Costco Wholesale Corp. is set to open its first bricks-and-mortar warehouse in China this August.
A business based on membership strategy
After setting up an online store on Alibaba’s Tmall five years ago, the U.S wholesaling giant is to open its first physical warehouse in Shanghai’s Minhang district on the 27thof August.
Costco’s model in North America has been based on families buying bargain products in bulk, transporting them in their cars and then storing them at home. Its business success is based on building a loyal shopper base through its paid membership program with low price items. Costco pledges refunds even after the goods are consumed. The firm’s membership strategy has been largely successful in most markets, with 88% renewal rate globally.
Costco China will offer two types of memberships – one for families and the other for corporation, both with an annual price of US$43. Customers have been able to apply for memberships since April.
Costco will have strong competition from Walmart China’s Sam’s Club, also a membership-only retail club chain.
Sam’s Club has the advantage of entering the China market 20 years earlier and cumulated a wealth of knowledge and experience of the market. During that 20 years, Sam’s Club has gradually shifted its target to high end and upscale market and focuses more on quality premium products than low price. The retailer has been accelerating store expansion the last two years and plan to have 40 stores by end of 2020.
Expansion into China has many benefits for Costco, alleviating over reliance on North America being one of them. The question is whether Costco will change its strategy in China.
Costco currently runs a total of 770 warehouses worldwide, including 12 each in Taiwan and South Korea and 26 in Japan.
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