US warehouse club retailer Costco has made an impressive debut in China, selling online through Alibaba.
But in a detailed analysis, Forbes has warns that while the retail giant’s first experience with the Chinese retail market has been “exceptionally good”, a bigger issue will be how the company plans its expansion from here on.
Alibaba has revealed it achieved US$6.4 million in revenues from Costco in its first month online with Tmall – and that with a very limited stock range compared to Costco’s global product offer.
In the past Costco has appeared reluctant to enter China’s $2 trillion retail market, saying it was achieving strong growth at home and in other Asian markets where the barriers to entry were lower. But Forbes reports that, after being “shocked” by the sales of its first month, the retailer is gearing up to revamp its product portfolio and shopping experience this year.
Forbes opines that Chinese shoppers are “very cautious” and their buying decisions are not always price driven.
“They are more inclined towards tailor-made products and a shopping environment that reflects local touch. Along with prices, Chinese buyers are concerned about authenticity and quality of products. Due to these factors, US retailers entering the region have not always adapted well to the local environment, which has resulted in sluggish growth.”
Local players traditionally outperform foreign retailers because they understand local consumer behavior better.
Forbes predicts Costco will now enter China with its own direct to consumer offer online before establishing bricks and mortar stores there.
“Although the company’s performance in the first month has been very good, its initial success cannot be regarded as a testament to the long term sustainability.”
Forbes’ comprehensive analysis of Costco’s early performance in China, and a comparison with the performance to date of rival Walmart, can be read online here.