Big retailers from both the U.S. and Europe have found out the hard way how difficult it is to translate their business models to the Chinese market. Can Costco buck the trend?
Share to twitterOpening day crowds yesterday at the first Costco in China produced three-hour waits for parking and half-hour-long check-out lines. They say everything in life is timing, so perhaps the folks at Costco are secretly wishing their timing was a little better.
Whether that grand opening hysteria extends to regular shopping days remains to be seen. Costco officials said they believed their low-cost, buy-in-bulk business model would appeal to Chinese consumers, and they could point to the relative success competitor Sam’s Club has had in the country. That Walmart division entered the Chinese market in 1996 and now operates 23 stores, with plans to roughly double that by the end of next year. It counts more than two million members.
Carrefour, the big French discounter generally recognized as the second-largest retailer in the world, became the latest to feel the pain, announcing earlier this year that it was selling 80% of its Chinese retailing operation to a local operator. Eventually the plan is to sell the remainder and exit the country entirely.
The Carrefour move also involves a sale to a local company, Suning.com. Carrefour was one of the earlier Western retailers to move into China, opening its first store there in 1995. It now has 210 large combo stores with both general merchandise and food, its signature model in Europe, as well as 24 convenience stores. Together they did about $4.1 billion in sales last year, although the business continued to be unprofitable.
Tesco, another big European player, walked away from its Chinese operation in 2013—retaining a small share, as Carrefour is—while Marks & Spencer shut down its physical stores in 2016, followed two years later by its online operation. In 2012, Home Depot closed the last of what was once a 12-store operation it had purchased six years prior.
Why it has succeeded while so many others have failed is a subject of much debate—not to mention mystery. Certainly, its low prices and simple designs appeal to multiple cultures, particularly one such as China. But its ready-to-assemble platform would seem to run counter to the Chinese tradition of limited interest in do-it-yourself. When Home Depot left China, it cited that as a reason its DIY model failed there.
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