Editorial | Costco needs staying power in store wars

Time will tell whether Costco is being prescient or foolhardy. The US retail giant is diving into the thorny market of food and consumer goods in China where many have gone before but failed miserably.

The frenzy at the opening of its first giant store in Shanghai has made international news. The huge crowds forced staff to close doors early out of safety concerns. To succeed, Costco will have to maintain its novelty attraction and momentum.

China has become the world’s largest e-commerce market. Sales of consumer goods grew by 8.4 per cent to 19.5 trillion yuan (HK$21.3 trillion) in the first six months of this year, but online sales jumped by a whopping 17.8 per cent, accounting for nearly 25 per cent of the total.

Bricks-and-mortar stores run by foreign operators have been in decline. Carrefour and Walmart continued to lose ground in the segment of fast-moving consumer goods in China.

The French retailing group’s 210 hypermarkets suffered a 0.3 percentage point contraction in market share to 2.8 per cent in the first quarter from a year earlier. Germany’s Metro is offloading a majority stake in its Chinese hypermarkets business altogether.

However, Costco’s strategy, based on its business model in North America, is different. It sells no-frills products in bulk to members only, who have to pay an annual fee. It offers a generous return policy, such as a 90-day refund for electronic products, and even longer periods for non-perishables.