mysql CREATE USER

I am logged into mysql...

mysql -u root -pmypass

And I have run the following command to remove the database user which worked succesfully

mysql> FLUSH PRIVILEGES; DROP USER 'myuser_shop';

I can then add user successfully using the following command, again this works successfully

mysql> FLUSH PRIVILEGES; CREATE USER 'myuser_shop' IDENTIFIED BY 'mypass';

The above command create a user with the host as a wildcard (%) The issue I am having is if I was to create a user with the host being say localhost or an external IP i get the following error:

mysql> FLUSH PRIVILEGES; DROP USER 'myuser_shop';
mysql> FLUSH PRIVILEGES; CREATE USER 'myuser_shop'@'localhost' IDENTIFIED BY 'mypass';

Query OK, 0 rows affected (0.00 sec)

ERROR 1396 (HY000): Operation CREATE USER failed for 'myuser_shop'@'localhost'

Any suggestions?

Thanks in advance