After moving quietly through the French regulatory process, Costco Wholesale told investors it expected to open its first warehouse there by August 2016.
Costco Wholesale has finally announced to Wall Street its timetable for opening in France.
Until now, the Issaquah warehouse giant had moved relatively quietly through the process of entering one of Europe’s most protectionist countries. Jim Murphy, head of Costco’s international operations, had said in August that Costco would wait until it had “something firm to discuss” before divulging details.
But in an earnings conference call Wednesday, Chief Financial Officer Richard Galanti said a warehouse planned for the Paris suburb of Villebon-sur-Yvette would open “hopefully toward the end of the next fiscal year,” which ends in August 2016.
The opening comes amid a big ramp-up in the company’s international operations, which show lots of promise — even if in the latest quarter, translating profit earned in weak foreign currencies into a stronger U.S. dollar took a toll.
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In its fiscal 2016 year, which started in September, Costco plans to have 32 more warehouses in its portfolio, 10 to 12 of which will be abroad.
That includes the French location, but also two more warehouses in Madrid, Spain’s capital. Galanti conceded that Western Europe is a tough place to get into, “with all the rules, regulation and permitting process, but we’re pretty interested in continuing that process.”
Other areas show more short-term promise. Costco could double its warehouse count in Taiwan and South Korea, each of which has about a dozen locations. Australia, which has two-thirds the population of Canada, has only seven locations while Canada has more than 80.
“I’m not suggesting that we’re going to have two-thirds of that anytime soon, but we can add a few there,” Galanti said.
As for Canada, “We never thought we’d have more than 80. We now have more than that and we’ll certainly be over 100 at some point in the next several years,” he said.
The executive said he expected that five years from now about half the openings will be in international markets.
Yet these countries come with their own set of challenges. It takes longer to open warehouses abroad. Also, foreign-exchange moves can impact U.S. dollar earnings: Profits took a $53 million hit in the fourth quarter because foreign currencies lost value versus the greenback, Galanti said.
It also takes time to get into a groove. “You learn what sells and doesn’t sell,” Galanti said.
In Seville, Costco’s first Spanish location, it had stronger sales in nonfood items than it expected, while fresh-food sales were not so strong; it’s usually the opposite in new markets, Galanti said
Now “we’re seeing some traction,” he said.
With the exception of Australia, where sales were great from the get-go, success abroad has come slowly and requires patience from executives and investors alike.
“Given our great success in countries like Korea and Taiwan and Japan, we have to remind ourselves that Korea and Taiwan were not very good for several years,” Galanti said.