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China 2.0

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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In The News

War In Ukraine, Day 222: Ukrainian Army Makes New Gains In Regions Annexed By Russia

The Ukrainian army is pushing the front line forward in several directions.

Fire after a rocket attack by Russian troops in Kharkiv

Anna Akage, Meike Eijsberg and Sophia Constantino

The Ukrainian army is pushing the front line forward in several directions, including the liberation of two more cities – Arkhangelske and Myrolyubivka – in the southern region of Kherson. There were also reports Monday of major breakthroughs by Kyiv forces along the Dnipro River in the south.

Ukraine has also made progress in the past 48 hours in the region of Luhansk. Notably, these are two of the four regions that Vladimir Putin announced that Russia had annexed on Friday.

Stay up-to-date with the latest on the Russia-Ukraine war, with our exclusive international coverage.

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With these advances by Ukrainian forces, along with gains in Donetsk (see below) and Zaporizhzhia, Russia does not hold the full territory of any of the areas of occupied Ukraine that Moscow now claims as its own.

Fighting has also intensified in the northeastern Kharkiv region, where Ukraine has also made significant advances and Russia continues shelling in response.

The successful counterattacks by the Ukrainian military in Kherson and the Kharkiv region since last month has left Russian forces controlling less Ukrainian land than they did at the start of the war in February 2022, an analysis by CNN found. Russia’s first massive push overnight into February 24 allowed it to secure or advance on one fifth of Ukrainian territory, or about 119,000 square kilometers. Russia now controls roughly 3,000 square kilometers less land than it did in the first five days of the war.

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