Costco has grown to become one of the most dominant multinational companies. The company has warehouse locations throughout 12 different nations, and this footprint appears to be expanding. The business also has a dominant presence in the Chinese market as well. But is the company owned by China? The following is what we found out.
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Does China Own Costco?
Costco has started building a presence in the Chinese market as part of its ongoing expansion. Despite the company's operations in Shangai, China does not own the company. Costco is not a Chinese company; its main office is in Issaquah, Washington, USA. The business is a publicly traded U.S. corporation. Costco has begun strengthening its position in the Chinese market as part of its ongoing global expansion.
As of this year, Costco operates two warehouses in Shanghai, China (the first one opened in 2019). Costco has stated that it will open seven more locations in China by the end of 2022. Curious to learn more about Costco’s international business operations? This post is for you.
What is Costco?
Costco is among the largest retailers worldwide. The retailer operates more than 800 big stores globally. The company also boasts of having over 100 million membership card holders. Costco sells a wide range of products at its retail locations. The product selection is vast, from edibles and hydration supplies to alcoholic beverages and wellness wares.
The merchandise only contributes marginally to the company's bottom line. Most of its profits come from membership subscriptions—only members can shop at Costco. Due to its membership-based pricing strategy, Costco can undercut rivals and win consumer loyalty by delivering products in greater quantities at lower prices. Since consumers consistently return to get their money's worth out of their memberships, Costco spends no money on advertising.
Costco is also known to pay its employees well. Average hourly salaries at Costco are higher than those at many other businesses and the federal minimum wage. Since the typical Costco member has a household income of about $93,000, it's not hard to convince customers, especially given the store's often significantly lower costs than competitors. This results in a very steady core of members, with retention rates far above 91.3%. As a result, the reliability of Costco's financial performance over the years is not surprising.
Who Owns Costco?
If China does not own Costco, who are the owners then? Costco is owned by Costco Wholesale Corporation—a merger between Costco and Price Club. As of this writing, the corporation's CEO is W. Craig Jelinek. The company's CEO and stockholders work together to determine Costco's course.
The company's inception can be attributed to two people. Sol Price, who, together with his son, created Price Club in 1976, is the first. Price Club was a warehouse selling products in bulk. The other parties involved in creating Costco Wholesale Corporation are Jim Sinegal and Jeffrey H. Brotman. The two created Costco and emulated Price Club’s business venture.
The merger with PriceCo was the most significant event in Costco's history. In the past, Walmart considered absorbing Price Club into its own warehouse club, Sam's Club. But Costco had made a more substantial merger offer.
Ultimately, Price decided on Costco since the two warehouse clubs were comparable in size and operated in a similar fashion. As a result of the merger in 1993, the company's name was changed to PriceCostco. PriceCostco rebranded as Costco Wholesale Corporation in 1997.
Costco’s Operations In China
Having business operations in China is beneficial for any major retailer. The price of products is significantly reduced due to the low manufacturing cost in China. This is why Alibaba often offers better deals than competitors like Amazon. According to Amazon, Chinese sellers account for more than 40 percent of all third-party retailers. This goes to show the vast number of products retailers sell from China.
As prementioned, Costco has business operations in China. In June 2022, the company announced it would open seven new stores in China. These new stores would be located in Shanghai, Jiangsu, Zhejiang, and Guangdong. The Costco in Shenzhen Longhuamen will be the company's largest flagship store, and the city will also house the company's South China headquarters.
Costco has been the target of criticism in China, with detractors saying that the warehouse club's business model doesn't work for the country's consumers since most people in East China live in cramped homes that can't accommodate large quantities of merchandise. These concerns have some basis in reality. Western merchants have already entered China and struggled to make a name for themselves and grow.
Specifically, in 2016, Walmart sold its Chinese e-commerce company to JD.com, and in 2019, Amazon exited after failing to compete with the homegrown Alibaba. In 2018, Marks & Spencer followed other Western retailers in abandoning their stores in China. When Suning International came knocking for a stake in its Chinese stores, even Carrefour, once the most prominent foreign retailer in China, surrendered 80% of its stake.
This indicates the discernible trend of Western retailers not succeeding in China. Nonetheless, Costco's entry into the Chinese market with a novel strategy has given it a good chance of success. Costco's strategy for success in China includes establishing a solid online presence before launching physical locations in the country. In addition, Costco has implemented a brilliant marketing approach by making high-quality goods accessible at low prices.
Lastly, the success of Costco's membership-only model cannot be overstated. Customers must become members to purchase at the retail behemoth Costco, and a regular membership price is 299 RMB. Back in 2019, on the first day the Shanghai location was open to the public, 139,000 people signed up to become members.
In the early months that followed, this figure climbed to over 200k. The fact that Costco could immediately achieve its objective of 100,000 members shows how well the company's business strategy has performed in China.
Even though Costco is dominant in the Chinese market—compared to its U.S. counterparts—the company is not owned by China. The company operates as a publicly traded U.S. company. The company, however, has international business operations in various countries. In China, Costco has plans to add seven new stores by the end of the year. This goes to show the amount of dedication the company has to dominate the Chinese market.