Costco, the snack giant that is hailed as the "retail god" and views making money as a shame, has officially arrived in China. In a time when the global physical retail industry is struggling, Costco has been greeted with unique enthusiasm in China. Cars queue for two kilometers, and parking takes at least three hours. On its first day, Costco sold 160,000 membership cards for 299 yuan each. This retailer, known for its cost-effectiveness, is being worshipped like a "god" by the founders of companies like Xiaomi and Miniso. Discussions about Costco have swept across the internet. In this era dominated by e-commerce, Costco's arrival seems to have silently stirred up a retail battle.
Some praise Costco for its magical membership marketing and see it as a subject of study. Others believe that it is simply a consumer trend, and that offline glory will soon become a thing of the past in the era of e-commerce and express logistics. However, to be honest, scenes similar to Costco in the retail industry are quite common. After the rise of e-commerce led by Taobao, many physical retail giants have fallen. Costco seems to have given hope to those who still adhere to physical retail, and has shown what local retail in China has been unable to achieve – selling membership cards in such a successful manner and igniting such popularity.
If Costco is selling anything, it is not just memberships, but also expectations. It makes you believe that in the future, you will be able to enjoy high-quality and cost-effective products at Costco. This is a contract between a retail company and consumers. However, local retail in China has remained at traditional service levels, where customers are treated as gods. But in reality, Chinese consumers have not become gods, and local retail companies have not mastered the skills of serving them.
After the initial excitement, there have been discussions about Costco's inability to sustain its success. For example, there have been reports of people urinating and stealing food in the Costco supermarket. There have even been incidents of people getting injured in the frenzy, and some customers have returned their purchases, including the highly sought-after "signature roast chicken" that was sold out on the opening day. However, these are normal occurrences after such a frenzy, especially with a crowd of 160,000 people. The real test for Costco will be how quickly it can understand the market and consumers, and adapt accordingly. As Costco's CFO said, the new store was even more popular than expected, and they plan to open a second Costco store in Shanghai by the end of 2020 or early 2021. It seems that Costco is well-prepared and confident.
However, one thing that must be acknowledged is that in a market as developed as China's e-commerce and new retail, Costco's assumption that selling affordable Maotai liquor is enough to understand Chinese consumers may not sustain its joy for long.
Apart from Costco, let's also take a look at how local listed retailers have performed in the first half of the year. The 15 major retailers achieved a total revenue of 183.17 billion yuan in the first half of 2019. Xin Retail and Yonghui Superstores accounted for more than half of this revenue, with a combined net profit of 3.13 billion yuan. With the exception of Hualian Supermarket, Renrenle, and Xinhua Bookstore, the other 12 companies achieved year-on-year growth in revenue. Market data also shows signs of recovery in the modern distribution channels (including hypermarkets, supermarkets, and convenience stores), with a growth rate of 2.3%. Supermarkets have been the main driving force, while hypermarkets have performed poorly in the second quarter, with penetration rates decreasing by 2.3 percentage points compared to the same period last year. Overall, the performance of retailers in the first half of the year has been decent, although not necessarily outstanding.
However, local retailers still face significant challenges in the future. Despite losing its initial claim of "eliminating convenience stores within a three-kilometer radius," Hema, known as the new retail leader, and giants like Costco, which may seem old-fashioned but are considered new species in retail, have shown that the battle for retail transformation never stops. The only difference is the role that takes the stage each time.