Crowds of bargain hunters converged on a new warehouse retailer in Shenzhen in January, undeterred by the early morning queues and the fact they were effectively supporting a U.S. cultural import. For this warehouse was the sixth opened by U.S. icon Costco in China, and wasn’t the first opening met with crowds of eager shoppers.
This week, The Wire assesses Costco’s competitive position in China and examines whether its membership warehouse model can gain a lasting foothold in the country.
A GRAND OPENING
Costco opened its first warehouse in China in August 2019, in Minhang, a suburban district of Shanghai. Despite the warehouse’s distance from the city center, the surrounding roads were soon jammed on its opening day. Local police had to remind shoppers to consume rationally and choose off-peak times to visit.
“Americans would be stunned at how crowded and busy these warehouses are,” says David Schwartz, who co-authored The Joy of Costco: A Treasure Hunt from A to Z with his wife Susan Schwartz. The couple traveled to China in July 2023 and visited Costco warehouses in Minhang, Suzhou and Pudong.
Schwartz says Chinese consumers had “gotten a taste” for Costco’s exclusive Kirkland Signature products, which have been available in China via Alibaba’s online stores for about a decade. Shoppers can find the Kirkland Signature label on everything from groceries to clothes, as well as cleaning products and gas.
Costco charges 299 renminbi ($42) for its basic annual membership in China, compared to $60 in America. Shoppers need to be a member to make purchases at Costco stores, often enjoying cheaper prices than those at other retailers, particularly if they buy in bulk.
After the initial lockdown, people didn’t want to get stuck with empty fridges. So we’ve seen a real shift back towards people buying a little bit larger and more long-term.
Mark Tanner, managing director of China Skinny, a Shanghai-based research, strategy and branding firm
Western retailers have a mixed record of success in China, with some, like Walmart and Britain’s Marks and Spencer, either downsizing or exiting the country after disappointing performances.
“[British retailer] Tesco is a good example. Their loyalty programs worked well in the UK and some of their other markets, but Chinese consumers just didn’t see a lot of value in it,” says Mark Tanner, managing director of China Skinny, a Shanghai-based research, strategy and branding firm. “They have loyalty programs for everything, so it wasn’t much of a point of difference.”
Walmart-owned Sam’s Club, another members-only retailer, has proven more successful and has opened at least 45 warehouses in China since entering the market in 1996. Alibaba-owned Freshippo, which has hundreds of outlets in first-tier Chinese cities, has also begun adopting the members’ club model, with at least nine of its outlets now branded as the members-only Store X.
Chinese consumers gained a taste for the sort of bulk buying shoppers typically go to Costco for during the pandemic.
“After the initial lockdown, people didn’t want to get stuck with empty fridges,” says Tanner. “So we’ve seen a real shift back towards people buying a little bit larger and more long-term.”
The location for some of Costco’s warehouses has also helped to attract more middle-class shoppers.
“Generally in places like Minhang, a lot of people live in villas, so they do have larger kitchens, storage etc,” adds Tanner. “They also have cars, so it does really tie in well with their target audience.”
China is still a small market for Costco: Two-thirds of its 875 warehouses globally are located in the United States, while its most important foreign market is Canada, with 102 warehouses. Outside of North America, Costco has 33 warehouses in Japan, 29 in the UK and 18 in South Korea.
But the company clearly sees China’s huge population as a growth opportunity. In October 2019, two months after Costco’s first warehouse opened in China, chief financial officer Richard Galanti told investors that the warehouse had 200,000 members, well above the average Costco warehouse, which has 68,000 members.
Costco declined to provide current membership figures in China or share plans for future warehouses, although Galanti told investors last September that the company planned to open its seventh location before August 2024. The taste of American life at Costco’s warehouse appears to be one of its key attractions, despite broader tensions between the two countries.
A look inside the new Shenzhen location prior to its opening on January 12, 2024. Credit: Costco
“Almost all the warehouse-style items are signposted at the entrance, giving people the feeling that they’re in LA,” said Xiaohongshu user Ayukyo. “You can’t help but take a few photos.”
Read the graphic below for some of the highlights of Costco’s business presence in China, both with their warehouses and the suppliers that provide products to U.S. customers.
Aaron Mc Nicholas is a staff writer at The Wire based in Washington DC. He was previously based in Hong Kong, where he worked at Bloomberg and at Storyful, a news agency dedicated to verifying newsworthy social media content. He earned a Master of Arts in Asian Studies at Georgetown University and a Bachelor of Arts in Journalism from Dublin City University in Ireland.
