COSTCO:

The Challenge of
Entering China
Group 3:
Abhinav Sharma (22PGDM073)
Aryan Tanwar (22PGDM083)
Chaya Walia (22PGDM088)
Dhruvil Gajera (22PGDM091)
Jagan Joseph (22PGDM097)
 About Costco
Founded in 1976
Founder- Jim Sinegal
World second largest retailer
Headquater near Seattle, Washington

Costco in China
Opened first store in Shanghai's Minhang
District on August 27, 2019
Costco saw such heavy footfall
A week after opening, customers wanting to
return their membership cards
 Cost Effective Products

BUSINESS
Costco provided no more than 4000 SKUs.
1 Supplied only two or three brands per product type
25% of Costco brands were self-owned

STRATEGY
All this allowed Costco to control the quality of products, reduce
the supply chain and purchase prices.

Easy Return and Replacement Policies

2 Membership cards could be easily cancelled anytime with full refund
Higher priced membership card provided customers with 2% cashback.
Offered product return period of 9- days (Walmart: 14 days)
Gave refunds for items like Christmas trees that died after Christmas.

Comfortable Shopping Experience

3
Spacious Interiors
Glass ceilings helped in saving cost on energy, ensuring bright-in-store lighting
Positioning: Frequently purchased items were placed at the back of the stores, and
commonly purchased items were placed near the checkout counters.

Top Employee Benefits

4 Paid employees $22/ hour (double the average of American retail wage)
Medical pension and annual leave plan, plus stock options n new employee’ retirement savings accounts after their first
year on the job
All this led to high retention rates: 94% of Costco employees who had been with the company for more than a year were
kept on
 Challenges in US
Competition: The retail industry in the United States is highly competitive, with major players like
Walmart, Amazon, and others constantly vying for market share. Costco must continually innovate
and differentiate itself to stay competitive.
Real Estate Costs: Costco operates large warehouse stores, and the cost of acquiring and maintaining
prime real estate locations can be significant. Real estate market fluctuations can impact the
company's expansion plans and costs.
Technology Investments: Staying up to date with technology is crucial for retailers. Costco must
invest in point-of-sale systems, inventory management, online shopping platforms, and cybersecurity
to remain competitive and protect customer data.
Consumer Data and Privacy: Managing and protecting customer data and privacy is increasingly
important, especially as data breaches become more common. Costco, like other retailers, must
invest in robust data security measures and comply with privacy regulations.
Labor Costs and Wage Pressure: The U.S. has seen ongoing discussions and legislative efforts to
increase the minimum wage. This could potentially lead to higher labor costs for Costco, which has a
reputation for paying its employees well.
Market Saturation: In some regions of the U.S., Costco may face market saturation, making it
challenging to expand further without cannibalizing existing stores or facing diminishing returns
 International Expanison
Canada (1993): Costco's first foray into international markets was in Canada. The company opened its first store in Toronto in 1993. Canada's proximity and
cultural similarities to the U.S. made it a logical choice for expansion. Today, Costco has a strong presence across Canada with multiple stores.

Mexico (1993): In the same year as its Canadian expansion, Costco also entered the Mexican market by opening a store in Mexico City. Mexico's large population
and growing middle class presented opportunities for Costco's membership-based retail model.

United Kingdom (1993): Costco's first European venture was into the United Kingdom. The company opened its first store in London in 1993. The UK market
provided Costco with a bridgehead for further expansion into Europe.

Asia (1990s and 2000s): Costco continued to expand into Asia during the late 1990s and 2000s. It opened stores in countries like Japan, South Korea, and
Taiwan. Costco's ability to adapt its product selection to cater to local tastes and preferences played a key role in its success in these markets.

Australia (2009): Costco made its entry into Australia in 2009, opening its first store in Melbourne. The company faced challenges in Australia's competitive
retail market but gradually expanded its presence.

Other Countries (2000s and 2010s): Costco also expanded into other countries during this period, including Spain, France, and Iceland. Each of these expansions
involved adapting to local market conditions and regulations.

China (2019): One of Costco's most notable international expansions was its entry into China. In August 2019, the company opened its first store in Shanghai.
The store's opening generated massive crowds and demonstrated the strong demand for Costco's membership model and product offerings in China.

Global Expansion Strategy: Costco's international expansion strategy typically involves opening warehouse stores in major metropolitan areas, often near
affluent suburbs. The company maintains a consistent focus on its membership-based model, offering bulk products and high-quality goods at competitive
prices. It also adapts its product selection to include local favorites and cater to local tastes.

Challenges: Costco has faced challenges in its international expansion, including competition from local retailers, differences in consumer preferences, and
navigating regulatory and logistical complexities in each new market. Adapting to local cultures and consumer behaviors is key to its success
 Why China?
Second-largest economy in the world.
Hardware & Software of development.

Choosing Shanghai
China’s financial, trade, shipping and
technological innovation centre.
Shanghai ranked first in terms of GDP.
Preferential policies promoting foreign
investment.
Costco's Great Wall of Savings: Breaking Changing consumption patterns of Shanghai
Ground in China residents.
Shanghai Store
Location: Minhang district.
Differentiation strategy: Imported goods.
Spread(14000 Sqm).
Attractive discounts(Chanel handbags, Hermes
goods, MCM leather backpack).

Customers
Middle class families.
People looking out for high-quality , cost-
effective product.
Large one time purchasers.
Located in the suburbs.
Loyal customers and thereby achieve a
steady growth in performance.
Comparison with Local Competitors
Sam's Club Competition:
Sam's Club, a major competitor in warehouse membership stores, operated in China for 23 years.
2.2 million registered members with a 70% renewal rate.
Strong presence in eastern China, accounting for 46% of the market.
Sam's Club Localization Strategy:
Successful localization through online-offline integration.
Utilized a pre-warehouse distribution model for efficient supply chain management.
Focus on instant delivery to enhance the shopping experience.
Challenges from "New Retail":
"New retail" concept merged online and offline experiences.
Hema Fresh, a leading example, offered 30-minute delivery within a 3-kilometer radius.
Other players like Superstore, Daily Youxian, and Olé adopted this model.
Limited Online Presence:
Costco had only two Tmall stores.
Lagged behind in the fresh food category compared to Hema Fresh.
Competition from Domestic Manufacturers:
Chinese manufacturers offered similar quality products at significantly lower prices.
Necessary Mall initiated a formal price challenge to Costco.
Promised customers ten times the price difference if found higher on their app.
Comparison
of
Major
Retail
Stores
in
China
 FUTURE CHALLENGES

01 02 03 Competitive
Membership Landscape
Market Cultural
Retention and Faces competition
Customer Trust Localization Adaptation
from both local
delicate balance Successfully integrating and international
Ensuring a seamless
between preserving into the local culture and retailers
and rewarding
its global brand consumer mindset is an
membership
identity and adapting ongoing challenge
experience will be
crucial to local preferences. 04
THANK YOU