Move poses strong threat to Walmart in battle to win over country's high-end shoppers

Global membership warehouse club retailer Costco Wholesale Corp is scheduled to open its first brick-and-mortar store in the Chinese mainland on Aug 27, posing a strong threat to Walmart China's cash cow, Sam's Club, in a battle to win over the country's high-end consumers.

Costco's first store will be located in the Minhang district of Shanghai. It has memberships for family and corporate consumers with fees priced at 299 yuan ($43.1) each.

Costco has a strong record in retaining members. Its membership renewal rates in the United States and Canada hit 90 percent last year, and stood at 88 percent worldwide, according to company data.

The retailer operates 773 warehouses, including 536 in the US and Puerto Rico, 100 in Canada and 28 in the United Kingdom. It also operates e-commerce sites in markets including the US, Canada and the UK.

"Costco is good at building a loyal shopper base through its paid membership program with low prices and a select number of stock-keeping units. The question is whether they can replicate this in China easily," said Jason Yu, general manager of Kantar Worldpanel China.

For example, Kirkland Signature, a US food supplier which enjoys solid recognition among US consumers with its high quality, will have to confront challenges from building its awareness and trust in the mainland, said Yu. In 2018, Kirkland Signature sales exceed $39 billion, compared to $35 billion in the previous year.

Costco's entrance to the Chinese mainland retail market is expected to challenge established brands like Sam's Club, which is the high-end membership brand of Walmart.

Sam's Club has been accelerating its store expansion over the last two years and is planning to open more stores in the coming years. In addition, the company is taking advantage of e-commerce platforms, including JD, to reach customers in cities where they don't have stores, said Yu.

In May, Walmart announced it will add Sam's Club stores to eight in Beijing and its goal is to hit 40 in the country by 2020.

Last year, Sam's Club's revenue grew 8 percent year-on-year despite its small proportion of the overall market. In addition to its current 260-yuan membership fee, Sam's Club introduced a 680-yuan membership that offers high-end family services such as dental care at private clinics.

Costco may need a good balance between quality and price, be well adapted to the Chinese market and must utilize e-commerce platforms, said Yu.

Its product offer will be key as price itself will not guarantee its success, Yu said. In China, there are many e-commerce retailers trying to copy the Costco model, such as Neteast Select.

"I think the key (for Costco to gain in China) will be Costco's business model and how well it can adapt to the retail reality in China," Yu added.