1996 can be said to be the "first year of membership stores" in China, and people began to know about "membership and warehouse shopping".
The first Sam's Club was established in Shenzhen, Beijing Pulssmart Member Shopping Group was established, METRO opened its first warehouse club store in Shanghai, and the first Makro was established in Guangzhou.
But the good times did not last long, seven years later, in 2003, the Guangzhou area of "CP Makro" was transferred to CP Group, and then renamed "C.P. Lotus", in 2007, only in the Beijing-Tianjin area to retain 6 stores of Makro, was finally acquired by South Korea's Lotte Supermarket, and completely withdrew from the membership store format.
In 2004, Puma successively closed its branches across the country, and it was revealed that it owed suppliers huge amounts of money and bank loans, and in 2005, Puma Group collapsed due to the rupture of the capital chain.
From 2003 to 2004, Sam's Club in Kunming and Changchun was forced to transform into Wal-Mart supermarkets due to dismal operations, and then entered a dormant period of more than ten years.
Why did these member store formats that have been verified in Europe and the United States fail one after another in the early days of entering China? Why did Sam's survive and start to accelerate its development after more than 20 years in China?
Develop the economic base of the membership store
According to the research of "Zhuang Shuai Retail E-commerce Channel", warehouse-style membership stores are all in a boutique model, with a single store area of more than 10,000 square meters, only selling a few thousand SKUs, and only selling to members who pay annual fees, mainly for "middle-class families", and the location is generally located in the suburbs of the city.
In 1983, Sam's Club and Costco opened in the United States at about the same time, and according to the U.S. Bureau of Statistics, the per capita GDP of the United States in 1980 was $12,600.
In 1996, when China's first batch of membership stores emerged, the per capita GDP was less than US$1,000, and in 2007 it was just over US$2,000 (estimated according to the National Bureau of Statistics, and converted at the exchange rate of 1:8 between the US dollar and the RMB, the same below).
In other words, paid membership stores are closely related to per capita income.
During the period of rapid economic development in the United States, the number of middle-class families gradually increased, providing a strong economic foundation for the rise of club stores.
In addition, in order to save costs, most of the membership stores are located in the suburbs of the city and large packaging, and consumers need to drive to have a better shopping experience, so each membership store will provide ample parking spaces.
According to the U.S. Department of Transportation, the total number of motor vehicles in the United States reached 193 million in 1990. According to the National Bureau of Statistics, the number of domestic cars in China during the same period was only 5.54 million, of which 820,000 were private cars.
Insufficient income, combined with a small number of families owning vehicles, prevented the club from growing rapidly in the early 2000s.
The reason why Sam and METRO have survived in China is that according to the observation of "Zhuang Shuai Retail E-commerce Channel", they found that on the one hand, they changed their location strategy and chose to choose near subway or bus stations, and on the other hand, they increased the recruitment of corporate members and slowed down the pace of store opening.
In the decade from 1996 to 2016, Sam's Club opened only 15 stores in Chinese mainland. From its entry into China in 1996 to its acquisition by Wumart in 2020, METRO, which has been deeply involved in corporate membership, has only opened 97 stores in China.
There are still two major hurdles for membership stores to break through
If per capita GDP and private car ownership are the economic basis for the development of member stores, then according to the National Bureau of Statistics, by the end of 2020, China's civilian car ownership was 280 million, including 240 million private cars; Chinese GDP per capita was close to 10,000 US dollars.
These two economic foundations are already comparable to the number of cars and GDP per capita in the United States in the 90s, but the accelerated development of membership stores in China still needs to break through two major thresholds, that is, paid membership and large packaging.
The reason why paying to shop is still the threshold is because in the perception of Chinese consumers, shopping itself is spending money, and it is unreasonable to pay an annual fee of more than 200 yuan without knowing the raw materials, shelf life, packaging specifications and other product information.
How do you break through the threshold of paying membership fees?
First of all, Sam's is realized through the online e-commerce platform, and by opening a flagship store on JD.com to set up two prices, non-member price and member price, so that ordinary users who have not paid membership fees can also buy Sam's high-priced products.
According to public data, in 2023, Sam's has laid out nearly 500 front-end warehouses in China, with an average daily order of about 1,000 orders per warehouse, a customer unit price of about 230 yuan, and an annual sales volume of about 40 billion yuan.
Sam's online e-commerce sales account for 55% (Walmart's fiscal year 2024 financial report data shows that the group's e-commerce sales account for 48%), of which the front warehouse accounts for nearly 70% of the e-commerce order volume.
Although there is no exact data on how many paid members are converted after purchasing non-member-priced goods on e-commerce platforms, it is undeniable that the e-commerce sales of up to 46.39 billion yuan (Walmart's fiscal year 2024 financial report data shows that Sam's sales are 84.345 billion yuan) are very important for Sam's to promote the growth of paid members.
The threshold of paying to shop has been broken through because of e-commerce sales and the pre-warehouse model.
The second threshold is large packaging, although large packaging has been challenged by competitors, Sam still adheres to the business strategy of large packaging to reduce the unit cost of goods. It also continues to use large packaging to innovate products, which not only makes it a popular product and a marketing topic.
For example, in July last year, in order to build momentum for the opening of Sam's new store in Shenzhen, the giant barrel of instant noodles launched in conjunction with "CUP NOODLE" was filled with a small box of instant noodles in a large vat, and it was rushed out as soon as it was launched.
There have also been giant lollipops, milk dragon dolls taller than a person, and pork jerky taller than an adult.
These super-large packaging products that are larger than large packaging have become a reason for people to visit the store with their own traffic attributes, forming a hot topic on content platforms and social platforms at home and abroad, not only did not spend Sam too much marketing and promotion costs, but also further established a favorability through innovative and differentiated products, and continuously converted more paid members.
Of course, in the three years from 2020 to 2023, the intimacy of neighborhood relations in Chinese communities has risen, and the habit of sharing shopping formed among neighbors has further broken through the consumption barriers brought about by large packaging.
In addition, the daigou business that evolved from the e-commerce platform also has a certain role in breaking through the two major thresholds.
With a per capita GDP of more than 10,000 U.S. dollars and 240 million private cars, the membership store has also broken through the threshold of paying membership fees through e-commerce platforms and pre-warehouses, and has broken through the threshold of large packaging through the marketing innovation of large packaging and the rise of neighborhood intimacy, which has finally ushered in explosive growth in China in recent years.
The explosive growth of membership stores
In 2017, Sam's Club opened five stores in one go. At the same time, Sam's membership has grown rapidly.
Zhu Xiaojing, CEO of Walmart China, once mentioned that it took 21 years for Sam's to reach its first 1 million paid members. But Sam only took 3 years for the second 1 million members, 9 months for the third 1 million, and as of October 2021, the number of members has exceeded 4 million.
As a long-time rival of Sam's Club in the United States, Costco entered China late, only opening its first store in Shanghai in August 2019.
However, on the opening day, the store was crowded, Moutai and Hermes were instantly sold out, and popular products such as roast chicken, milk, eggs, and bread began to be replenished within an hour of opening the store. An hour after opening, all 22 checkout counters were full of customers, and the waiting time was at least 30 minutes, resulting in the closure of the afternoon of the day.
A month later (September 4), Richard Chang, president of Costco Asia, revealed in an interview with the media that since the opening of membership applications on July 1, the Minhang store has accumulated tens of thousands of members, far exceeding previous expectations. One month after opening the store, the number of paid members has exceeded 100,000.
In 2021, Costco's second store opened in Suzhou, and the "grand occasion" of 10,000 people queuing up was staged again, with sales reaching 10 million on the first day of opening the store, setting a sales record for the first day of store opening in China.
On January 12, 2024, Costco entered the location of Sam's Club (Walmart Group) China headquarters and opened its first store in South China in Shenzhen, which is Costco's sixth store in Chinese mainland, and less than 4 kilometers from Costco Shenzhen is another well-known warehouse supermarket Sam's Club store, which opened in 2017.
According to the "Zhuang Shuai Retail E-commerce Channel" from public information, as of the opening day, the number of members opened more than 140,000 cards, ranking first in the world, with 10% of Hong Kong people applying, and the sales volume also refreshed the sales data of China's Costco on the opening day, ranking first in the country.
As of March 2024, the world's two largest club stores have opened 54 stores in China, including 47 Sam's Club stores in China and 7 Costco stores.
According to Costco's financial report for the first quarter of fiscal year 2024, Costco's revenue in the first fiscal quarter was $57.8 billion, a year-on-year increase of 6.2%, and its net profit was $1.589 billion, compared with $1.364 billion in the same period last year.
METRO, which has also been deeply involved in the Chinese market for more than 20 years, has not only gradually shifted from the B-end to the C-end after being controlled by Wumart, but also accelerated the pace of opening stores.
On November 24, 2021, METRO held a conference on brand and strategic upgrade in Shanghai.
At the meeting, METRO released a new and upgraded brand strategy and brand image, and announced a comprehensive layout of member stores, with "safe and reliable + worry-free and simple + life proposal" as the moat, from the previous main service to B-end customers, to serve both B-end customers and C-end members of the operation model.
At the same time, it was announced that 16 member stores will be opened in 8 cities in Beijing, Chengdu, Nanjing, Qingdao, Dalian, Wuxi, Changchun and Changzhou on November 27, and the newly upgraded brand image will also be the first to land in these member stores.
According to METRO's official website, as of 2023, METRO has 103 stores in China, including 43 stores in East China, 15 stores in Western China, 13 stores in South China, 15 stores in North China, 6 stores in Northeast China, and 11 stores in Central China.
In terms of the number of paid members, METRO has served more than 20 million members in China (including corporate members).
In an interview with the media at the 6th CIIE, Cai Tianle, President of METRO China, said that since the transformation to the C-end, the number of domestic member stores has reached 24 in two years, and the number of paid members has reached nearly 5 million, and the growth rate of paid members will exceed 50% in 2022.
In the future, for membership stores serving middle-class consumption, in addition to first-tier cities, lower-tier cities will also have broad development space.
According to BCG's Boston Consulting Group's 2023 China Future Consumer Report: Generations, China is expected to add another 80 million people to the middle class and above by 2030, with more than 70% of the new middle class coming from lower-tier cities.
According to the available public data, the penetration rate of membership in the United States is 11%, and only 0.3% in China.
Membership stores are in the ascendant in China!