Costco’s store opening in China caused traffic jams and safety concerns.
The ongoing trade war between the U.S. and China has gotten a lot of media attention in recent months. Many analysts have speculated whether the trade war will sour Chinese attitudes toward American businesses.
This certainly didn’t seem to be the case when Costco opened its first mainland China store in Shanghai. Costco opened its newest store on Tuesday, and the reception was far beyond anything the company could have anticipated.
Thousands of customers flooded the area, causing huge traffic jams and hour-long parking delays. A nearby school even notified parents that the Costco opening would cause student dismissal to be “severely delayed.” Costco was forced to close early due to safety concerns and later apologized for the overcrowding.
Morgan Stanley analyst Simeon Gutman attended the event in Shanghai. In a note to clients, Gutman said that expanding its market to China could bring in a whole new level of growth for Costco.
Why Are Chinese Consumers so Excited About Costco?
No retailer is entirely immune to the trade-war effects, but Costco comes close. The company continues to outperform in 2019, delivering strong sales growth and positive earnings.
Costco already has a cult-like following in the U.S. and is now looking to expand internationally. The company has already successfully expanded to several international markets, including Taiwan, Japan, and South Korea. According to Gutman, this could add 4% to Costco’s international sales in the coming years.
Before opening its Shanghai store, the company did have an online presence in China thanks to the e-commerce company Alibaba. Still, not all U.S. companies receive such a warm welcome in China. Companies like Amazon and Tesco also attempted to expand to China but had a hard time gaining market share.
According to retail consultant Greg Portell, Costco’s success is due to a combination of factors. The company entered a mature marketplace that was ready for it, and they established themselves as a unique solution.
As an established brand, many Chinese consumers had likely heard of Costco and wanted to shop there. Hence, the excitement on opening day.
But Portell did caution that just because the company received a lot of fanfare on day one doesn’t mean the excitement will last. Portell added that just because customers are excited to visit Costco right now doesn’t mean the company will stay profitable in China long term.
Final Thoughts
Costco may have had to apologize to its Chinese consumers for the long lines and delays, but investors didn’t seem too upset over the news … Costco’s shares continue to go up since Tuesday morning and on Wednesday, the company reached a new 52-week high.
This means the company’s shares are up 45% year to date. Who knows how long the warm reception in China will last — but all signs point to continued growth for Costco in the coming years.
