Warehouse Retailing in China Business & Marketing Research Paper

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Warehouse Retailing in China
Warehouse retailing is one of the major contributors to the GDP and economic growth of China. The sector has grown rapidly in the recent past due to increased competition and entry of new businesses in the sector. Notably, China supports FDI and this has allowed foreign and international brands to invest in the sector. The growth has resulted in the total revenue accrued in 2019 rising to $96bn, with the number of businesses being 17,732 (Jiang and Ruoyu 10). The annual growth of the sector between 2014 and 2019 has been 6.5%, and the industry has created 449,833 employment opportunities. The new revenue is a 5.0% increase from 2018. Foreign industry expertise and logistics skills entered the Chinese market, improving accessibility and quality, and increasing demand for warehouse retailing services in the country (Jiang and Ruoyu 10). Rapid growth and development of domestic and foreign trade have stimulated growth in the industry. Further, the integration of modern technology such as cloud computing and mobile internet has accelerated growth in the modern logistics sector.
Costco in the Chinese Market
Costco is an American warehouse retailer that recently opened its first physical store in the Chinese market on August 27, 2019. It is located in Shanghai, and it has attracted a high number of shoppers due to its lenient return policy and low prices (Tang 23). Its entry into the retailing sector in China has forced other market players to change their approach to match its rapid growth. Costco looks set to take over the Chinese warehouse retailing sector because it has capitalized on the loopholes among its major competitors: Wal-Mart, Carrefour, and Tmall
Costco vs. Wal-Mart, Carrefour, and Tmall
Costco opened its first physical store in China in August this year, with the hope of utilizing the knowledge it has acquired when operating in the country under Alibaba Group Holdings (Zhen et al. 54). The major challenge in this sector is cultivating a positive purchasing behavior from the customers. Costco sells its products and places its stores mainly in suburban areas, and this was its major obstacle in China due to the changing consumption trends and different lifestyles of Chinese consumers.
One of the ways of overcoming these challenges would have been by changing its operations to suit the market. However, Costco failed to bow to such pressures from S&P Global Market Intelligence. Other retailers such as Walmart, Tmall, and Carrefour tried to transform themselves into the Chinese market by developing operating models that targeted higher profitability and efficiency in the market (Zhen et al. 54). Some of the approaches that they took included cutting back on their store space as well as diversification of their formats. All the while, Costco took the time to learn and better understand customer trends and behaviors to make informed decisions regarding the formulation of strategies.
Carrefour hurriedly rushed its Carrefour Easy, which is a store format between a convenience store and supermarket, normally located in different residential areas. The aim, in this case, was to take Carrefour services closer to the customers and increase their accessibility (Lin 21). On the other hand, Walmart introduced Sam's Club, which targeted the middle class. It requires its members to pay 260 yuan annually to access imported items, high-quality products, and enjoy such services as fresh deliveries and discounts at some stores. Although this would have been an effective strategy, Walmart failed to consider the low-income earners since they cannot afford such subscription fees.
Currently, Costco had adopted a similar business model in the American market, where clients have to part with $60-120 for membership (May 20). The business accrues much of its profit from the membership fees and then sells its products at lower prices than most of its competitors. The membership fee contributes up to 70% of the company's revenue before taxes and the gross margin averages around 11% as seen it its results from the last three years.
Sam's Club introduced by Walmart generates more than 10 billion yuan every year, while a well-performing hypermarket generates around 3 billion or 4 billion yuan (May 20). This means that despite the shortcomings, Sam's Club has been one of the ways through which Walmart retains its market power in the Chinese warehouse retailing sector. As such, it has improved Walmart's sustainability and profitability.
Therefore, the four competitors are the major market players in the Chinese warehouse retailing. They differ in the approaches and strategies that they take to improve their market position. Their competitiveness has various advantages and disadvantages as shown in the review about. These are also summarized below.
Costco
Advantages
The business sells its products at lower prices than the competitors. This has enabled it to register high sales volumes and attracting buyers. This has significantly improved Costco’s marke...