Reykjavík Grapevine - 25.08.2017, Page 16

The Costco
Effect
How the retail giant is impacting
the Icelandic economy
Words: Zoe Vala Sanders
Photos: Art Bicnick
The U.S. wholesale giant Costco
opened in Iceland in May, taking
advantage of the retail boom that
has slowly grown up since the 2008
Icelandic financial crisis. As with
most American visitors, Iceland-
ers expected Costco’s presence to
be cumbersome. But no American
has shaken us quite like Costco.
The megastore’s multifac-
eted selection has had drastic ef-
fects on the Icelandic economy on
many fronts. While some consider
that Costco’s arrival has gener-
ated healthy competition, oth-
ers see it as another invasive U.S.
corporation overthrowing local
business. Regardless, Costco is a
force to be reckoned with, reor-
ganizing and revitalizing Icelan-
dic commercial power structures.
“Best quality products”
for “consistently lower”
prices
“Costco offers high quality prod-
ucts and known labels for a sig-
nificantly lower price than the
usual shop,” reads Costco’s Icelandic
website, plastered with imported
images of smiling American staff.
And Costco's promise of the “best
quality products” for “consist-
ently lower” prices has met with
great success. Queues of Icelandic
customers can routinely be found
lining up outside the superstore,
and, according to a recent Bloomb-
erg report, a quarter of the popu-
lation has already signed up for
a 4,800 ISK annual membership.
A 40% increase in
cargo flights
Icelandair has reportedly expe-
rienced a 40% increase in cargo
flights since last July, which Gun-
nar Már Sigurfinnsson, CEO of Ice-
landair Cargo, largely attributes
to the sudden increase in demand
for imported Costco products. "We
need to transport a lot of products
for them,” Gunnar told Fréttablaðið.
Icelandic produce
can’t compete
Unsurprisingly, the flood of cheap
foreign commodities is causing
problems for domestic produc-
ers. Local strawberry growers
have had to lower their prices sig-
nificantly, while some have even
stopped picking their strawberries
this summer. The Icelandic straw-
berry is usually in extremely high
demand, but this year, the high
quality product simply cannot
compete with a Costco price tag.
Costco has had a noticeable im-
pact on the sale of Icelandic toma-
toes too. “There’s been a significant
decrease in the sale of Icelandic
tomatoes. That is just a fact,” Gun-
nar Þorgeirsson, Chairman of the
Icelandic Association of Garden-
ers, told Vísir. Gunnar hopes that
negotiations with Costco will re-
sult in the possibility of selling Ice-
landic products at the warehouse:
“That way the customer will at
least have a choice between an im-
ported or a local product,” he said.
Costco is also raising the bar
when it comes to oil prices, selling
their petrol for 169.5 ISK per litre,
whereas the overall price of petrol in
the country has not fallen below 170
ISK since 2007. The record low pric-
es took Icelanders by such surprise
that rumours of fixed oil prices and
magic Costco petrol went flying.
Costco selling products
under production cost
Papco, Iceland's only toilet paper
manufacturer, has suffered a 20-
30% drop in sales since the arrival
of Costco, forcing the company to
lay off six staff already. Alexander
Kárason, Papco’s assistant-CEO,
says Papco cannot compete with
Costco’s ability to sell their prod-
ucts under production cost. As he
told Vísir, "That's something we
can't compete with, as we have to
buy our raw materials, and the
paper, at world market prices."
Costco not yet a
dominant market player
It is illegal for dominant market
players like Papco to sell their
products below production cost
in Iceland. Since Costco has yet
to be labelled a dominant market
player, the warehouse can con-
tinue to lower their prices. How-
ever, it appears as though Costco
is quickly approaching dominant
market player status, with food and
drink prices falling by a whopping
1.2% in the first month after the
warehouse opened, as reported
by Arion Bank’s research division.
Healthy competition for
local retail giant
If you are pro small business, you
merely have to compare Costco to
one of Iceland’s bigger retail play-
ers, and suddenly the Costco-craze
takes on a grayer light. Hagar, a local
retail giant that operates a number
of Iceland’s biggest chains—in-
cluding Bónus, Útilíf and Zara—
has suffered tremendously since
Costco opened. Hagar reported a
drop of 28% in its shares in May
and an 8.5% drop in sales in June.
But Costco is not the only re-
tail giant taking advantage of Ice-
land’s repealed tariffs and excise
duty; the Swedish clothing-retail
company H&M is opening two
stores in Iceland this fall. Hagar
has already closed several of its
clothing outlets in anticipation.
Costco is a step toward
a stronger Icelandic
economy
It is easy to condemn Costco and
curse every polluting cargo flight
that comes in while high quality
Icelandic strawberries rot in our
greenhouses. But while local indus-
try may be losing now, these rip-
ples of change are significant steps
toward the formation of an Icelan-
dic economy that can be a sustain-
able player in the global economy.
A lesson of consumer
responsibility
Let Costco continue to shake up
Iceland’s retail empires and invest
in the economy. And let Costco be a
lesson of consumer responsibility to
the Icelandic customer (who is em-
barrassingly weak to materialistic
fads)—namely, that we still have
the choice to support local indus-
try. The Icelandic market should
welcome foreign competition, and
celebrate it as a driving force for
change and a reminder that va-
riety does not exclude choice.
16 The Reykjavík Grapevine
Issue 15 — 2017
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