Costco Finds Success in China

Costco has used Tmall Global to make an impressive Chinese debut. Department store Macy’s tried and failed earlier this decade to establish its own e-commerce presence in China; now it has a “storefront” on Tmall Global. And some companies that already sell widely in China, including P&G, are using Tmall Global because it lets them bring new products to markets faster. The big question is whether the brands now dipping a toe in these waters will commit and dive all the way in.tmall global stats

What do these American companies find most appealing? Companies that import through Tmall Global can pay lower taxes. Alibaba has worked with China’s government to create “bonded” warehouses in four cities. Goods shipped through these points aren’t subject to standard import duties. Some aren’t taxed at all; others are taxed at discounted rates of 10% and only after shoppers purchase them. This compares with the 30% to 40% wholesale tax rates standard for such brands. It’s a deal the Chinese government was willing to offer Alibaba officials say because it meant consumers would spend more money at home.

In his stark office in Hangzhou, Zhang describes Tmall Global as the missing link between American companies and “digital China.” Zhang, 43, is a Jack Ma Protégé and finance guy who joined Alibaba in 2007 after a career that included a stint at a Price Waterhouse Coopers. He speaks so softly you have to learn to hear him, but his message is confident. “You have nothing to lose. Tmall Global gives American companies the ability to learn the Chinese market and understand the Chinese consumer withouth a massive investment.”

In 2014, when Costco decided to start selling food in China, it shipped several tons of nuts via freighter to a bonded warehouse in Ningbo. It didn’t have to handle any logistics beyond that thanks to Cainiao. Alibaba’s shipping network isn’t always China’s fastest. JD.com, for example, boats same day delivery in 40 cities, compared with only six cities for Alibaba, but its reach is tremendous. According to Cainiao executive Wan Lin, it ships to every district in China and can ship overnight to 200 cities. Cainiao will quadruple the warehouse space it leases, to 54 million square feet, over the next year- setting aside a space bigger than New York City’s Central Park, largely to accommodate foreign goods.

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Alibaba also helps companies figure out which produts might fare best in China. For Tmall Global, the company helped Macy’s focus its selection on accessories, shoes, towels, and sheets – the kind of “touch the skin” categories where China’s shoppers covet forign brands. In the food world, Alibaba’s cultural translation is particularly vital. To most Chinese, for example, lobster may as well come from Mars. Alvin Liu, general manager of Tmall Global, says the site has helped U.S fishermen develop instructional videos to teach consumers how to cook the crustacean. Campbell’s quickly learned that its soups were prized- not as freestanding dishes, but as sauces for other meals. The company hired a Chinese chef to create recipes for Tmall; one explains how to make a traditional sweet-and-sour sauce out of a tomato based soup. costco1_0.jpg

 

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