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Costco in China

Costco’s winning formula in China: premium brands, affordability, and exclusivity

Costco is experiencing considerable success in the Chinese market. The US wholesaler officially entered the Chinese market in August 2019, when its first physical store opened in Shanghai. The opening weekend marked a hive of activity – there were three-hour waits for parking spaces and thirty-minute queues at the checkouts. It caused local authorities to shut the store down for a few hours to ease the traffic congestion building on the neighboring highway. A similar trend of immense popularity persisted with each new store opening, exemplified by the openings in Suzhou in 2021 and Hangzhou in 2023.

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By 2023, the brand has opened new stores in Shanghai, Ningbo, and Hangzhou, meaning there are 5 actively operating Costco stores in China.

Costco in china
Source: Costco China, designed by Daxue Consulting, Costco’s store location in China by the second quarter of 2023

How does Costco do it right?

Costco’s long-established business model is to sell products in bulk, allowing consumers to benefit from wholesale discounts. Critics claimed that this sales model was unsuitable for the Chinese market, particularly emphasizing that the majority of residents in East China reside in compact apartments lacking adequate storage for bulk purchases.

Costco’s opening weekend in Suzhou in 2021
Source: The Financial Times, the hectic crowds on Costco’s opening weekend in Suzhou in 2021

These criticisms are not unfounded; rather, they are based on the precedent of Western retailers entering China but failing to establish themselves or expand. For example, Walmart sold its Chinese e-commerce business to in 2016; Amazon also withdrew after failing to compete with the domestic Alibaba in 2019. By 2018, Marks and Spencer joined the exodus of Western retailers. Even Carrefour, once China’s largest foreign retailer, sold 80% of its stake in Chinese stores to Suning International. A clear pattern emerged of Western retailers failing to grow in China.

What did Costco do differently? 

1Establishing online presence before opening an offline store 

Five years before opening its doors in Shanghai, Costco in China operated through flagship stores on multiple e-commerce platforms. Tmall Global,, and Ymatou all sold Costco’s goods to consumers across Greater China. These partnerships not only established Costco as a well-known retailer but also furnished the company with valuable data analytics to identify its most successful areas, top-selling products, and target audience. Consequently, when Costco opened its physical stores in China, it counted on a clear understanding of its ideal locations (favoring East China due to a higher average GDP and increasing consumer recognition of foreign brands) and its target demographic (the expanding middle-class, driving demand for foreign products and premium goods).

2. Marketing the products as premium yet affordable

Premiumization – establishing products as high-quality, affordable, and accessible to rival goods – has never been more important. In response to Chinese consumers’ desires, Costco offers discounted premium foreign and local goods, like Maotai white liquor, priced at RMB 1,499, compared to the usual RMB 2,500. This strategy not only attracts consumers seeking affordable luxury but also appeals to producers such as Maotai, reducing reliance on intermediaries and avoiding inflated consumer prices.. Moreover, Costco even occasionally supplies high-end bags hailing from designer brands such as Chanel, Hermes, and Prada (even though  in very limited amount).

This marketing strategy of offering branded products at more affordable prices aligns with middle-class consumers’ desires to purchase good quality products at more affordable prices. In order to maintain affordable pricing and high operating efficiency, Costco warehouses usually only carry around 2,000 to 3,000 SKUs in China, which is a distinct competitive advantage as compared to local supermarkets and therefore makes it more selective when it comes to choosing what brands to associate with. This low-SKU strategy also shortens the inventory cycle for Costco. The company achieves an impressive inventory turnover of only 30 days, contrasting with other brands that exceed 40 days.

3The allure of exclusivity 

A highly significant element of Costco’s marketing strategy is its membership program. Shoppers require a Costco membership to shop at the retail giant, with a standard membership costing RMB 299. On the first day of opening the Shanghai branch back in 2019, 139,000 customers signed up for its membership. This number grew to more than 200,000 cardholders within the ensuing opening months. The success of this membership program – which quickly surpassed Costco’s goal of attaining 100,000 members –underscores the remarkable success of Costco’s business model in China.

A membership program reinforces the perception that Costco is an exclusive shopping destination, reassuring customers that their loyalty grants them access to exclusive benefits, such as wholesale discounts unavailable to non-members. Moreover, an annual membership is apt to nurture customer loyalty, fostering a habit where members consistently prefer Costco over other retailers, thus becoming steadfast and reliable consumers.

Costco in china
Source: Fortune, Costco’s membership exclusive sign-up area

4. The multi-dimensional shopping experience

Costco’s marketing strategy aligns with consumers’ retail needs and has fostered a culture and lifestyle that resonates with China’s market. IKEA, the Swedish furniture giant, is a predominant example of a Western brand succeeding in the Chinese market. Not only does the minimalistic furniture suit any culture, but the shopping turned trips to IKEA into a holistic experience. Costco is similar in this sense – consumers have been noted to spend up to three hours in the store, embracing the experience of looking through crates and piling goods upon their trolleys.

Thus, Costco succeeded where other traditional retailers failed: they created a consumer experience that elevated one’s typical retail shop into an enjoyable day trip where customers can peruse stock, eat at a food vendor within the building, and relish the shopping experience at Costco.

Source: Fortune, Customers pushing for food at Costco in China

The double-edged sword of the Covid-19 Pandemic 

Despite the challenges posed by the COVID-19 pandemic, Costco not only survived but thrived by capitalizing on increased demand for bulk purchases during lockdowns. The wholesale model proved effective, leading to a global revenue increase, reaching USD 242.29 billion by August 31, 2023. While the pandemic initially impacted Costco’s expansion plans in China, its adept response to consumer demands suggests potential future growth in the Chinese retail market.

Standing against market competitors: Costco vs. Sam’s Club

As foreign brands actively enter the Chinese market, the rivalry between Sam’s and Costco has been ongoing. Sam’s Club entered the Chinese market earlier, vaunts greater familiarity with the local market, and exhibits a swifter response, resulting in a larger store network. Currently, Sam’s has 45 stores nationwide, while Costco operates 4 stores. However, with the imminent opening of 5 additional stores, Costco’s national store count will reach 9. From a geographical perspective, the primary battlegrounds for Sam’s and Costco are concentrated in the Yangtze River Delta and Pearl River Delta regions. The US retailer has confirmed plans to open a third store in Shanghai, a store in Nanjing, Shenzhen, and Guangzhou.

Comparison between Sam’s Club and Costco, by the second quarter of 2023
Source: CBNdata, designed by Daxue Consulting, Comparison between Sam’s Club and Costco, by the second quarter of 2023

Costco’s own brands as the means to provide a larger variety of goods

Another aspect of competition in warehouse membership stores involves private labels, which play a crucial role in offering distinct services and retaining customers in the long term. Currently, Sam’s and Costco’s private labels make up over 30% of their product offerings. Sam’s popular items like Swiss rolls and durian mille-feuille are produced under their own Member’s Mark brand. Similarly, Costco utilizes its Kirkland brand to maintain an advantage in the realm of private labels. The Kirkland brand serves as a strategic solution to offset any shortcomings with external suppliers. If Costco determines that a specific brand cannot be offered in stores at the most cost-effective price, the company seeks out suppliers to create comparable products and labels them under the Kirkland brand, effectively meeting consumer demand for that product category.

Costco’s own brand Kirkland 
Source: Costco China, Costco’s own brand Kirkland 

What brands should know about Costco’s China market strategy

  • Costco established an online presence in China five years prior to opening physical stores, leveraging partnerships with e-commerce platforms like Tmall Global and to build brand recognition and gather valuable data analytics.
  • The US retailer positioned its products as high-quality and affordable, responding to Chinese consumers’ desires for premium goods at reasonable prices. This strategy, including discounted premium foreign and local goods, attracted a consumer base seeking affordable luxury.
  • It implemented a membership program, requiring customers to sign up for exclusive benefits and wholesale discounts. The program quickly gained traction, surpassing membership goals and fostering customer loyalty, contributing to Costco’s success in China.
  • Costco differentiated itself by creating a multi-dimensional shopping experience, resonating with the Chinese market’s preferences.
  • Amid the challenges of the COVID-19 pandemic, the US supermarket chain not only thrived by meeting heightened demand for bulk purchases but also demonstrated adaptability, resulting in a global revenue increase and paving the way for potential future growth in the Chinese retail market.