After The "Withdrawal Card Tide", Costco Jumped Into The Deep Hole Of The Supply Chain.

From the opening of the business to the queuing of cards, the topic of Costco has remained high.

In August 27th, Costco China's first store opened in Shanghai. On the first day of business, a large number of passengers, such as parking and waiting for three hours, were queued up for two hours, and Moutai, Hermes and other commodities were sold out. Traffic around the road was paralyzed. Costco, which first landed on the mainland, caused a sensation, and the share price rose. The total market value increased by only 7 billion 800 million dollars in just two days. By the end of September 3rd, Costco shares rose 4.9%.

As a global selling member retailer, Costco was founded in 1983. Unlike other retailers, membership is the core business model of Costco, that is, to obtain large numbers of customers with high cost performance and earn profits through membership fees. This profit model has achieved 15 consecutive years of revenue growth, becoming the second largest retailer in the US after WAL-MART. At present, Costco operates more than 770 stores worldwide, with a total market capitalization of about $130 billion and a membership of over 97 million people.

But in China, with the end of the three days before the opening of the business, most of the commodity prices of Costco have been raised, and the number of people returning cards and returning products has been increasing. The topic of "Costco queuing back card" and "Costco fever" has also been on micro-blog hot search frequently. When the clamor of business has faded, the sound of card withdrawal has come. Can the blockbuster Costco adapt to the Chinese market and survive successfully? It has become a topic of public concern.

　 The main reasons for returning card are inconvenient and not particularly cheap.

Different from previous media reports, "the card should be queued for 2 hours, and the staff are busy to have no time to eat". In September 5th, a Shanghai Costco consumer told reporters that the volume of traffic was significantly reduced compared with the opening day, but there still needed to be lined up. Some of the customers came to deal with the refund card as he did, but the number was not large.

A few days ago, the Costco official responded to the return card incident. "It is true that there is a refund card, but it is also a normal phenomenon in the global scope of Costco, and now the number and proportion of the refund card in Minhang store also belong to a reasonable range". In view of the rumors of "withdrawal card tide" on the Internet, 5 nights later, the suspected Costco Shanghai store manager rumored that there was no return card tide. At present, the membership is 170 thousand, the number of returning cards is 2000, the number of new members is more than 2000, and the price of Shanghai shopper is more than 150 dollars, the highest in the world. At present, no malicious returns are found. In the next year, there are second plans to open in Pudong.

According to other media reports, some customers who return cards say that shopping is not convenient and is not particularly cheap. "Too far away, it's not very convenient to come. It's good to drive by yourself. It's hard to take things by subway." "There are very few categories, and every volume is large. I don't feel much cheaper." "I bought it for Moutai, Moutai did not, and I felt that the price of other things was not cheap." Several customers who answered the card said that too many people and too much crowding were also one of the reasons for customers to withdraw their cards.

It is reported that three days after Costco's opening, discount products such as Moutai, Hermes, etc. have long been out of stock. Some of the ex gratia commodities have been restored to their original prices, and there are more people in the food area. In addition, the original 37.9 yuan roast chicken reduced to 28.5 yuan, and there were more eating rooms on the shelves.

According to Costco, consumers must pay membership fees before admission. At present, the annual membership fee of the first store in Shanghai is 299 yuan, which can carry 2 non members. If you become a paid member before opening up, you can get a 100 yuan coupon, which is equivalent to 199 yuan a year, and membership is available all over the world. This price is far lower than the US $60 (equivalent to RMB 414 yuan).

According to official figures, the membership renewal rate in the US and Canada in 2018 was 90% and 88% worldwide. In China, when the discount in the early days has passed, the freshness of consumers has been gradually reduced. Can Costco continue to attract consumers?

　　 In a short time, Costco can't reach American style.

Earlier, Zhang Sihan, President of Costco Asia, said, "the biggest attraction of Costco is" the cheapest ". The department stores will be 30% to 60% cheaper than the market, and the food category will have at least 10% to 20% spreads. It is this price advantage that made China's first store accumulate hundreds of thousands of members on that day.

In the United States and other parts of the world, low quality and membership business strategy has made Costco a success. According to data from Haitong Securities Research Institute, the gross profit margin of Costco in 2018 was 13%, and the gross profit margin of excluding membership fees was 11%, far lower than that of other retail businesses. The gross profit margins of WAL-MART and Carrefour were 25.1% and 21.9% respectively.

By lowering the gross profit margin of sales, Costco acquired a large number of members at ultra-low prices. These members brought huge sales of goods, which would enable Costco to have high bargaining power and reduce the price of goods when negotiating with suppliers. If suppliers fail to meet their requirements, Costco will seek cooperation with their competitors or replace some products with proprietary brand Kirkland. The overall 3700 low SKU (inventory units) and selected category matching not only enable Costco to guarantee high quality and low price, but also achieve high turnover rate, thereby reducing operating costs. In this way, a benign closed loop has been formed, enabling Costco to successfully operate its membership system.

According to Costco's earnings report, the total Costco revenue in 2108 was US $141 billion 576 million, with sales of $138 billion 434 million, membership fees of $3 billion 142 million and net profit of US $3 billion 134 million. What is more obvious is that membership fees, though less than 3% of total revenue, are the main source of profits.

In China, can Costco have the advantage of supply chain and price as in the local market, and use the "best price performance" to impress Chinese consumers into membership so as to realize the successful operation of membership system?

According to the staff of the Shanghai store, some of the Costco's merchandise is supplied from Taiwan, which is supplied through the SF Express - customs clearance - the mainland. If that happens, Costco will face pressure on Tariffs and operating costs. To achieve the localization of all goods, Costco must establish a stable and low price cooperative relationship with the suppliers directly, like in the local market.

But from the current situation, Costco has only one store in Shanghai, and second stores are scheduled to open next year. This means that Costco does not have the advantage of scale. It is difficult to buy or transport as cheap as the United States, and the localization of supply chain system takes time. According to official figures, Costco now has 535 stores in the United States and Puerto Rico, 100 in Canada, 39 in Mexico, 28 in the United Kingdom and 10 in Australia. In Asia, there are 26 in Japan, 15 in Korea, and 13 in Taiwan, China. Among them, the price of American stores is the cheapest.

Obviously, the price advantage brought about by the huge scale effect of Costco is difficult for China to achieve in a short time.

　　 Electricity supplier tiger wolf evidence, China's travel difficulties and obstacles

In the US and elsewhere, Costco's low price advantage has been very successful. But in China, it faces Ali, Jingdong, and many other strong competitors and the most complex market environment. According to root statistics, China accounts for 54.7% of the global e-commerce sales, while the United States accounts for only 16.6%, less than 1/3 of the Chinese market. The huge electricity supplier ecology has provided consumers with a comprehensive commodity and more convenient shopping experience, and has trained a group of consumers who are highly sensitive to price.

Under such circumstances, Costco still faces many challenges if it wants to achieve the ultimate cost performance below the electricity supplier.

At present, the domestic electricity supplier giant has established a complete supply chain system, and has achieved near metamorphosis in the market scale, commodity category, logistics distribution and service.

According to the annual flagship report released by eMarketer, in the 2019 global electricity supplier research report, Alibaba's e-commerce platform Taobao and Tmall, in the past year, platform GMV (total transaction volume) amounted to 515 billion US dollars and 432 billion US dollars, leading the world, Jingdong ranked fourth, GMV was US $259 billion.

Even if the rising stars had a lot of spells, GMV in the first half of 2019 was as high as 709 billion 100 million yuan. In addition to the huge volume, the domestic electricity suppliers are mainly based on multi SUK operation mode, and they can get more traffic and sales volume through omni-directional and mass production. Tmall, Taobao and Jingdong are all the same, while many of them are mainly SUK. According to official data, there are more and more customized products developed by the 1300 leading industries, with cumulative orders exceeding 70 million orders.

In terms of logistics, in the fresh area, Tmall and Jingdong have launched an extremely fast service for one hour. In the field of 3C, Jingdong relies on its own logistics system, and has already realized the next day's 24 hour distribution. At present, the Jingdong has laid out more than 12000 online stores including 2000 home appliances stores, 2000 Jingdong stores and more than 30 computer digital stores, covering most of the cities and towns in the lower reaches of the country.

On the other hand, from the aspects of utilities, car maintenance, entertainment, entertainment, secondhand transactions, financial payment, home appliances maintenance, travel booking, electricity providers are everywhere.

In the face of the most mature electricity supplier market, Costco Shanghai store has shifted the US operation mode, namely membership system, warehousing system, selected commodities and low gross profit. At the same time, Costco's first store operation is based on the experience of Taiwan market. Not only has it transferred more than 200 employees from Taiwan stores, it has also chosen some of the most popular products in Taiwan to take the lead in sales.

It is understood that there are about more than 3000 active SKU stores in Shanghai, and only 2-3 kinds of goods are selected for each category. In addition, Costco stores are set up in the same way as the US. The Shanghai store is located in Zhu Jian Road, Minhang District, and has a certain distance from the urban area. It continues the strategy of long distance land cost reduction in the US. In addition, warehouse type stores, large packaged goods sales, and open display goods also copied the original way to reduce operating costs.

But it is worth noting that such an operation strategy is related to the habits and customs of American consumers. In the United States, where people are scattered, people live scattered, and labor costs are high, people are more likely to accept driving to go shopping. In addition, the big family model makes American consumers more inclined to buy at large and low frequencies. China and the United States are very different.

The head of an electricity supplier said that China's Costco will face two challenges. First, the electricity giant's market squeeze, whether from the scale, procurement, logistics, or service level, Costco will face strong competition from rivals. In addition, China's mature e-commerce format enables consumers to develop high frequency and small shopping habits, which will be a difficult problem for Costco to overcome.