This November’s Atlantic Issue has an interesting, humorous article (includes a bit of french from a Parisian cab driver) about the very first Costco in France. The location on the outskirts of Paris has apparently become “an unlikely hit in a city known for its refined tastes.” This is attributed to be surprising especially as a magazine called Costco an “American Mastodon”.
Speaking Retail Operations, it is not surprising that a Costco superstore is welcome in France. They signed up 12,000 members in 10 days. (See the excitement in the video of Costco Franco opening, for yourself. Video Credit: Huffington Post France).
First, the Costco France opened in Villebon-Sur-Yvette, which is about 30 km from where-ever one thinks the epicenter of Paris is (say, 5th or 6th Arrondissement). From Paris, it is easier to get to INSEAD at Fontainebleau (45min by train) than to Costco at Villebon-Sur-Yvette (nearly 2 hours), both locations much different from Metropolitan Paris. Further, Costco already has 21 stores in Quebec, including 2 in Montreal, the biggest French-speaking city in the world outside of Paris. The experience acquired from selling in a Francophone world will be undoubtedly useful for their expansion into France.
The main point however is that big supermarket-style Brick & Mortar (B&M) business is not new to France. The largest player in Europe, Carrefour (crossroads in French), has 259 hyper stores, i.e., large stores covering an area of 2000-23000 sq. m., in France alone. This number is in addition to another 1059 Carrefour Superstores and 4000+ Carrefour convenience stores in France, or another 100+ hypermarkets owned by Auchan. To compare store size the first Costco store is a mid-scale hyper store at 12,000 sq. m. or 129000 sq. ft. which is also smaller than an average Costco store at 144,500 sq. ft. (Source: Costco 2017 Financials).
The warm reception, likely aided by the reputation of friendly employment policies, augurs well for Costco France. I think that the positive reception might have more to do with Costco’s friendly focus (relatively speaking) on small businesses. Costco runs 12 business centers in the US (+2 in the UK) that are smaller wholesale locations that cater more to small businesses than to households. Costco France store size is comparable to an average Costco US business center size (115,000 sq. ft.).
I suppose that France has a higher density of fragmented retail markets (restauranteurs, “mom-and-pop” convenience stores, etc.) than the US. The entry of Costco as a wholesaler-to-small-business is relatively better for those small retailers than the growth of other big-box chains that own their retail stores.
Finally, in the US, the better treatment of employees has been a structural differentiator in Costco’s Operations strategy: One that has turned out to be quite profitable, buffeted with high retention rates and high labor efficiency (note: process knowledge is not lost/re-learned when employee turnover is small). I believe that such advantages will make scaling stores in Europe less challenging for Costco than it would be for other retailers. This is a nuanced point for a future post.
PS: Where is Amazon? Amazon is still a relatively small player in the retail business globally (true). However, going forward, I do expect aggressive B&M acquisitions from Amazon, which would then leverage its knowledge advantage in warehouse management systems and shipping logistics, to make strides.
PPS: If you are a Wharton student interested in knowing how things work at a Costco warehouse, I recommend Prof. Morris Cohen’s OIDD 680 course which visits Costco.