#106 CostCo Gets it Right in China

A few weeks ago, I have written on Hermes’ activities in the Chinese market. Today, I am happy to report that another company seems to join the ranks of those who are smart about their entry into the Chinese market: CostCo, the Issaquah, Washington based company. According to recent media reports, CostCo has teamed up with Chinese eCommerce giant Alibaba to sell products through their Tmall website. Why is this smart?
Well, first CostCo is going slow. They are starting with the marketing of a limited range of products from their food and health brand, Kirkland. This is not only low-risk, but it also caters to Chinese consumers’ growing appetite for foreign food products. Consumers can get used to the products and become increasingly familiar before other products and brands are introduced. This should help CostCo to get their product portfolio right for China – something that other retailers have found challenging. Most importantly, CostCo is not investing in physical infrastructure that is expensive to build, costly to maintain, and complex to manage.
Secondly, in a time when even first year business students all over the world know what the word “guanxi” means, entering the market with a well established Chinese partner is a good idea. Chinese consumers trust the Tmall brand and, by association, will trust Costco. Tmall also offers volume and instant traffic so that Costco doesn’t have to invest in promotion the same degree it would have to in order to drive consumers into stores. Not to forget that online retail is growing rapidly in China. In July, China-based consultancy iResearch had raised it’s 2014 growth forecast from previously 32.4 to 45.8 percent – totaling at an expected (and staggering) 450 billion dollars this year.
Down the road, Costco may add a few Chinese stores to its existing 19 stores in Japan, 11 in Korea, and 10 in Taiwan, but for now Costco is observing and learning. This slow and smart way of entering China will provide CostCo with an opportunity to learn about the Chinese market and its consumers without a lot of risk.
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