Over the past year, divergence within Australia’s retail sector has accelerated. One signal, in particular, deserves close attention.
For the financial year ended 31 August 2025, Costco Australia recorded a 39.4% year-on-year increase in profit. In an environment marked by tightening household consumption and intense price competition, this outcome cannot be explained by short-term promotions or one-off factors.
More importantly, Costco operates only 15 stores in Australia, yet its after-tax profit has already surpassed Aldi, which operates more than 600 stores nationwide.
This points to a fundamental shift in retail competition:
The core question is no longer “who has the most stores,” but “whose operating model is the most efficient.”
From a Single Store to a Proven System: Australia Validates Costco’s Global Model
Costco entered Australia in 2009 with its first warehouse in Docklands, Melbourne. In the years since, that store — and the Australian network more broadly — has consistently ranked among Costco’s top-performing locations globally.
Today, with just 15 warehouse stores, Australia has become one of Costco’s standout international markets. Under current plans, Costco will open one additional store each in Victoria and Western Australia by 2027, with a longer-term ambition to expand to approximately 35 stores nationwide.
Notably, this expansion remains highly disciplined. Costco only commits capital to locations capable of supporting its high-volume model — a long-term judgment on site selection, accessibility, and asset efficiency rather than rapid footprint growth.
15 Stores, More Profit Than 600 Aldi Stores: Efficiency Is Replacing Scale
According to regulatory financial disclosures:
•Costco Australia generated approximately AUD 499.2 million in after-tax profit
•Aldi Australia, despite recording AUD 13.3 billion in sales in 2024, reported AUD 403.7 million in after-tax profit
This comparison makes one point unmistakably clear:
Retail competition is no longer about store density — it is about per-store productivity and structural efficiency.
From an asset perspective, this reframes the investment question:
Can the real estate support a high-efficiency retail model?
Changing Consumer Behaviour: Retail Now Revolves Around “Worth the Trip,” Not “Close to Home”
Following prolonged price disputes, traditional supermarkets attempted to recover foot traffic through price reductions. However, consumers did not simply revert to previous habits.
Instead, households are becoming more rational and deliberate:
•Fewer shopping trips
•Larger, more planned purchases
•Willingness to travel further for value certainty
This shift strongly favours destination-based retail formats.
During the ACCC inquiry, Coles management publicly acknowledged that:
A single Costco store can generate 6–8 times the sales volume of a typical supermarket, materially diverting spending from surrounding retail networks.
Membership Fees + Low Margins = Highly Predictable Profitability
Since inception, Costco has adhered to what is often described as a “reverse retail” model:
•Merchandise mark-ups capped at approximately 15%, well below industry norms
•Core profitability derived from membership fees
Although membership fees account for only about 2% of total revenue, they contribute more than 60% of operating profit.
This structure delivers:
•High earnings visibility
•Reduced vulnerability to price wars
•Strong resilience under regulatory and cost pressures
Implications for Real Estate: Large Format Retail Is Being Revalidated
Costco’s success is not an isolated corporate story. It reflects the co-evolution of consumer behaviour, retail efficiency, and real estate form.
As household consumption shifts from:
•High-frequency, dispersed purchases
to
•Low-frequency, concentrated, destination-driven spending
Retail increasingly relies on transport accessibility, not incidental foot traffic.
In this context, Large Format Retail (LFR) and warehouse-style assets — capable of supporting destination-based consumption — are seeing their structural advantages reaffirmed.
For investors reassessing asset allocation, these assets are transitioning:
From “optional exposure” to “cycle-aligned allocation.”
Cornerstone Assets’ View
This is not simply the success of one retailer — it reflects a deeper shift in consumer behaviour.
Australian households are moving away from frequent, fragmented shopping toward planned, consolidated purchasing. When consumers are willing to travel further for value and certainty, the core logic of retail changes fundamentally:
Consumption no longer revolves around proximity, but around purpose.
This behavioural shift is directly reshaping the value foundation of retail real estate.
In this process, Large Format Retail and warehouse-scale assets demonstrate clear structural advantages:
•Strong alignment with transport corridors and high-accessibility nodes
•Ability to support destination-based consumption
•Higher tenant operating efficiency
•Lower sensitivity to price competition and short-term demand volatility
Over the long term, their stability is derived less from economic cycles and more from urban structure and lifestyle patterns.
From an asset-allocation perspective, this matters greatly. As residential returns become increasingly cycle-dependent and cash-flow certainty weakens, commercial real estate with verifiable income, durable operating logic, and long-term land value support is once again emerging as a core allocation, not merely a growth-oriented alternative.
In our view, Costco’s profit growth is not a one-off result — it is a clear trend signal. Retail is not declining; it is evolving toward higher efficiency and greater concentration. The asset types capable of supporting this evolution are already being recognised by capital — often before consensus fully forms.
For investors considering portfolio restructuring or seeking greater cash-flow certainty over the coming years, the more important question may no longer be whether to allocate to commercial real estate, but how to allocate to the right segment within it.
