What does COSTCO's successful debut in China tell us about today's retail market?

Friday 30 August 2019

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So far China has been a very challenging market for global retailers. As our China retail expert and partner Jack Chuang commented in this FT article -- it is hard for foreign retailers to fully localise a well-proven 'home' market model for China. To make things worse, China is one of the most developed e-commerce markets -- where disruption from the internet giants has the biggest impact on traditional retailers. No wonder many global retailers are struggling. 

So what does COSTCO's successful (so far) first store opening tell us about today's China market? Here are my quick thoughts:

• Though it is the first COSTCO store in China, COSTCO is NOT new for many Chinese shoppers. It has operated its T-mall international store for some time and its imported products such as supplements and nuts are very popular products. In addition, many shoppers in Shanghai get to know COSTCO and its strong reputation via their overseas travel. In developed areas like Shanghai, many shoppers are increasingly global
• Price still counts. While premiumisation is an important trend for categories where consumers are looking to trade up, price still counts for many Chinese consumers. What attracts many Chinese shoppers to the new COSTCO store is its very attractive price for some high quality products, from luxury bags to imported fresh seafood. Providing value for good quality products is always one key attraction for Chinese shoppers
• Products counts. Today having distinctively attractive products, from private label to exclusive product lines, is increasingly important for retailers to attract and retain consumers. Private label for retailers used to be very small -- Chinese consumers used to be brand hungry while shying away from retailer brands. But we see it beginning to change, with retailers offering better quality and value private label products
• Last but not least, there are always opportunities in China. Even though retail has been a very challenging sector for foreign companies, Sams' Club has been a bright spot for Walmart in China. With COSTCO's entry into China, we believe the membership club formats will continue to gain growth and penetration.

In China any success will attract competition quickly -- and a blue ocean will quickly turn into "red". Will COSTCO sustain its debut success? Who will ultimately win China's membership club war? Will Chinese local retailers like Alibaba, Suning or Yonghui launch competing formats and win (again)? We will wait and see...