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Flash Reports 4 minutes

Shoppers Flock to Costco’s First China Store, Forcing It to Close Early

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Coresight Research

Key Points

On August 27, Costco opened its first store in China, in the Minhang district of Shanghai. The Coresight Research team visited on opening day and saw the store gain huge traffic, forcing it to shut early due to overcrowding.

  • Costco gained heavy traffic and customer flows: lines were formed before opening; consumers had to wait three hours for parking; average check-out time was about two hours. From August 28, Costco is introducing traffic control in the store.
  • Costco sold 160,000 membership cards on opening day. Members enjoy benefits including full refund of membership cancellation, free return and 90-day return of electronics.
  • Food and consumables are the most popular area to shop, with products priced around 10-20% lower than market prices.

On August 27, Costco opened its first store in China, in the Minhang district of Shanghai, and the Coresight Research team was in attendance. China is the 11th international market Costco has entered. It also plans to open a second store in the Pudong district in 2021.

Costco’s Shanghai store opened at 9:00 am and there already were lines in front of the entrance at around 8:00 am. The parking lot was packed immediately, and signs were displayed on the outside to warn shoppers that they would need to wait three hours to park. Multiple surrounding streets were closed due to traffic chaos.

Costco’s first China store
Source: Coresight Research

 

Later in the day, Costco’s official app announced an early shutdown of the store for safety reasons. On August 28, Costco started to implement traffic control of 2,000 customers in the store and line were formed in an hour. Incoming shoppers needed to wait for about three hours to get in.

Sign showing wait time of three hours to park; the crowd outside the store
Source: Coresight Research

 

Crowds outside Costco
Source: Coresight Research

 

Costco is offering various discounts on specific products for the first three days. Company representatives claimed that the price of consumables and non-consumables is 10%-20% and 30%-60% lower than market prices, respectively. Based on the pictures online, Kweichow Moutai liquor was priced at ¥1,498, almost half of the market price; Wuliangye 52% liquor was priced at ¥919.9, ¥500 lower than the market price. Costco is selling multiple luxury handbags from MCM, Louis Vuitton, Prada, Chanel and Hermes, as well as Rolex watches. Many were sold out immediately on opening day.

The most popular section in the store was grocery and consumables, which were competitively priced. Customers needed to form a line to buy roasted chicken (¥37.9, or $5.29, each) and were fighting over the pork and beef meat. A pack of two 1.89-liter Wei Chuan milk was priced at ¥32.9 ($4.59); a box of 30 eggs was priced at ¥21.9 ($3.06), a bag of 36 dinner rolls was priced at ¥24.9 ($3.48). One shopper said she waited two hours to checkout, but she was satisfied with the product value.

Costco’s China Entry and its Membership Strategy

Costco first entered China by joining the Tmall portal in 2014 and then launching an online flagship store on Alibaba’s Tmall Global site in 2017. Costco’s online store provides a range of products including food and healthcare, as well as Costco’s private label, Kirkland Signature. Currently, there are only 20 healthcare and personal care products available on its online store. After testing the market online, the retailer attempts to break into the offline Chinese consumer market, opening its first physical store on August 27, and planning to open a second one in 2021.

In its offline expansion, Costco continue its membership model in China, with offerings that are good value for money in bulk quantities. The annual fee for membership costs ¥299, equivalent to $41.7 (¥199, or $27.8, on the opening day), which comes with benefits including cancellation of membership card anytime with full refund, free return, 90-day return for electronics, and tire and optics service. According to Sina news, Costco sold 160,000 membership cards on the first day.

Key Insights

Costco’s China launch saw strong demand for its model of subscriptions and low prices, although its large pack size and bulk quantities are quite different from Chinese consumers’ typical purchases. Opening day suggested very strong interest in Costco’s offering in China. At the same time, the crowds help Costco create “buzz” on social media and in the media, bringing more brand awareness. This is a successful first step, and to establish a foothold in the market in the long term, the retailer needs to keep on top of the demands of China’s multi-dimensional consumer market.

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