US Hypermarket Chain Costco Sets Up in Shanghai

American wholesale giant Costco is opening its first store in the world’s second-biggest economy, even as foreign retailers like Tesco and Lotte scale back their businesses in China due to market barriers and disappointing sales.

Costco inked an agreement with state-owned Shanghai Pudong Kangqiao (Group) on Wednesday to set up the headquarters of its Chinese business in Kangqiao, an area in Shanghai’s Pudong district, according to local media reports. Costco is also opening a membership retail club store with Shenzhen-based real estate firm Galaxy Holding in an unspecified location.

An account from Kuaxiaopin.net says Costco will open its first Chinese physical store in Shanghai’s Minhang district in the spring of 2019. The retail behemoth is also planning another store in Pudong, which is set to open its doors in 2021, the report added.

Prior to the news of Costco’s planned bricks-and-mortar venture, the US retailer has targetted Chinese consumers for several years via Tmall, the online marketplace of e-commerce giant Alibaba. Costco announced the new online store in 2014, which sells branded products including healthcare and personal care goods.

The wholesale giant, which operates hundreds of warehouses mainly in the US, also has outlets in Japan, Korea and Taiwan.

Missile Clash Led to Retail Fallout for Lotte

Costco appears to be betting that its foray into Chinese retail will fare better than the efforts of some of its global rivals in a market fraught with political risk and hard-to-please consumers.

Costco’s move comes just two weeks after Korean conglomerate Lotte Group’s retail arm Lotte Shopping sold 22 stores in Beijing to mainland rival Wumei, which controls WuMart China, for around 248.5 billion won ($230.2 million). The Seoul-based group had seen a 77 percent drop in sales in China following a geopolitical clash that led to informal sanctions in China.

In February 2017, Lotte Group agreed to provide land for the deployment of the American-built Terminal High Altitude Area Defence (THAAD) anti-missile system, which was opposed by the Beijing government. After the state-controlled media condemned Lotte Group, fire safety authorities shut down 74 of the Korean retailer’s 99 stores across China over alleged violations within two months.

Lotte Shopping entered the Chinese market in 2008 by acquiring Dutch wholesaler Makro’s stores in the country. The company struggled to draw in mainland shoppers, which resulted in a reported loss of $853 million between 2011 and 2015.

Costco Rushes in Where Tesco Failed to Win

Lotte is not the only foreign retailer to have hit the wall in the Middle Kingdom. Top British retailer Tesco offloaded a majority stake in its China businesses a decade after it ventured in the Chinese market in 2004.

In 2015, Tesco sold a majority stake in its China business to local retailer China Resources Enterprise (CRE) and merged its 131 stores on the mainland with CRE’s 2,986 outlets under the Vanguard brand. Tesco was left with a 20 percent stake in the stores.