Economy

Costco Ambitions In China, Lessons For Foreign Retailers

E-commerce, local partnerships and logistics are among the keys to success for foreign retailers trying to tap into the massive Chinese consumer market.

Mountains of sales to be sorted
Mountains of sales to be sorted
Lao Yingying

BEIJING — U.S. warehouse retailer Costco continues to push its way into China, most recently by inking partnership deals with online Chinese retailers JD.com and Ymatou.com.

The agreements, which went into effect last month, are the latest in a series of ambitious moves by Costco, which made its successful debut in China last October by stationing itself on Alibaba's Tmall International, China's No. 1 e-commerce platform.

Costco's high-profile interest in China is no doubt being encouraged by the fast growing number of Chinese shoppers looking more and more to buy foreign goods directly online. China's Ministry of Commerce estimates that China had 20 million foreign website shoppers in 2014, up from 18 million a year before. Together they spent approximately 1 trillion RMB ($161 billion). By 2016, China's cross-border import and export volume is expected to grow to 6.5 trillion RMB ($1.047 trillion) with an annual growth rate above 30%.

Chinese authorities announced last August that they wanted to establish a new legal framework for cross-border commerce to include preferential tariffs, logistics, payment and foreign exchange. As such they are hoping to set up a favorable environment for boosting online retail development.

At the annual session of the National People's Congress, in March, Chinese Premier Li Keqiang introduced an Internet Plus strategy — a scheme aimed at promoting the Internet-powered sector so as to boost and transform China's economy, where growth has begun to slow. "I'm most willing to promote the new e-commerce...because they create employment and stimulate consumption," he said, referring to both Chinese and foreign-owned electronic vendors.

According to one analyst, while 2014 was the debut for many foreign retailers opening an online presence in China, 2015 will be their real breakout year. It has been reported that several e-commerce firms have experienced initial setbacks in the Chinese market, which makes choosing the right partner particularly crucial.

For Costco, an e-commerce giant like Alibaba is a safe bet as evidenced by the quasi-monopoly share enjoyed in the buying bonanza that took place last Nov. 11, Singles' Day, a Chinese holiday that has become the largest online shopping day in the world.

Some foreign retailers that tried to test the water in China by injecting capital into less famous Chinese online platforms have had disappointing results. Thee years ago, for example, Macy's invested $15 million in Jiapin.com, an online fashion vendor specialized in global luxury brands. As part of the deal it authorized the Chinese firm to be its exclusive partner in China. The relationship, however, appears to be plagued by problems. Three years on Jiapin has yet to display any Macy's goods on its site.

Macy's failure isn't an isolated case. A deal between Neiman Marcus, another U.S. upscale retailer, with Mei.com, a flash-sales retailer for designer fashion, also wound up as a fiasco. In both cases the U.S. companies found it very difficult to adapt to their Chinese partners' business management and operational approach.

Costco has opted to go with behemoths such as Tmall.com and JD.com as partners: with their overwhelming dominance in online traffic and accurate customer targeting that no foreign retailer can ever expect to match on their own in the Chinese online marketplace.

Fickle customers

Apart from choosing the right channel, foreign retailers keen to cash in on Chinese shoppers also need reliable logistics chains. That means having a regular express delivery force and a higher service standard for the growing market. Chinese shoppers are famous for being particularly discerning over the delivery of their purchases. So far most foreign retailers have failed to adapt to the particular shrewdness of Chinese shoppers.

Costco, for its part, has given its delivery task to SF Express, a Taiwanese transporter offering tailor-made services to overseas retailers for their business-to-consumer (B2C) market in China. Costco passes the merchandise to SF Express in Taiwan, where the U.S. retailer owns brick and mortar stores, while the latter handles customs clearance and domestic delivery. Up to now, SF Express is the only courier that offers such a full-range logistics service specialized in foreign commodities for China.

Other global couriers may have an advantage in that they have complete worldwide distribution networks and can move products around faster. But they tend to charge exorbitant rates and aren't specialized enough to meet the more particular needs of cross-border retailers.

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Preparing a COVID-19 vaccine booster in Huzhou, China.

Hannah Steinkopf-Frank, Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 Ciao!*

Welcome to Wednesday, where Brazil's senate backs "crimes against humanity" charges against Jair Bolsonaro, the UN has a grim new climate report and Dune gets a sequel. Meanwhile, German daily Die Welt explores "Xi Jinping Thought," which is now being made part of Chinese schools' curriculum.

[*Italian]

🌎  7 THINGS TO KNOW RIGHT NOW

• Senators back Bolsonaro criminal charges: A Brazilian Senate panel has backed a report that supports charging President Jair Bolsonaro with crimes against humanity, for his alleged responsibility in the country's 600,000-plus COVID-19 deaths.

• Gas crisis in Moldova following Russian retaliation: Moldova, one of Europe's poorest countries, has for the first time challenged Russia's Gazprom following a price increase and failed contract negotiations, purchasing instead from Poland. In response, Russia has threatened to halt sales to the Eastern European country, which has previously acquired all of its gas from Gazprom.

• New UN climate report finds planned emission cuts fall short: The Emissions Gap Report 2021 concludes that country pledges to reduce greenhouse gas emissions aren't large enough to keep the global temperature rise below 1.5 °C degrees this century. The UN Environment Program predicts a 2.7 °C increase, with significant environmental impacts, but there is still hope that longer term net-zero goals will curtail some temperature rise.

• COVID update: As part of its long-awaited reopening, Australia will officially allow its citizens to travel abroad without a government waiver for the first time in more than 18 months. Bulgaria, meanwhile, hits record daily high COVID-19 cases as the Eastern European's hotel and restaurant association is planning protests over the implementation of the vaccination "green pass." In the U.S., a panel of government medical advisors backed the use of Pfizer COVID-19 vaccine for five to 11-year-olds.

• U.S. appeals decision to block Julian Assange extradition: The United States said it was "extremely disappointed" in a UK judge's ruling that Assange, the founder of Wikileaks, would be a suicide risk of he traveled across the Atlantic. In the U.S., he faces 18 charges related to the 2010 release of 500,000 secret files related to U.S. military activity.

• Deposed Sudan prime minister released: Prime Minister Abdalla Hamdok has been released from custody, though remains under heavy guard after Sudan's military coup. Protests against the coup have continued in the capital Khartoum, as Hamdok has called for the release of other detained governmental officials.

Dune Part 2 confirmed: The world will get to see Timothée Chalamet ride a sandworm: The second installment of the sci-fi epic and global box office hit has officially been greenlit, set to hit the screens in 2023.

🗞️  FRONT PAGE

Front page of the National Post's October 27 front page

Canadian daily National Post reports on the nomination of Steven Guilbeault, a former Greenpeace activist, as the country's new Environment minister. He had been arrested in 2001 for scaling Toronto's CN Tower to unfurl a banner for Greenpeace, which he left in 2008.

📰  STORY OF THE DAY

Chinese students now required to learn to think like Xi Jinping

"Xi Jinping Thought" ideas on socialism have been spreading across the country since 2017. But now, Beijing is going one step further by making them part of the curriculum, from the elementary level all the way up to university, reports Maximilian Kalkhof in German daily Die Welt.

🇨🇳 It's important to strengthen the "determination to listen to and follow the party." Also, teaching materials should "cultivate patriotic feelings." So say the new guidelines issued by the Chinese Ministry of Education. The goal is to help Chinese students develop more "Marxist beliefs," and for that, the government wants its national curriculum to include "Xi Jinping Thought," the ideas, namely, of China's current leader. Behind this word jam is a plan to consolidate the power of the nation, the party and Xi himself.

📚 Starting in September, the country's 300 million students have had to study the doctrine, from elementary school into university. And in some cities, even that doesn't seem to be enough. Shanghai announced that its students from third to fifth grade would only take final exams in mathematics and Chinese, de facto deleting English as an examination subject. Beijing, in the meantime, announced that it would ban the use of unauthorized foreign textbooks in elementary and middle schools.

⚠️ But how does a country that enchants its youth with socialist ideology and personality cults rise to become a world power? Isn't giving up English as a global language the quickest way into isolation? The educational reform comes at a time when Beijing is brutally disciplining many areas of public life, from tech giants to the entertainment industry. It has made it difficult for Chinese technology companies to go public abroad, and some media have reported that a blanket ban on IPOs in the United States is on the cards in the next few years.

➡️ Read more on Worldcrunch.com

📣 VERBATIM

"I'm a footballer and I'm gay."

— Australian soccer player Josh Cavallo said in a video accompanying a tweet in which he revealed his homosexuality, becoming the first top-flight male professional player in the world to do so. The 21-year-old said he was tired of living "this double life" and hoped his decision to come out would help other "players living in silence."

🇸🇩💥  IN OTHER NEWS

Why this Sudan coup d'état is different

Three days since the military coup was set in motion in Sudan, the situation on the ground continues to be fluid. Reuters reports this morning that workers at the state petroleum company Sudapet are joining a nationwide civil disobedience movement called by trade unions in response to the generals' overthrow of the government. Doctors have also announced a strike.

Generals in suits At the same time, the military appears firmly in control, with deposed Prime Minister Abdalla Hamdok allowed to return home today after being held by the coup leaders. How did we get here? That's the question that David E. Kiwuwa, a professor of international relations at the University of Nottingham, takes on in The Conversation:

"Since the revolution that deposed Omar el-Bashir in 2019, the military have fancied themselves as generals in suits. They have continued to wield enough power to almost run a parallel government in tension with the prime minister. This was evident when the military continued to have the say on security and foreign affairs.

Economy as alibi For their part, civilian officials concentrated on rejuvenating the economy and mobilizing international support for the transitional council. This didn't stop the military from accusing the civilian leadership of failing to resuscitate the country's ailing economy.

True, the economy has continued to struggle from high inflation, low industrial output and dwindling foreign direct investment. As in all economies, conditions have been exacerbated by the effects of COVID-19. Sudan's weakened economy is, however, not sufficient reason for the military intervention. Clearly this is merely an excuse."

➡️ Read more on Worldcrunch.com

#️⃣  BY THE NUMBERS

471 million euros

Rome's Casino di Villa Boncompagni Ludovisi, better known as Villa Aurora, will be put up for auction in January for 471 million euros ($547 million). The over-the-top price tag is thanks to the villa having the only known ceiling painting by Renaissance master Caravaggio.

✍️ Newsletter by Hannah Steinkopf-Frank, Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

Who wants to start the bidding on the Caravaggio villa? Otherwise, let us know what the news looks like from your corner of the world! info@worldcrunch.com!

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