Costco Rides Into China on Alibaba's Shoulders

Retail

Published: October 14, 2014 10:30 am

The second-largest retailer in the United States, Costco Wholesale Corp. (NASDAQ: COST) said Tuesday morning that it will open a “flagship” online store in China on the Tmall Global platform operated by Alibaba Group Holding Ltd. (NYSE: BABA). The member-only store will begin by selling food and health care products and some of its private-label Kirkland Signature goods to Chinese customers through the Tmall site costco.tmall.hk.

Costco’s executive vice president said:

Costco sees tremendous growth opportunities in China, especially in light of Chinese consumers’ increasing appetite for imported products. We have chosen a great partner, Alibaba, for the official launch of Costco’s Flagship Store. Our Tmall Global flagship store will give Chinese online shoppers a channel to purchase directly from Costco.

Unlike Amazon.com Inc. (NASDAQ: AMZN), Alibaba does not sell merchandise directly. It charges sellers to advertise at its business-to-consumer platform, Tmall, and consumer-to-consumer site, Taobao. An Alibaba spokeswoman said:

As Tmall.com and Costco deepen their collaboration, Tmall.com will connect Costco with our Group’s [consumer-to-consumer] platform, Taobao, and group shopping site, Juhusuan. Together we will develop and explore innovative market campaigns to unlock Costco’s membership value.

Costco is taking little risk here. Tmall offers a bonded warehouse that will keep logistics costs low and shorten delivery times to Chinese customers. The company will expand its offerings as and when demand warrants it. What the company will find out is how well its membership model works as an online-offering only.

One might guess that if the online store is a resounding success, Costco might decide to enter the brick-and-mortar market in China. Costco already operates 10 stores in Taiwan, 20 in Japan and 11 in Korea.

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