In recent years, membership warehouse stores have become a mainstream retail format, with foreign giants like Sam's Club and Costco widely known. However, membership warehouse stores target mid-to-high-end consumers. Due to national conditions, many adapted formats have emerged in China, most commonly integrating membership systems into discount warehouse stores.
The author recently attended the National New Channel Link Evolution Conference by Community Forest in Xi'an and would like to share some views on this emerging domestic format.
We Are Opening 'Membership Discount Warehouse Stores'
Currently, the warehouse store industry in China is still rapidly developing, and there is debate over whether to open 'discount warehouse stores' or 'membership warehouse stores.' However, many people merge the two formats, temporarily calling them 'membership discount warehouse stores.'
Looking at international trends, well-known warehouse store brands like Sam's Club and Costco can be considered authentic 'membership warehouse stores.' First, they require membership for entry and sell products in bulk packages. Second, they feature large-format stores, typically over 10,000 square meters, with streamlined product selection and warehouse-style display.
These warehouse store brands, with 20-30 years of operational experience abroad, tend to favor high-quality, higher-priced imported products rather than focusing on low prices. Costco even brings luxury brands like Rolex and Hermès into its stores. It can be said that their product selection was never intended to be 'people-friendly,' and having money to buy is different from being able to afford it.
In terms of location, membership warehouse stores are usually situated in suburban areas to reduce land and operational costs.
In other words, membership warehouse stores do not play the 'low-price' card; instead, they target mid-to-high-end consumers. Thus, they do not appeal to the mass market but rather to niche and specialized segments.
Many investors have keenly noticed this and recognized the repurchase benefits of membership systems. However, considering the average income and shopping habits of the Chinese public, they have 'transplanted' the membership model into the discount store format.
In the discount store sector, ALDI is a relatively successful international brand, having opened many stores in Shanghai.
ALDI's characteristics include locations in shopping malls and bustling areas, small store sizes, few SKUs (with only two or three brands per category), and low unit prices. Products are displayed in loose or bulk packaging, with a heavy emphasis on private labels, and no membership system is required.
It is clear that discount warehouse stores and membership warehouse stores differ significantly in location, product selection, and target consumers. The 'membership discount warehouse stores' emerging in many first- to fourth-tier cities combine the strengths of both, and many do not mandate membership, using pricing and promotions to educate consumers about membership.
Therefore, the survival of membership discount warehouse stores in the future may hinge on product differentiation, store environment and service quality, product quality, and customer relationship maintenance.
Creating high-quality, low-priced private labels, offering convenient payment and purchasing methods, and installing self-checkout machines are essential for discount warehouse stores to compete in the market.
Many discount warehouse stores currently use low prices as a door-opener to win consumers' hearts. However, as more discount warehouse stores open, the eventual winners will be those with unique features, such as store design, brand IP, or private labels. Otherwise, they will be like competitors who exhaust themselves by doing more work without considering their own limits, all collapsing together.
Store Location and Product Selection
"The store can be hard to find, but the location must be good!" Long Ge of Shanghai Yusha Discount Warehouse Store hit the nail on the head.
Unlike membership warehouse stores, discount warehouse stores target a broader audience, primarily housewives, the elderly, and Gen Z. A common trait among these groups is that they love to compare products.
Even Gen Z, whom we think spend lavishly, compare products extensively online before buying (according to the 'Z Generation Definition and Characteristics: Tsingshan Capital 2021 Mid-Year Consumer Report').
'Good location' can be defined as convenient transportation, sufficient permanent and floating population nearby, a certain number of companies/factories, or entertainment venues, and strong purchasing power among surrounding consumers. Of course, competitors in the area should be minimal, or you should have enough confidence to outperform them. Currently, many discount warehouse stores choose commercial complexes as their first choice for exposure and foot traffic.
In product selection, streamlining SKUs remains crucial. First, fewer SKUs are easier to manage, reducing operational burdens. Second, reducing SKU count is actually a plus, as it increases purchase rates.
Costco previously studied this and found that too many product options can lead to choice paralysis, causing consumers to abandon purchases. Conversely, when there are fewer brand choices in a category, consumers make decisions faster.
Another factor is giving consumers a reason to 'must come.' A previous article by New Distribution about Tao Daqing mentioned that many customers repurchase because of the specialty product 'craft kvass,' which they love but cannot find elsewhere, so they make the trip to Tao Daqing's warehouse store.
But coming just for kvass isn't cost-effective—time and money are spent—so they browse around and end up contributing more to the store's GMV.
Of course, specialty and private-label products are just one direction. Store design, color scheme, scent, music, lighting brightness, and service methods are all excellent breakthrough points.
Many malls and brand stores add specific fragrances to create a relaxing atmosphere and stimulate purchases. Luxury stores often fine-tune lighting to achieve a unique 'premium feel.' From these perspectives, discount warehouse stores have room for further upgrades.
You want consumers to feel a unique experience when shopping in your store, a feeling that can only be provided in a specific setting.
Leveraging Technology to Reduce Costs
Using Online Channels for Customer Acquisition and Retention
Douyin was mentioned multiple times at the conference, and many speakers even displayed their Douyin handles in their PPTs. As an app opened by hundreds of millions daily, Douyin's influence and traffic are undeniable, which is why many warehouse stores use it for promotion.
Lu Zong of Shanghai Fuyu Trade mentioned in his speech that mastering Douyin operations is fundamental to running a warehouse store. Douyin can also attract peers, potentially leading to major collaborations. Especially for warehouse stores that strictly control costs, Douyin becomes an ideal channel for promotion and partnership building.
Additionally, Lu Zong noted that community group buying models can be applied to warehouse stores, tapping into nearby community traffic and building private domain customer groups. By regularly hosting promotional events to attract new and repeat customers, the stickiness of the private domain group can be enhanced.
Customers are not just the ones providing money in the business cycle; building good relationships with them can yield hot news and shopping experience feedback. For example, customers might tell you what products are trending or which products are poorly displayed and hard to reach.
Many discount warehouse store operators and managers likely worry about labor costs. Self-checkout machines can significantly improve efficiency and reduce labor costs.
A good self-checkout machine costs around 8,000 RMB, equivalent to a cashier's one-and-a-half-month salary, but the long-term benefits far exceed that amount, improving error rates and checkout speed. With a better experience, consumers are more willing to come.
When product turnover speeds up, operational efficiency and consumer experience improve, leading to higher overall management efficiency and enhanced in-store experience.
What It Means for Distributors and Brands
The new 'membership discount warehouse store' format presents both challenges and opportunities for brands and distributors.
For brands, many existing products need new packaging and styles to create more differentiated products compared to regular channels. Common price increase methods include: maintaining the same price but reducing net content, changing packaging size and net content while raising prices, and designing limited-edition or promotional products.
Now, products need to 'look cheap' on discount store shelves. Brands can adjust packaging in terms of color, thickness, and shape to make products appear more 'affordable' without affecting transportation, while keeping the contents the same.
Product appearance directly influences consumers' impressions of the product and brand, and packaging shape and display methods also directly affect purchase decisions.
Discount stores also present a new opportunity. Brands can use them to launch new products and sub-brands, and new brands can build high brand awareness and influence through 'membership discount warehouse stores,' avoiding direct competition with industry leaders in mature channels.
For distributors transitioning to warehouse stores, it's essential to adapt to this fast-turnover format. Before opening, effectively evaluate store location, nearby target audience, product selection, site design, shelf display, and sales per square meter.
For online business, the entire membership system operation should be strategically planned based on regional conditions and target groups. Implement digitalization across the board for inventory management, establish fast and effective inventory handling mechanisms, and strictly monitor information feedback efficiency at all stages.
Whether customers visit the store depends on the objective experience and product selection, while whether the store can operate healthily and survive depends on a refined and efficient management system.
Final Thoughts:
We always talk about differentiation and uniqueness, but what exactly are they?
Selling high-quality products that others don't offer is a form of uniqueness. A different store design can be unique. Different promotional activities (including online) and display stands can also be unique.
Even having employees wear relaxed-colored uniforms instead of stiff work clothes to make customers feel pleasant while shopping can be a way to create differentiation.
Although membership discount warehouse stores are a new terminal model, our business fundamentally revolves around consumers. So, study consumer psychology more, think from the consumer's perspective, walk through your store as a consumer multiple times, and consider what needs improvement.
Innovation and pioneering spirit are also essential. Making consumers feel fresh and excited makes it easier for the store brand to firmly occupy a specific place in their minds.
Are you 'watching' me?