In an interview with Sina Finance on September 1, American wholesale company Costco’s CFO, Richard Galanti, disclosed that the company will be adding a second store in Shanghai by next year at the earliest.
Following the recent opening of its first store, Costco is planning to deepen its footprint in the Chinese market and slowly increase its warehouse numbers outside of Shanghai in the future. According to the company’s CFO, the American multinational corporation has been eyeing China as a potential market throughout the past two decades following frequent visits to Shanghai by senior management executives.
“We plan to open a second Costco store in Shanghai from the end of 2020 to the beginning of 2021. We hope to start construction on the new store as soon as possible,” said Galanti. He added that the company is already looking for opportunities to open new stores in other cities in the future, but it will take time. “We need to first make sure that the first few stores are operating well for both our employees and our members.”
Costco opened its first store in China’s mainland on August 27 and proceeded to watch shoppers overrun its expansive aisles on opening day. The company had to temporarily close down the warehouse for half a day because of the overwhelming traffic volume brought by its customers. Customers were seen queuing up in long lines of up to 2 hours and had to wait at least 3 hours for a parking spot before they were able to get in.
At the end of its opening day, Costco’s stock prices soared 5%, closing at a high of $299.26 on August 28.
“We did expect huge customer traffic before. Much of this is based on the fact that a large number of new members have registered two or three months before the grand opening, and because of the enthusiasm shown by netizens on social media,” said Galanti. “Although we did expect large numbers on opening day, the actual traffic volume at the Shanghai store still exceeded our expectations.”
When prompted about whether Costco thinks it will produce steady results in the Chinese market in the future, Galanti responded, “Chinese consumers possess different shopping habits compared to consumers in the US or Canada. We believe we have and will continue to bring high quality and exciting new products to the world and our members.”
Costco’s business model is to generate high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise. According to the company’s official website, Costco warehouses carry about 4,000 SKUs (stock keeping units) compared to the 30,000 found at most supermarkets. By carefully choosing products based on quality, price, brand, and features, the company can offer the best value to members.
“We believe our unique SKU model below 4,000 is our strategic advantage. Our buyers will always prioritize high quality merchandise ranging from daily necessities to unique products that are most demanded by our members,” explained Galanti on the company’s strategy with its Shanghai store. “For Shanghai’s Costco, some of the unique items it carries include high-end designer bags, high quality wines, fresh whole blue fin tuna and more.”