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

Since arriving on Japanese shores a quarter-century ago, Costco, a membership-only American grocery and household goods retailer, has grown significantly and become seen by many as a consumer-driven savior for struggling local economies.

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

Hopes are high for economic benefits such as job creation and increased tax revenues as local governments struggle to find a way to ease chronic stagnation caused by rapidly increasing depopulation.

Some cities have even seen their populations increase in a welcome way thanks to the success of the retailer’s attraction, even if this has come at the expense of local merchants who are struggling to compete with the American giant.

“Our city’s reputation has been improving rapidly. It’s like an amusement park,” said Masayuki Fujiki, mayor of Mifune City, Kumamoto Prefecture, where Costco opened an outlet in 2021.

“I used to go to Tokyo frequently 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 city, which has a population of about 17,000.

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

The town’s population, which had been declining, grew by 300 people in three years and saw its municipal property taxes and other revenues increase.

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

His Mifune store qualified, as the nearby city of Kumamoto is home to about 736,000 people – the third most populous city on Kyushu, one of Japan’s four main islands.

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

The opening of Costco stores typically creates hundreds of jobs. Hourly wages for employees are uniform across the country, starting at 1,500 yen ($9.40) per hour, well above Japan’s legal minimum wage of about 1,000 yen per hour.

Costco currently has a total of 33 stores in 21 of Japan’s 47 prefectures. New stores are planned for 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 guarantee employment for local workers and provide disaster relief supplies.

For its part, the city hall successfully negotiated approval of the site from the prefectural government, which has the power to grant permits and authorizations for construction in “urbanization control zones,” which restrict the construction of commercial facilities.

The city of Minami-Alps in Yamanashi Prefecture has acquired the site of a former tourist facility from its landowner. Once roads and water systems are renovated, Costco, which will purchase about 6 hectares of the vacant land for about 860 million yen, is expected to open in 2025.

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

But Costco’s recipe for Japanese success has not been replicated by all foreign supermarkets.

British Tesco and French Carrefour have already withdrawn from the Japanese market. Costco has been steadily expanding its business since opening its first store in the country, in Fukuoka Prefecture, in April 1999.

Noting that Costco has never closed a store in Japan, Yuichiro Maruya, a professor of international marketing theory at Keizai University in Tokyo, touted the U.S. retailer’s role in helping “local governments design urban development around its stores.”

He added that Costco’s unique line of original products “encourages people to taste food and enjoy consumption as entertainment.”

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

In Nanjo, where a new store will open this year, a local supermarket manager in his 40s sees the bright side: “We can get products from Costco and sell them ourselves.”

But one petroleum retailer fears his sales will “definitely drop” because Costco also sells gasoline in some stores.

It’s a familiar story, as local merchants in Japan have suffered declines in the past as large suburban retailers invaded their markets.

“We can’t deny the negative effects on local retailers. But if nothing is done, regional commerce will not survive due to depopulation,” said a mayor of a western Japanese city that has successfully attracted a Costco store, speaking on condition of anonymity.

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