The company said in March that its Chinese store was one of the best performers globally. While the average Costco counts 68,000 households as members, the Shanghai store had nearly five times that amount, Costco said at the time. The retailer is doing so well, in fact, that it plans to open at least three more stores in the country over the next couple of years.
Competition from well-established players is also stiff.
Still, Costco is optimistic about its chances.
“We have been successful in other countries, and believe our business will work well in China,” Costco’s chief financial officer Richard Galanti told CNN Business via email.
“We typically open 2-3 locations in a country, and see how they operate over the first couple of years,” he added. “We are off to a good start with our first opening last year.”
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Hot items for ‘foodaholics’
Products unique to Chinese customers are enormously popular, too.
On a call with investors in December, Galanti highlighted one top seller: sea cucumbers, which are considered to be a prized delicacy in China. In traditional Chinese medicine, the animal is said to have healing properties and can treat joint pain and arthritis.
Shoppers scrambled to pay 1,499 yuan ($217) for a half liter bottle of the spirit, its standard retail price. The cost of the liquor is typically much more elsewhere because of hoarding and speculation.
The popularity of some of its products also created an unexpected problem for Costco during the pandemic: the need to fend off crowds.
The company, for example, suspended the sale of rotisserie chicken in February citing anti-virus considerations.
Galanti admitted Costco felt “a little bit” of an impact from those limitations.
But overall, “Covid did not impact our business in China in a meaningful way,” he told CNN Business.
Expansion is on the horizon, but there are challenges
After the success of the Shanghai store, Costco is already working on plans to branch out in China. Galanti said the company wants to open another store in Shanghai and two more in the nearby cities of Suzhou and Hangzhou. The Shanghai and Suzhou stores are expected to open next year.
Retail analysts say Costco has several factors working in its favor as it grows in China.
“Costco is appealing to China’s middle class consumers, because they have a strong demand for high-quality products at competitive prices,” said Michelle Huang, a Shanghai-based consumer food analyst at Rabobank. She added that Costco’s in-house brands, such as Kirkland Signature, are trusted by customers because of their quality.
Costco is also good at adapting to local customers in China, said Charles Chan, senior Asia retail analyst at IGD, a UK-based research firm focused on the food and grocery industry.
Before the brick-and-mortar store opened in Shanghai, Costco sold goods for five years on Alibaba’s e-commerce website, Tmall. The online sales helped Costco gain a better understanding of the Chinese market, Chan said.
But as Costco expands, it could face more direct competition from long-established rivals.
Sam’s Club, for example, recently announced plans to open a flagship store in Shanghai next year. The US chain already has 26 stores in China and could have as many as 45 by the end of 2022.
The battle over physical stores is only part of the equation, too. Chan noted the need for Costco to beef up its presence online.
Costco has yet to offer such delivery services through its Shanghai store. And while it still offers online sales and delivery through Tmall, the product selection is limited compared to what is available in the brick-and-mortar store.
Chan said he would not be surprised if Costco spends more time bolstering its presence on WeChat, the Chinese super-app where Costco offers product recommendations and promotions. The company also has its own Costco China app. (WeChat, notably, has been threatened with a US ban that some worry could make it harder for American companies to do business in China.)
“Adding new features such as home delivery would enable the retailer to be more aligned with its competitors,” Chan said, adding that it would help Costco retain existing members and find new ones.