Costco proving a one-stop shop for regional revitalization in Japan

FUKUOKA (Kyodo) — Since its arrival on Japan’s shores a quarter-century ago, American membership-only warehouse food and home goods club retailer Costco has grown significantly and evolved into being seen by many as a consumption-driven savior for struggling local economies.

An increasing number of cities and towns are investing in hopes of attracting a Costco megastore by preparing potential sites and road infrastructure, banking on the aggressive business expansion plans of the company’s Japanese unit to boost their coffers.

Hopes are high for economic ripple effects such as job creation and increased tax revenues at a time when local governments are struggling to find a way to dispel chronic stagnation caused by the rapid progress of depopulation.

Some towns have even seen a welcome boost in their populations as a result of successfully attracting the retailer, albeit at the expense of local merchants who struggle to compete with the American behemoth.

“The name recognition of our town has rapidly improved. It’s just like a theme park,” said Masayuki Fujiki, town mayor of Mifune, Kumamoto Prefecture, where Costco opened an outlet in 2021.

“I used to frequently go to Tokyo to drop off my business card at the Japanese subsidiary” of Costco Wholesale Corp., Fujiki said, recalling years of efforts to lure the U.S. retailer to his town, which has a population of about 17,000.

Following a series of major earthquakes that caused severe damage to the southwestern Japan prefecture in 2016, he urged Costco to invest in the town as a “symbol of reconstruction.”

The town’s population, which had been in decline, increased by 300 people in three years and has seen a jump in municipal property tax and other revenues.

Costco Wholesale Japan Ltd. has clear-cut conditions for opening an outlet — a population of more than 500,000 within a radius of 10 kilometers and area for a parking lot that can accommodate more than 800 cars.

Its store in Mifune met the conditions, with neighboring Kumamoto city home to about 736,000 people — the third most populated city in Kyushu, one of Japan’s four main islands.

Costco Japan President Ken Theriault said the company assesses the population size of a commercial district where a store could potentially be opened and then prioritizes the largest markets.

The opening of Costco outlets normally creates hundreds of jobs. Hourly wages for employees are uniform throughout the country, starting at 1,500 yen ($9.40) per hour a figure that is significantly higher than Japan’s legal minimum wage of around 1,000 yen per hour.

Costco currently has a total of 33 stores in 21 of Japan’s 47 prefectures with new stores planned in 2024 in three more locations — Higashiomi in Shiga Prefecture, Ogori in Fukuoka Prefecture, and Nanjo in Okinawa Prefecture.

In Ogori, Costco has agreed with the municipal government to ensure the employment of local workers and to supply goods in the event of disasters.

The city office, for its part, successfully negotiated to have the site approved by the prefectural government, which has the authority to grant permits and approvals for construction in “urbanization control zones,” which restrict the building of commercial facilities.

The city of Minami-Alps in Yamanashi Prefecture acquired the site of a former tourist facility from its landowner. After the roads and waterworks have been refurbished, Costco, which will purchase about 6 hectares of the vacated lot for about 860 million yen, is scheduled to open for business in 2025.

Mayor Sumio Kimura of Satte, Saitama Prefecture, near Tokyo, used the promise of a Costco outlet to attract votes in last year’s election.

But Costco’s recipe for Japanese success has not been replicated by all overseas supermarket retailers.

Tesco PLC of Britain and Carrefour SA of France have already retreated from the Japanese market. In contrast, Costco has kept expanding operations since opening its first outlet in the country in Fukuoka Prefecture in April 1999.

Noting that Costco has never closed an outlet in Japan, Yuichiro Maruya, a professor of international marketing theory at Tokyo Keizai University, touted the fact that the U.S. retailer helps “local governments design urban development centering on its outlets.”

He added that Costco’s unique lineup of original products “helps encourage people to sample foods and enjoy consumption as entertainment.”

However, there is a mixture of anticipation and anxiety among local retailers about Costco’s recent forays.

In Nanjo, where an outlet will open this year, a local supermarket manager in his 40s looked on the bright side, saying, “We can procure products at Costco and sell them ourselves.”

But a merchandiser of petroleum products worries that his sales “will undoubtedly fall” because Costco also sells gasoline at some stores.

It is a familiar story, as local merchandisers in Japan have experienced declines in the past when big suburban retailers push into their markets.

“We can’t deny the unfavorable effects on local retailers. But if nothing is done, regional commerce will fail to survive due to depopulation,” a city mayor in western Japan, who was able to successfully lure a Costco outlet, said on condition of anonymity.

(By Takehiro Higashi)