The retailer will open a new store in Suzhou, an eastern city near Shanghai. It will the company’s third location in the country.
Expanding presence and targeting middle class shoppers
The retailer is planning for a warehouse store with a floor area of more than 50,000 sq m in Suzhou New District.
It opened its first store in Shanghai in August last year. Earlier this year, the retailer announced the plan to open a second store, also in Shanghai, in 2021. This Suzhou store will be its third location in China.
Costco is expanding its presence in the country where a rapidly expanding middle class is looking for good-quality products at competitive prices. Richard Chang, senior vice president for Asia at Costco Wholesale commented, "With growing purchasing power, Chinese customers have adopted a more open and mature mindset toward consumption".
Strong performance from the Shanghai store
The strong performance from the Shanghai store is the main reason why Costco plans to open more stores. The company had to shut the store on its opening day as large crowds flooded into the store and caused traffic jams in nearby neighborhoods. Within four months of its opening, more than 240,000 new customers have become Costco members.
"It [the Shanghai store] is beyond good. ... We've had locations in other countries in Asia where we might be at 120,000 [signups] after a year or two. This one is more than twice that," said Costco CFO Richard Galanti.
May take several years to break even
Costco said it may take several years for the stores to break even after average shipping and stock costs are reduced.
"We brought some additional people [to the Shanghai location] in from Taiwan that do speak the local language and understand our concept and it's been the greatest...but it's also cost some more," Galanti said. "It may take a couple of years to improve efficiencies."
"That's one of the reasons why we generally go slow in new countries because we want to get it right from customer experience and also from the operational side," he added.
Last month, Costco’s rival, Walmart-owned Sam’s Club, announced to launch a flagship store in Shanghai.
IGD subscribers can find out more informaiton on how Costco has approached market entry and how it is looking to win in Asia’s largest grocery market by checking out our First look at Costco in Shanghai store report.