First look at Costco in China

Date : 27 August 2019

Costco has opened its first warehouse in China today (27th of August). The warehouse brings members the best possible price on quality items by selling in large quantities. Its communication channels have also been tweaked to adapt to the China market.

New store the same size as three football pitches

Located at Lianyou Road, Minhang District, the membership-only wholesaler continues its formula to provide huge discounts for bulk purchases in a no-frills environment.  

Covering an area of 20,000 sq m, the same size of three football pitches, Costco in China adopts the same U.S standard one-story floor plan. Costco's first warehouse in China has a parking lot that can accommodate 1,200 vehicles, the wholesaler's largest globally.

Source: Costco.com.cn

Costco's target shoppers are families, corporate buyers, small businesses and those typically attracted by international brands and would drive from 30 to 45 minutes to reach the warehouse.

Source: IGD Research, CBBC

 

Exclusive membership services to attract new members

Costco China offers two types of memberships, one for families and one for businesses. Both have the same annual membership fee of CNY299 (US$43), 29% lower than in the U.S, and can be used worldwide at any of its 770 warehouses.

The warehouse offers a range of exclusive membership services such as free eye tests at the optical centre, free tire pumping at the tire centre, hearing test and in-store food sampling. Famous for its generous return policy, Costco pledges refunds to customers even after the goods are consumed.

The warehouse has started membership recruitment both online and offline since July. At present, it has tens of thousands of members. The new warehouse aims to have 100,000 members to make its operation sustainable. 

Source: IGD Research, CBBC

Aiming to maintain high quality and low price approach

The warehouse carries about 3,400 SKUs, 40% are imported goods and 60% are locally sourced. Its high quality private label, Kirkland Signature, accounts for 10% of the range. General merchandise items are priced 30 to 60% lower than market prices and the food sold at the warehouse is 10 to 20% cheaper.

Zhang Sihan, Vice President for Costco Asia, said, “We have a special team dispatched to the United States, Canada, Australia, Japan, Korea and other countries to purchase products at the cheapest price.” Due to the trade war between the US and China, the wholesaler replaced some of the U.S imports with fresh products from Australia to keep prices low.

In Zhang’s opinion, high quality products at low prices will be Costco’s biggest appeal.

Source: IGD Research, CBBC

 

Early signs of adapting to the China market

Costco China already launched its WeChat mini program and Costco China app. Membership applications or renewals can be done directly via these two apps. A number of different payment options are available, including WeChat pay, Alipay, local and international cards.

These are encouraging signs that the wholesaler understands the retail market and is willing to adapt.

Source: IGD Research, Costco

 

Our View

Costco’s success depends on two key factors: how quickly it can adapt to local preferences and how flexible it can adjust its market positioning.

Costco arrives at a time when local ecommerce giants, such as Alibaba and JD.com, are integrating offline stores and online commerce. Local retailers are reaching out to customers from all possible channels. Chinese consumers have grown to be increasingly internet savvy and accustomed to delivery services. Adapting to local purchase behaviours and preferences would be essential to any foreign business looking to succeed in China.

Costco's biggest rival, Sam's Club, a subsidiary of Walmart operates on the same principle of membership and wholesale, has been present in China for more than 20 years. It also started with a low price approach, but gradually moved its focus to premium products rather than competing on price. It remains to be seen whether Costco will be equally agile.