How has Costco performed in China?

Date : 08 October 2021

Jiong-Jiong Yu

Senior Retail Analyst

In view of the wholesale store boom in China. We take a look at how Costco has performed in the country since its high-profile market entry in 2019.

First year sales reached CNY2 bn (US$310m)

Costco opened its first China store in Shanghai in 2019. That store achieved sales revenue of CNY2 bn (US$310m) in the first year. Because of COVID-19 restrictions (e.g. social distancing and control of in-store customer numbers), its sales were down by 20% in 2020. It is expected that its 2021 annual sales will bounce back to a similar level as in 2019.

Shanghai is a hot spot for membership-only wholesale stores because of large number of middle-class families, who are time-poor but cash-rich. The city has the world’s largest Sam’s Club and Alibaba’s first wholesale store, Freshippo X.  

Costco’s second store in Shanghai is under development and the retailer is planning to open more stores in second-tier cities such as Hangzhou and Nanjing in 2022 and 2023.

Costco has three distinctive advantages in China …

  • High performing range: Costco’s SKU count is around 2,000 to 3,000, lower than Sam’s Club (3,000 to 4,000). Costco "sweats" each SKU hard to achieve high operational efficiency and competitive price
  • Team that understands local trends: Costco China is run by local managers, including those from Costco Taiwan who share the same culture and language
  • Brand awareness: The Costco brand is well known even before the retailer opened its first store. Customers associate the brand with high service standards and good-value-for-money products

Costco's main rival in China is Sam’s Club. Both differentiate from local operators by introducing a new lifestyle to local shoppers.  

… and two challenges

  • Lack of small package goods: houses and apartments in China often do not have large storage spaces as in the US. Costco’s large package goods will have difficulties after the novelty has worn off
  • Meeting the diverse needs of a diversifying consumer base in a dynamic market: consumption trends change very quickly in China. Businesses, including warehouse-style membership stores, need to maintain high new product launch rate to keep consumers engaged. This is one of the pressures that Costco needs to bear. Because it does not invest in long-tail products, it will have to do a much better job at predicting the future trends than other retailers

Visit here for more news, analyses and data on leading retailers in China.

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