American retail giant Costco is deepening its foothold in the Chinese market with the opening of its first store in Minhang, Shanghai. The move comes amid the increasing US-China trade tensions that have resulted in punitive tariffs on both countries’ goods.
Costco is hoping that their buy-bulk strategy will resonate with Chinese consumers, especially the country’s growing middle class. Richard Zhang, Costco’s senior vice-president for Asia, said the firm had a “conservative” goal of signing up at least 100,000 members for the new store located on the outskirts of downtown Shanghai and boasts a population of two million.
In addition, Zhang hopes that because Chinese consumers are already familiar with the membership model, they will take to Costco more than previous foreign retailers. He said, “Chinese consumers are ready to pay for a membership card that grants them an exclusive privilege to buy at a warehouse store, it’s not a new concept in the country. A mature market saves us the effort of educating customers.”
Overseas retailers have often had difficulty localizing to Chinese consumers, as French supermarket Carrefour recently sold 80% of its shares to Chinese company Suning after repeatedly recording losses. Similarly British Tesco pulled out of China in 2014, while German wholesaler Metro is also said to be leaving the country.
Some retail analysts predict that Costco is already at a disadvantage due to their lack of understanding of the voracity with which China’s consumers use mobile e-commerce for shopping. The system of a single giant hypermarket is not guaranteed to succeed in China.
In response to US China tariffs, Zhang said the company has taken precautions, “In order to keep our prices low, we’ve replaced some US importers of fresh produce with Australian importers.”
Initial signs indicate a successful entrance to the market, as the Shanghai location was swamped with customers on the store’s opening day on Tuesday. The store had to temporarily close its doors, due to the overflow of customers. It still remains to be seen whether Costco will succeed long-term in China, and follow in the footsteps of its main rival, Walmart’s Sam’s Club, which has been in China for around two decades and aims to reach the benchmark of 40 stores nationwide.
Costco’s membership fee in China is priced at 299 yuan per year, and allows the cardholder to bring two additional people into the warehouse. After registration has been completed, a membership holder is eligible to apply for an additional free Family Membership, which allows the two cardholders to bring up to 6 people altogether to the warehouse.