Wednesday, February 18, 2015

Some Feedback About Costco Entering The Chinese Market

Not so long ago, the second largest retailer in the world Costco decided to enter China in a very innovative way: It set up a partnership with Chinese Ecommerce giant Alibaba, to open an Internet store.

I found this approach very interesting, and was eager to find out how this approach performed. And it seems that it is a tremendous success. Indeed, in a 3 month period, they sold for $6,4 million

Costco set up a store on Chinese e-commerce giant Alibaba's Tmall Global platform, where it is offering its Kirkland Signature products and other items. Chinese consumers can receive the goods within five to 20 days of purchase. Costco is using its base in Taiwan to support operations and leveraging its new Chinese partnership for inventory storage.

I believe what is interesting in the test is that it allowed Costco to test the market without the bargaining of investing in real estate. Still, this is only a first step. I don't believe that Costco's activities in China would be viable without settling warehouses, which is its core business. Neither do I believe that this test will allow Costco to grow enough to have enough leverage on the purchasing to secure low prices. It just allows the company to have a strong Internet presence, which the company most of the time lack (online 3% of its sells are online, which also represents a high potential of growth). 

As Costco entered late in the market, where US companies like Walmart is struggling, I really hope that this strategy will pay off. It will be interesting how the story unfold.