THE UK retailing scene could be in for a change as dramatic as the

arrival of the supermarket in the 1950s following the clearance given by

a High Court Judge to Costco, a US warehouse-style club, to open its

first UK store. This despite the strong objections of the three

established supermarket giants J. Sainsbury, Tesco and Argyll Group,

owners of Safeway.

The three supremarket groups challenged the planning permission given

to the US group for a 12,800 sq metre warehouse club at Thurruck in

Essex. They were concerned that the club has been given planning

permission as a wholesaler rather than as a retail operator, which means

it would not have to comply with as strict controls as retailers.

High Court Judge Justice Shiemann said that members who pay a

subscription will buy bulk quantities of discount-priced food and other

goods in warehouse-type buildings, and he regarded them as non-retail

outlets and subject to less stringent planning controls.

Shiemann added that new warehouse clubs would have little overall

impact on other retailers in the area, and small retailers would

actually gain as they themselves could buy supplies from the warehouse

clubs for their own shops.

Typically, warehouse clubs offer their members the opportunity to buy

in bulk a range of goods from baked beans to video recorders. They tend

to trade as both wholesalers and retailers selling both to businesses

and individuals from selected employment groups, such as government or

statutory body employees and those from the public utilities.

Membership fees for the clubs usually range from $25 to $35. Credit

cards are typically not accepted and there is very little in the way of

service but prices are much cheaper than currently on offer in the UK.

In the US, although this may not be the same in the UK, food trades off

a gross margin of around 10% significantly lower than the 26% or so

currently achieved by the operators of UK superstores.

Although the trading concept of the clubs is narrower than that of

supermarkets, they have grabbed a large chunk of the US retail market

and can be expected to make some inroads into the UK retail market. With

concerns over saturation in UK food retailing following a rapid

superstore opening programme in recent years, it is not surprising that

Britain's major supermarket groups are crying foul.

They need a high level of sales per square foot and higher margins

than their overseas counterparts to generate a sufficent return on

capital employed. The arrival of Costco on the UK shore threatens to

upset the applecart at a time when the major players are still battling

to come to terms with the competitive threat posed by discount retailers

such as Kwik Save and to a lesser extent Shoprite and Aldi.

The large sites needed by the warehoue clubs may constrain their

expansion in the UK given the high cost involved relative to the US,

however it is likely that there will be several dotted around the

country within the next few years. Costco still plans to open its

Thurrock store on November 30.