Costco, the U.S.-based wholesale retailer, has been expanding its presence in China amid a broad slowdown in the country’s consumer market. The company opened two new stores in China this summer, one in Hangzhou and another in Ningbo, bringing its total number of warehouses to six.
According to David and Susan Schwartz, authors of the forthcoming book “The Joy of Costco: A Treasure Hunt from A to Z”, Costco’s stores in China are attracting huge crowds of shoppers every day, regardless of the time or day of the week. They said average daily foot traffic at Costco in China this summer was around 7,000 people — double that of the U.S. — for stores that are about the same size.
“In China we just saw a lot of people every day we went, anytime we went, from morning to evening, weekdays and weekends, just lots and lots and lots of people,” said David Schwartz. “We didn’t get a sense of any ebb and flow at all.”
That contrasts with Costco locations in the U.S., where weekdays aren’t as busy as the weekends, he said in an interview last week.
Costco taps into China’s premium market
Costco’s success in China reflects its ability to cater to the premium segment of the consumer market, which has been more resilient than the mass market amid the economic slowdown. China’s retail sales grew by only 2.5% year-on-year in July, adding to growing uncertainty about the country’s future growth.
However, some multinational companies have been able to maintain or even increase their sales in China by offering high-quality products and services that appeal to the rising middle class and affluent consumers.
“What you will see is the premium market will definitely continue to do well,” said Chris Reitermann, CEO of Ogilvy Asia Pacific and Greater China, in an interview Friday.
Costco’s annual membership fee in China is 299 yuan ($41), which is lower than the $60 fee in the U.S., but still higher than most local competitors. The company also offers a wide range of imported and domestic goods, from fresh produce and meat to electronics and clothing, at competitive prices.
Costco also creates a sense of excitement and discovery for its customers by constantly changing its product mix and offering limited-time deals. This encourages shoppers to visit its stores frequently and buy impulsively.
Costco faces challenges and opportunities in China
Despite its strong performance so far, Costco still faces some challenges and opportunities in China’s dynamic and competitive retail landscape.
One challenge is the rising popularity of e-commerce platforms, such as Alibaba and JD.com, which offer convenience, variety and low prices to online shoppers. Costco has partnered with Alibaba’s Tmall platform since 2014 to sell its products online, but it still relies heavily on its physical stores for revenue and customer loyalty.
Another challenge is the regulatory environment in China, which can be unpredictable and restrictive for foreign businesses. For example, Costco had to temporarily close its first store in Shanghai on its opening day in 2019 due to overcrowding and traffic chaos. The company also had to comply with various rules and standards on food safety, environmental protection and labor practices.
On the other hand, Costco also has some opportunities to grow its business in China by tapping into new markets and segments. For instance, the company could open more stores in lower-tier cities, where consumer demand is still strong and competition is less intense. The company could also target younger consumers, who are more willing to try new products and experiences.
Moreover, Costco could leverage its global network and supply chain to offer more exclusive and differentiated products to its Chinese customers. For example, the company could source more organic and healthy products from overseas markets, or introduce more local specialties from different regions of China.
Costco needs a long-term vision for China
As Costco continues to expand its presence in China, it will need to have a long-term vision and strategy for the market. The company will need to balance its global brand identity with local adaptation, as well as maintain its quality standards and customer satisfaction.
The company will also need to be prepared for potential risks and uncertainties that may arise from changes in consumer preferences, market conditions or government policies. The company will need to be flexible and agile enough to respond to these changes quickly and effectively.
According to Daniel Zipser, senior partner at McKinsey & Company, companies need to think about being successful in China in the next two to three years, rather than the next 12 months.
“China is not a sprint; it’s a marathon,” he said.
