos in Japan. I was here until 2006 in charge of operations. After that, I went back to Canada for 3 years and returned to Japan as country manager in June 2009.
How was 2010?
It was a good year and a challenging one. We were able to find a lot more sites to build more warehouses. Our membership has increased substantially and we now have well over 2 million card holders in Japan.
Does the recession affect your business?
I think we have coped well because we focus totally on top brands and value and that applies to the nearly 4,000 items we carry. No matter what the economic state, people want value.
How do market Costco?
We don’t advertise because it becomes an overhead cost. We want to keep our margins low. So we rely on word of mouth. Every day our members come in and see the excitement of how we operate, the range of items and value, and that in turn helps us build a strong membership base.
What is the appeal of Costco?
Our goal is to deal directly with suppliers. This gets us the best possible prices for our members and we can offer quality and value to small and middle-sized businesses. We want them to be able to come here and buy what they need. Our prices are very competitive, even more for imported items, such as our own Kirkland Signature products, for example. We don’t need fancy displays and extras. We just give the customers what they want. Our Gold Star members are also a very important part of our business model.
How much autonomy do you get from head office?
Our mission statement is the same worldwide, as are policies and procedures. Some products have to be modified due to the laws of the country that you are in. However, we are very much an independent buying team and buy from other Costcos and suppliers in at least 40 countries. We get together every four weeks and talk about what’s working, what the best-selling items are in each area and what isn’t selling so well.
What buying trends do you see among Japanese consumers?
At first, the average number of items per basket used to be light. But now it is more or less the same as in other countries. Japanese customers will come more often and buy a lot because there are many homes where the grandparents, parents and son and daughter-in-law still live together.
Some of our members come in and split the products between them. They turn a trip to Costco into a fun day out. Our food courts are amazing. You can get a hot dog and a coke for 200 yen or a huge pizza for 1,500 yen. You see people walk out with 10 pizzas for a party.
You must be constantly changing items.
We are. Every day the floor changes. Right now, we are getting ready for spring and summer with gardening items, outdoor furniture, patio sets, barbecues and so on. Toward the end of the year, Christmas items become a huge deal. Ten years ago, we didn’t sell many Christmas trees and decorations, but now we do.
What kind of memberships do you offer?
A Business Membership with an annual fee of 3,500 yen (3,675 yen with tax). Up to six additional cards can be issued for members. Then we have the Gold Star Membership card for individual consumers for 4,000 yen (4,200 yen with tax)
Do you deliver and can members shop online?
We do deliver but as of yet, you cannot shop online. This is always being discussed because many of our small and medium-sized business customers buy from us and sell online. In other countries, like Canada and the U.S., Costco does sell high-end items online as well as a large variety of items from electronics to flowers.
How do you get feedback from members?
Members can call in, they can use our website or fill out forms. The most common questions we get are why we don’t carry a particular item or why we discontinued selling something. It could be for many reasons -- the logistics of importing and ingredients change. Getting government approval for anything to do with health, skin and vitamins can sometimes take up to two years.
What are your expansion plans?
This year we will open three more in Kyoto Yawada, Maebashi and Zama in August. Another one is slated for November.
What do you look for in deciding on a location?
It has to be an outlying area where people can drive to. All our locations must have parking space for between 750 to about 1,100 cars. In terms of land area, we need 7,000-15,000 tsubo and the land should be in a semi-commercial and commercial zone. This has been challenging at times because over the years, the zoning laws have kept changing. It depends on the prefecture you’re in.
How do you spend your time?
I show up to the office between 6 a.m. to 7 a.m. I may answer some emails, and then start prepping for the day. We’ll have strategy and buyer meetings regularly. About 50% of my time is down on the floor. I like interacting with customers and staff.
What do you do on weekends?
Saturdays and Sundays I am often in the buildings. Afternoons, I love cycling in Tokyo.
Do you travel much?
I go back to HQ in the U.S. every four weeks. I always come back with a lot of good ideas after hearing the presentations from the various country managers.
Do you visit your competitors?
Yes, especially the big electronics stores. This business changes quickly and it is important to keep up with the latest trends.
How many staff do you have?
In this Kawasaki warehouse, about 155 in the office and 375 on the floor downstairs. Nationwide, we have approximately 3,600 employees at this moment.
Is Costco a popular company to work for?
Yes, I believe so. We pay above industry standards to start and from then, it is a progressive wage increase based on hours. We have a great benefit package. Promotions are based upon the ability to do the job requirements and all promotions are based upon our equal opportunity policy rather than seniority. We have a lot of female managers. They can go on maternity leave and we do our best to bring them back to the same position when they come back.
What do you see happening to the retail industry in Japan? Are small stores doomed?
No, I don’t think so. Look around the world. It is the small and medium-size businesses that keep the economy going. Japan has an overabundance of those. But what is happening in Japan is that as the older generation pass on, the son and daughters don’t want to take on the business and that’s why they are closing, not because of us. Among our members, we have a lot of small and medium-size businesses. When I talk to them, that’s the one thing I hear most often -- who will take over their business?
Meanwhile, there are a lot of new entrepreneurs starting new business everyday, for example online sales.© Japan Today