China

In deal with Alibaba, Costco opens online store for China

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Screenshot of the new Costco online store on the Alibaba Tmall platform.
Screenshot of the new Costco online store on the Alibaba Tmall platform.

Costco Wholesale has struck a deal with a unit of Internet retail giant Alibaba Group to open an online store serving customers in mainland China, its first, long-awaited dip into that burgeoning market.

The Issaquah-based warehouse-club behemoth will market its private label Kirkland Signature products and other items through Tmall Global, an Alibaba Group platform that allows foreign retailers to sell items to customers in China without setting up a brick-and-mortar presence there.

The unorthodox arrangement underscores two ongoing trends at Costco: its slow but sure embrace of international operations, which now account for about a third of its business, and its tinkering with the promise of online growth.

At the company’s conference calls, analysts often ask when Costco, which has 10 warehouses in Taiwan, will open in mainland China. Executives respond they are focusing on first figuring out markets such as Spain and on waiting for the right opportunity.

The partnership with Tmall, which Alibaba says serves to quench Chinese shoppers’ thirst for foreign brands, could be a good beach head.

But it’s quite different from its standard business model: An Alibaba spokeswoman said shoppers using the service won’t need a Costco membership. Costco relies on member fees for a sizable portion of its profits.

Costco’s head of international operations, Jim Murphy, said in a statement that “Costco sees tremendous growth opportunities in China, especially in light of Chinese consumers’ increasing appetite for imported products.”

He added that Alibaba’s expertise in big data will help Costco find the best products for its customers there.

There’s plenty of opportunity to be had. As sales of consumer goods doubled between 2008 and 2012, China became the world’s second-largest retail market after the U.S. It is expected to surpass America before the end of the decade, according to a report by the Fung Business Intelligence Centre, a research unit of a large Hong Kong logistics and retail conglomerate.

Internet shopping has taken off as well.

China’s Internet retail market surpassed the size of the one in the U.S. in 2013 to become the world’s largest, with $295 billion in sales versus $270 billion in America, according to McKinsey. Its growth potential is seen as huge, as only 46 percent of China’s population is online, versus 87 percent of U.S. residents, the report says.

Last month Alibaba launched the largest initial public offering in U.S. history. Analysts with Bernstein Research say Alibaba’s Taobao and Tmall home pages offers a much broader shopping selection than those of Amazon or eBay, including services such as insurance, health and prepaid cellphone minutes.

Ángel González: 206-464-2250 or agonzalez@seattletimes.com. On Twitter @gonzalezseattle

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