For Costco, how to complete the transformation from 'global sourcing' to 'regional synergy' while adhering to the 'members first' philosophy will be key to its survival in the Chinese market. A recent Financial Times report has drawn industry attention: Costco is asking Chinese suppliers to lower prices to offset the tariff costs imposed by the Trump administration. This move coincides with Walmart being summoned by China's Ministry of Commerce for similar behavior. When tariffs shift from political decisions to corporate costs, and supply chain resilience becomes a competitive barrier, the outcome of this zero-sum game across the Pacific may determine the direction of the global retail industry for decades to come. Where does the pressure come from? The report, citing sources, said Costco has asked Chinese suppliers to reduce prices in response to the 20% tariffs imposed by U.S. President Donald Trump on Chinese goods, and Chinese regulators are paying attention to Costco's move. Costco's behavior is undoubtedly one of the strategies to maximize its own interests amid increasing uncertainty in the global trade environment. Image: Costco First, the main reason Costco is pressuring Chinese suppliers to cut prices is the U.S. government's tariff policy on Chinese goods. Since February this year, the Trump administration began imposing a 10% tariff on Chinese imports, then raised it to 20%. This policy directly increased costs for U.S. importers, and Costco, as a leading global retailer, naturally needs to find ways to cope. Perhaps by asking Chinese suppliers to lower prices, Costco can shift some of the tariff costs onto suppliers, thereby reducing its own financial pressure. Second, this strategy may have a profound impact on the supply chain. Chinese suppliers facing Costco's price reduction demands may see their profit margins squeezed. This not only affects suppliers' profitability but may also threaten the stability of the supply chain. If suppliers cannot withstand the price reduction pressure, they may choose to reduce cooperation with Costco or even exit the market. This would force Costco to find new suppliers, increasing supply chain uncertainty. As is well known, Costco's bargaining power stems from its channel dominance and procurement scale. Costco achieves supply chain efficiency through a streamlined SKU strategy. Its SKU count is about 4,000, far lower than Walmart's 20,000, but the average annual sales per SKU reach $40 million (2019 data), 46 times that of Walmart. This 'fewer but better' model lowers purchase costs through large-scale procurement, making prices generally 20% lower than the market, while maintaining a gross margin of 10.9% (industry average 15%-25%). Although Costco is extremely strict in selecting suppliers, and those that do not meet its quality requirements will not get cooperation opportunities, suppliers that meet Costco's standards can establish stable, long-term direct purchasing relationships. However, Costco also bypasses supplier price fluctuations by launching its own brand, Kirkland Signature, ensuring product stability and price advantages. Image source: Costco official website This strategy not only simplifies the supply chain process and improves overall operational efficiency, but also ensures high quality and reasonable pricing, further consolidating Costco's 'low price, high quality' brand image in the market. It is worth noting that the bargaining space for domestic suppliers is undergoing structural changes. As the Southeast Asian supply chain matures, leading OEM factories are beginning to build multi-customer, multi-region capacity layouts. This capacity diversification weakens retailers' 'volume-for-price' leverage, and some leading suppliers even counter-demand annual purchase price increases of 3%-5% to hedge against tariffs. Furthermore, China's Ministry of Commerce and other relevant departments have already summoned Walmart for asking some Chinese suppliers to significantly reduce prices, attempting to shift the burden of U.S. tariffs onto Chinese suppliers and consumers. Costco's similar behavior may be seen as unfair competition in the Chinese market, prompting regulators to warn against 'unreasonable cost shifting.' High opening, low walk in China Costco's development in the Chinese market can be described as 'high opening, low walk.' Since the first Costco store in China opened in Shanghai in 2019, Costco's expansion in the Chinese market has been relatively slow. To date, Costco has opened 7 stores in mainland China, distributed across 6 cities: Shanghai, Suzhou, Ningbo, Hangzhou, Shenzhen, and Nanjing. However, compared with Sam's Club, Costco's expansion pace appears more cautious. Image source: Costco official website Overall, Costco's business strategy in China shows obvious duality, with both advantages from global experience and challenges from insufficient localization. Its advantages are first reflected in its precise market entry strategy. As early as 2014, Costco established online channels through Tmall Global, JD.com, and other e-commerce platforms, accumulating brand awareness and consumer data in advance, providing a basis for offline store location and product strategy. In 2019, Costco's first Shanghai store attracted 200,000 members in just 37 days, with membership fees becoming a stable source of profit. In terms of product strategy, Costco focuses on 'high-end at affordable prices,' reducing costs through bulk purchasing and streamlined SKUs, and introducing scarce products like Moutai at prices lower than the market, creating differentiated competitiveness. The warehouse-style store design and unique 'treasure hunt' promotional experience also enhance consumers' shopping immersion. However, Costco's localization shortcomings limit its further development. First, the membership model has limited acceptance in China, with a renewal rate of only 60%, far below the global level of 90%, reflecting insufficient consumer stickiness to its services. Lagging supply chain localization is another core issue. The localization rate of fresh food categories in stores is not high, and core products are highly dependent on imports, leading to weak price competitiveness and unstable supply, such as frequent out-of-stock of daily necessities like eggs. Store locations are mostly in suburbs, increasing consumers' transportation costs, while online delivery is not flexible or convenient enough, in stark contrast to Sam's '1-hour express delivery.' In addition, the private label Kirkland has low awareness in China and has failed to replicate its global influence. Image: Sam's Club Facing Sam's Club's scale effect of 54 stores (Jiaxing store officially opened on March 20) and mature local supply chain, Costco is at a disadvantage in product richness, price advantage, and shopping convenience. This indicates that if Costco wants to achieve a breakthrough in the domestic market, it needs to make deep adjustments in local supply chain construction, membership service optimization, and omnichannel experience enhancement. Combined with Costco's latest performance, its fiscal 2025 second-quarter earnings report shows revenue of $63.72 billion, up 9.0% year-over-year, exceeding market expectations, mainly due to the continued appeal of the membership model and price advantages. However, earnings per share fell short of market expectations, reflecting an imbalance between cost pressure and profit growth. Although Costco maintains growth globally through high turnover, low gross margins, and ultra-high membership renewal rates, the uniqueness of the Chinese market makes it difficult to replicate its success. Facing Sam's Club's first-mover advantage, mature local supply chain layout, and the impact of emerging formats and competitors, Costco needs to accelerate localization, optimize supply chains, enhance membership service experience, and adjust expansion strategies to seek breakthroughs in the highly competitive Chinese market. Conclusion Costco's reported pressure on Chinese suppliers to cut prices is one of the strategies to maximize its own interests amid increasing uncertainty in the global trade environment. However, this behavior may have a profound impact on the supply chain and attract further attention from Chinese regulators. In the Chinese market, Costco faces many challenges, including supply chain localization issues, low acceptance of the membership model, and shortcomings in store location and online experience. To address these challenges, Costco needs to adopt more flexible business strategies, strengthen supply chain localization, enhance the value of membership services, and optimize store locations and online experience. Only in this way can Costco achieve sustained and stable development in the Chinese market.