Costco, Macy’s Eye China E-Commerce
E-commerce is quickly gaining traction as a quick and affordable entree to China’s vast retail market, with US giants Costco (Nasdaq: COST) and Macy’s (NYSE: M) both reportedly planning big new moves into the space. Their strategy reflects an emerging trend that has big western chains circumventing the traditional retailing route into China, seeking to avoid the big costs and risks that have led to big losses and retreats for names like Best Buy (NYSE: BBY) and Home Depot (NYSE: HD). But the online strategy also carriers its own risks, as China’s e-commerce space is also quite crowded and retailers that go online face an uphill road getting recognized by brand-conscious Chinese consumers.
Costco, Macy’s Eye China E-Commerce
A good example of the challenges new arrivals will face is US luxury retailer Neiman Marcus, which recently opened an online shop in China at neimanmarcus.com.cn. I have to admit that I’m hardly a target customer for this very upscale retailer, which quietly opened its China website late last year. But I am a heavy consumers of China news and see a lot of advertising, and was largely unaware that this relatively well-known name in the US had even come to China until I read about it in a recent report.
Let’s take a look at the latest retailing news starting with Costco, the warehouse shopping store that has become a shopping phenomenon in its home US market. Chinese media are reporting that Costco has decided it wants to enter China via the e-commerce route, and is currently looking for a partner to develop such a venture. (Chinese article) There’s not much more detail to the report, which cites unnamed sources.
As a former resident of Taiwan, which has many similar characteristics to China, I can say that Costco has done quite well in that relatively small market with its handful stores that are quite popular. During my time there, friends would often invite me to accompany them on half- or all-day excursions specifically to visit a Costco store, sometimes driving an hour or more just to get there.
Costco’s success in Taiwan owes at least as much to this social element of creating special “outings” around trips to the store, though clearly the low prices and big selection of interesting items is also important. An online store would lack that social element that makes shopping at Costco so special. That could make it difficult for the chain to differentiate itself from other online rivals in the already crowded space in China, where it would have to compete with the likes of global names Walmart (NYSE: WMT) and local giants like Jingdong. For that reason, I’d only give Costco a 50-50 chance of success if it really follows such an online strategy in China.
From Costco, let’s move quickly to Macy’s which is also reportedly looking to go online following a brief experiment in China e-commerce last year. Again, the media reports aren’t saying much beyond the fact that Macy’s wants to go online in China rather than build its traditional brick-and-mortar stores to enter the market. Some readers may recall that Macy’s took a timid step into China about a year ago when it invested $15 million to buy a stake in luxury retailer VIPStore, operator of the Omei.com website. (previous post)
It’s unclear from the latest reports if Macy’s decision to set up its own online shop is an extension of the VIPStore partnership, or if Macy’s will undertake this new initiative by itself or with a different partner. Like Costco, I do suspect that Macy’s will find it difficult to win name recognition in the crowded Chinese e-commerce market, and its new China venture will also probably have just a 50 percent chance of success.
Bottom line: Costco and Macy’s could become the latest big retailers to enter China via e-commerce, but stand only a 50 percent chance of success due to stiff competition.
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