Costco opened its first store in China.
On August 27th, Costco, a large-scale American chain member-based warehouse supermarket, opened its first store in mainland China. Due to the large number of consumers arriving at the store and the large number of people in the store, Costco had to temporarily announce that it would suspend business in the afternoon. As of now, Costco still controls the number of visitors, with a limit of 2,000 in the store, and the average admission time is 2 hours.
Although Costco said that it has not yet counted the passenger flow and performance on the first day of the store opening, the reporter noticed that on-site security personnel told the consumers who failed to enter the venue that the passenger flow reached nearly 80,000 people that day. However, this number has not been confirmed by Costco or Minhang officials.
On the opening day, the road near Costco was heavily congested due to excessive traffic. On the same day, the official “People ’s Express Train-Minhang” official Weiwei released ??百乐宫网上游戏?? that the section of Lianyou near the shopping mall was temporarily closed from the north-south road to the north from Zhujian Road.
What is the magic of Costco? What are consumers grabbing at Costco?
Member supermarkets: pay first, then discount
In 1976, Price Club, the first member-based warehouse and wholesale club, was established in San Diego, California, USA. Seven years later, another partner, Costco, a member-based warehouse and wholesale company, was established in Seattle, Washington. In 1993, the two companies merged into PriceCostco, which was officially renamed Costco Wholesale in 1998. Currently, Costco operates more than 770 stores in 11 regions around the world.
The so-called "warehouse-type supermarket" refers to the simple layout of the retailer's stores. Large quantities of goods are built directly on the ground with cardboard boxes, and many goods do not even have shelves.
Costco uses the simplest warehouse rack
Costco Asia's president Zhang Yihan once said with a smile, "There is no complicated decoration in the mall, no one will help you lift the elevator and say hello to you." In addition to simple decoration, the "warehouse supermarket" also focuses on "large quantities". There are large packaging daily necessities for the whole family in the mall, plush bears 2.36 meters high, and wine glasses 1.18 meters high.
Member supermarkets are different from ordinary supermarkets in that they have a small number of SKUs. Take the average SKU of Costco and Sam member stores in global stores as an example, which are 3600 and 4,500, respectively, and ordinary supermarkets may have close to 10,000 items. Costco's Shanghai Minhang store has even more streamlined SKUs, with only 3,400.
Although Costco's predecessor, Price Club, pioneered the business model of membership-based supermarkets, it was the latecomers who first entered the mainland market-Sam's Club (Sam's Club) that entered mainland China in 1996. Both also focus on the sales of large packaging and large-volume products. Consumers need to pay a certain annual membership fee before entering the store.
Since the membership fee of 299 yuan / year has already been paid, in order to make the upfront cost and value for money, Costco members will choose to spend more at Costco and have higher loyalty.
According to the Perfect Price survey report, Costco's per-capita consumption per person is US $ 136, and 25% of the consumer population is between US $ 100-200, far exceeding Wal-Mart and Whole Foods. Costco's 2018 financial year data shows that the global membership renewal rate is 88%.
Zhang Yehan, President of Costco Asia
One week before the opening of Costco's Shanghai Minhang store, Zhang Huanhan revealed that Minhang store recruited tens of thousands of new members. According to Costco's global store regulations, only consumers who have paid membership fees can enter the venue, but on the day of opening, due to the large number of consumers and limited security capabilities, this requirement was not strictly enforced. Some consumers who did not know the situation chose to apply for a membership card on-site on the day after they learned that the membership fee was needed. The security guard near the member registration area revealed that due to too many people, the computer responsible for registering member information also malfunctioned.
Gross margin is less than 14%, only earning membership fees
So, since Sam's Member Store, a membership-based supermarket, has been in China for many years, why has Costco been so popular with consumers this time around?
"Although it seems that both Sam's Club and Costco have adopted a membership-based payment model, there is actually a big difference between the two. Many domestic consumers already know about Sam's Club, but why? Costco still makes such a big splash? "
Zhang Yun, a global partner of Reese Consulting, said in an interview with reporters: "The reason is that although Sam's Club has discounts, such discounts cannot be compared with Costco. Sam's Club relies on earning product differences and There are two ways to make money with membership fees, and Costco does not want to earn the difference by selling goods. It does its best: it selects the best products for consumers on the one hand, and it consumes on the other. Offer the lowest price. "
Zhang Yun said: "From the perspective of consumers, when they buy Moutai liquor even cheaper than a smoke hotel, it will naturally attract strong attention from consumers and the media."
Zhang Minhan told the media before the opening of the Minhang store that the overall gross profit margin of Costco stores is less than 14%, and the gross profit margin of most products is only about 10% -11%. Globally, Costco's profit margin has been relatively stable since its inception. Excluding extreme values, gross profit margin has remained at 11% -14%, and net profit margin has remained at 1% -2%.
The biggest contribution to Costco's profits is the membership fee paid by consumers in advance. The latest financial report data shows that in the first three quarters of fiscal 2019, Costco membership fee income was US $ 2.302 billion and net profit was US $ 2.562 billion. In other words, Costco's profits come almost entirely from membership fees, and Costco's member income and net profit are almost flat.
Zhang Yun said, "When Costco achieved the ultimate SKU, coupled with the location of the store in the suburbs, a relatively simple but comfortable design, and high-volume procurement (because the number of SKUs was controlled, it was able to achieve large Bulk purchase), and adopting a model of cooperating with enterprises to customize products to reduce the impact on other channels of the brand and sell their own products. "This series of measures has significantly reduced Coscto's operating costs.
In summary, Costco's strict quantity control, quality requirements and low-profit business model, and its more than 96 million loyal members worldwide continue to provide the company with stable returns and investment returns.
Taiwan team to help, e-commerce market for 5 years
Different from traditional shopping malls' selection standards and operating models, Costco is competing to become the target of imitation. Although the store has not yet opened in mainland China, it has already become famous.
Xiaomi founder Lei Jun has stated in public that Costco is one of the most inspiring business models. According to previous media reports, Lei Jun once said, "I was shocked after I understood Costco's story. We have been thinking all day, how can we continue to increase the gross profit margin and enter a strange circle? How to solve this problem? If we want to sell things cheaply, but also want to know the real thing, we must work hard to integrate the entire channel and the entire industry chain. Only this bold innovation can have the opportunity to control costs in a reasonable range. "
Costco, which inspired Xiaomi, arrived late, but never thought of missing the mainland China market. As early as 2014, Costco opened a flagship store on Tmall, selling imported private-label "Kekeland" products and some other categories. At present, the SKUs of Tmall flagship stores remain at about 500.
Zhang Yehan said, "In the past 5 years, let ’s adjust, let us prepare, let us cultivate the brand, and train our team, so these 5 years are worth it. If we jump in (the mainland market) and do n’t understand anything , Will definitely suffer. "And the decision to set up the first store in Shanghai also comes from the operating experience of Tmall's flagship store. From the order of the past 5 years, Costco's main consumers are concentrated in East China, of which Shanghai is the most.
The specific settlement of Zhujian Road in Minhang was also well thought out. Although Zhujian Road is 3 kilometers away from the subway, it can be reached by car. The Minhang store is equipped with 1,200 parking spaces, which is the largest parking lot of Costco stores worldwide. In addition, the nearby high-end communities and 7 international schools are in full compliance with Costco's site selection criteria for high-end and mid-range people.
Costco pre-opening press conference
When Forbes Magazine talked about the success of Costco's first mainland store, it also attributed one of the reasons to the many years of experience of Costco in Taiwan. Forbes quoted Costco chief financial officer Richard Galanti as saying in a May earnings call that "we are lucky that we already have a successful business model in Taiwan" and selected " "Some key people" went on to set up mainland business. When Granty talked about his management team at the time, he also said, "We start with a small number of core teams, and slowly grow the team from the inside." At a press conference before Costco's Shanghai Minhang store opened, there were Store employees revealed to reporters that most of the management of the Minhang store are Taiwanese Costco employees.
Although the operation of foreign supermarkets in mainland China has been generally poor in the past two years, Carrefour has been acquired by Suning, and Metro has also frequently reported that it will sell its business in China. , Especially the development of membership supermarkets in the mainland.
On August 28, Andrew Miles, President of Sam ’s Member Store China Business, said in an interview with reporters that Sam ’s Member Store will open 6 new stores in Shanghai. By 2023, 40 to 45 stores in China will open and Stores under construction.
Costco has not ruled out the possibility of continuing to open stores in China. Zhang Yehan once said: "The marketers attach great importance to the Chinese mainland market. We believe that this will play an important role in the future development of the entire company. We will first open one or two stores to see if the development is good or not. Will continue to open. As for how much? The market is so large, I do n’t know. "
Can China's mother and child retail replicate the Costco paid membership?
In the retail world, few retailers can make money with a gross profit margin of less than 14%, and Costco does. Since opening its first store in 1983, Costco has now become the second largest retailer in the world, with 770 stores worldwide and annual revenue of more than $ 140 billion.
Costco does not rely on selling goods and selling members
Other retailers rely on selling goods to make a difference to make money, and Costco does not go the usual way. It makes money by selling members and uses annual membership fees as its core income source. Costco innovatively adopts the "buy ticket admission" method, which means that users need to pay a membership fee (official price 299 yuan) in advance to become members, and only members or family members and friends accompanied by members can enter Costco to spend.
Costco's membership fees come in two grades: $ 60 / year and $ 120 / year. (Domestic membership fee is only one grade: 299 yuan, divided into Venus members and corporate members) $ 60 is a white card, and $ 120 is a black card. At the end of each year, black card members can get 2% cash back for annual shopping. It is understood that Costco's membership is available globally, and a membership card can be bought and sold at Costco worldwide.
According to statistics, Costco's membership in fiscal 2017 exceeded 90.3 million, with revenue of $ 2.853 billion, up to 70.64% of the annual net profit; Costco's membership fee income in fiscal 2018 was $ 3.142 billion, almost the same as membership fee income; 2019 , The number of members has exceeded 96 million. At present, retail is trending towards traffic. Whether it is e-commerce or physical retail, the amount of traffic can directly affect the rise and fall of retail. When the traffic operation is converted to the user operation, the success of the Costco membership model has made members a new possibility to save the offline sales crisis. .
Targeting model for targeting high-value customer groups:
"Will you be willing to pay membership fees" has become the simplest criterion for distinguishing the purchasing power of audiences. Above the membership threshold, Costco has identified a more accurate customer group. Costco's goal is to target middle-class families and small and medium-sized business customers who have certain spending power and are willing to pay a certain premium cost for better products and services. Membership has become a vehicle for them to enjoy a better shopping experience.
Profit model that relies on membership dues rather than commodity spreads:
Costco's profit point is different from traditional enterprises. It does not rely on commodity sales to achieve its own profit growth. Instead, it takes the number of members and the increase in membership fees as its main profit. Therefore, the renewal rate determines the key to the survival and development of the company. The higher the renewal rate, the stronger the interest of the company to the paying members. It is reported that Costco's card renewal rate is maintained at about 90% throughout the year.
Strict selection model of specially selected SKUs
Costco strictly follows the strict selection model of specially-selected SKUs in its products, which mainly manifests in the three aspects of extreme selection, exclusive special-made, and strict quality control. The first is the extreme selection. Unlike Wal-Mart and Carrefour, which have tens of thousands of SKUs, the whole product strategy is different. Costco only selects 2-3 “explosive” types for each category, and it is directly directed to manufacturers. Customized large packaging. Fewer SKUs and narrower price bands not only save time for customers to select parity rates, but also facilitate inventory management. Coupled with large-scale purchases, the purchase price can be reduced, and finally consumers can buy more at lower prices.
A truly unreasonable service model
In order to check whether each of the selected products is satisfactory to members, Costco's return service is abnormal. Costco has agreed with consumers that except for electronic products and digital products, which must be returned within 90 days of purchase, there is no return period for other products. After paying the order, customers can return to the store with the goods for no reason at any time, and they do not need to provide a shopping receipt.
Limited gross margin pricing model
Unique profit models have led to unique pricing models. Costco adopts a pricing model with a limited gross profit margin. It has two hard rules for the gross profit margin of merchandise sales. First, the gross profit margin of all products does not exceed 14%. Once it exceeds this number, it needs to report to the CEO and then Board approval; Second, facing external suppliers, once the price is lower than Costco elsewhere, its goods will never appear on Costco's shelves again.
Operational model for tightly controlling costs
In an operating environment with extremely low gross margins, Costco strictly controls costs. In terms of selection, on the one hand, select SKUs save the cost of booking, tracking and display, and reduce the average inventory cost; on the other hand, fewer choices per category often represent a sufficient order volume and fewer brands Competition is more conducive for Costco to negotiate with suppliers.
In terms of labor costs, due to the streamlining of SKU's deep inventory operation strategy, Costco stores require relatively few staff. In terms of rental costs, Costco stores are mostly located in the suburbs, insisting on owning core properties to lock rental costs; in logistics In terms of cost, Costco stores have undertaken some warehousing functions, and their distribution centers operate efficiently to control logistics costs.
There are classic cases of Alibaba and Amazon members online, and the success of the Costco and Kid King membership models offline, all seem to make the membership system full of endless possibilities. When the traffic bonus disappears and new users will not explode, all the mother and baby retail companies can do is switch their business ideas, focus on how to retain the old users more efficiently, and try their best to dig out their own membership mines.