Attention China: Costco is coming. To Tmall, at least.
The U.S. retailer has teamed up with Chinese e-commerce giant Alibaba (BABA) to sell products on the Tmall web store. Food and health products will show up first, including many from Costco’s in-house brand, Kirkland. Flat-screen TVs and weird exercise contraptions won’t be far behind.
Costco (COST) doesn’t have physical stores in China. In fact, it has precious few in Asia at-large. There are 19 Costco warehouses in Japan, 11 in Korea, and 10 in Taiwan.
The Internet is a relatively easy way enter a new market. But Costco doesn’t do too much of that either. China will be the fourth country where the retailer takes Internet orders, in addition to Canada, Mexico, and the U.K. In Costco’s five other locales, it’s strictly on-floor shopping. All told, Costco gets less than 3 percent of its revenue from online sales, according to its most recent financial update.
Tmall—and China in general—offer something Costco requires: volume. With incredibly slim margins on merchandise (and sometimes no margin at all), Costco only makes a profit on membership fees. Those won’t be required for shopping on Tmall, according to Alibaba.
In other words, the entire country of China may be a loss-leader—at least until the warehouses start popping up.
