---
title: "Do We Really Need 'Membership Warehouse Clubs'?"
description: "Membership warehouse clubs are gaining momentum in China, with Sam's Club and Costco expanding rapidly. However, this article questions whether this model truly fits Chinese consumers, given differences in shopping habits, consumption structures, and the challenges of market education."
author: "阮雪"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2022-01-06"
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# Do We Really Need 'Membership Warehouse Clubs'?

> Membership warehouse clubs are gaining momentum in China, with Sam's Club and Costco expanding rapidly. However, this article questions whether this model truly fits Chinese consumers, given differences in shopping habits, consumption structures, and the challenges of market education.

Source: New Distribution (ID: xinmouls)
The trend of membership warehouse clubs is growing stronger.
Since mochi and roast chicken went viral on Xiaohongshu, Sam's Club, which had been quietly operating in China for over 30 years, finally entered the public eye. This was followed by a surge in domestic membership warehouse clubs: as a typical paid membership warehouse, Sam's Club is expected to open 40-50 stores in China by 2022; Costco, the veteran of membership warehouse clubs, opened its second store in mainland China in Suzhou not long ago.
At the same time, domestic supermarkets are also undergoing bold reforms.
First, Hou Yi (President of Hema) declared, "We will open 10 new X Membership Stores this year," followed by Tian Rui (CEO of Carrefour China) revealing that Carrefour Membership Stores will expand nationwide, planning to open 100 paid membership stores within the next three years. As the membership warehouse track suddenly becomes crowded, the first problem to emerge in this melee is on the supply side.
In October this year, a Weibo post from Carrefour Membership Store brought the competition to light. It wrote that on the opening day, Carrefour China Membership Store was pressured by competitors to buy back all relevant products from suppliers, leaving many members unable to purchase. Subsequently, Hema X Membership Store also stated that its stores had long been experiencing similar situations.
In addition to the "choose one of two" problem in supermarket supply, membership fees are also criticized by the public. New Distribution observed that searching for Sam's Club on search platforms frequently yields terms like "daigou" (proxy shopping) and "one-day membership cards." These issues point to the "acclimatization" problems of membership warehouse clubs in China. To this end, this article will mainly discuss:
  * Reviewing the origin and development of membership warehouse clubs;
  * Compared with ordinary supermarkets, what are the differences of membership warehouse clubs?
  * Do we really need "membership warehouse clubs"?
******The Past and Present of Membership Systems**
Let's rewind to the United States in the 1960s.
After World War II, the U.S. experienced its first baby boom and entered a golden age of development. GNP grew from $523.3 billion in 1961 to $1,063.4 billion in 1971, and the American middle class expanded unprecedentedly. Consequently, residents' purchasing power increased, and the retail industry, closely related to this, also accelerated during this period.
****Since the 1940s, the U.S. supermarket industry entered a phase of rapid expansion, with supermarkets' share of daily necessities and grocery sales rising from 10% to 70%. The most popular supermarkets were discount stores, and the industry leader was Walmart, the big brother of the supermarket world.**
As the U.S. population grew, cities began to expand outward, and suburbs were developed. Membership warehouse clubs emerged when supermarket and grocery retail approached saturation. It should be noted that at this time, membership warehouse clubs were still similar to discount stores and high-end organic food supermarkets, merely occupying a small market share as a niche segment under the supermarket format.
As is well known, most of today's well-known membership warehouse clubs were born in the 1980s, when the U.S. was in a severe stagflation phase, with high unemployment and inflation coexisting. Against this backdrop, most consumers were price-sensitive, and low-priced, high-quality goods naturally became the primary shopping demand.
Figure: Rapid expansion of U.S. supermarkets in the 1940s-1960s (Source: Zhongtai Securities Research)
Looking back at the development history of Costco, the first membership warehouse club, you will find: **At its inception, membership warehousing did not carry the label of middle-class or petty bourgeoisie.**
Costco's predecessor was Price Club, founded by Sol and Robert Price in San Diego in 1976. It was the first new membership store for commercial buyers, essentially a wholesale market for supermarket enterprises. Its initial positioning was the same as Germany's Metro, mainly serving corporate clients.
Later, Costco's founders discovered that many non-corporate consumers also purchased Price Club products through group buying and other methods. However, it wasn't until 1980, after Price Club went public, that the founders decided to establish a new membership warehouse enterprise, open to ordinary consumers, with membership fees slightly lower than those for corporate clients. This enterprise was the later Costco.
**Low prices are not the secret to membership warehousing's survival to this day.**
After the crisis, American middle-class consumption concepts also changed. Consumers were not concerned about membership fees as a consumption threshold, but they did care whether the products they bought were high quality. At the same time, American consumption scenarios also changed: **residential areas became more dispersed, the number of multi-person households increased, and the pace of work and life accelerated.**
This also explains why most Americans are accustomed to driving their pickups to the suburbs on weekends to buy a week's worth of household supplies. The packaging in warehouse clubs also grew larger along with American families' oversized refrigerators. Through continuous iteration, warehouse membership stores have taken their current form and become increasingly popular in developed Western countries.
When we shift our focus to the current domestic membership warehouse clubs in China, we find a stark contrast with foreign situations. Take Sam's Club, which was the earliest to enter the Chinese market: Sam's opened its first store in 1996, but over the past two decades, it has only served a small portion of the middle class or returnees in China's first-tier cities. Many people have never even heard of the name, let alone paid membership fees.
It wasn't until 2020, when Sam's became a check-in spot thanks to influencer posts on social platforms, that it truly entered the public eye. This is markedly different from how membership warehouse clubs became famous in the U.S. The currently popular Sam's Club in China seems more like a product catalyzed by the internet, while Metro, which lacks "internet-famous genes," appears much weaker.
In the view of industry insiders, **"The exposure brought by the internet is not necessarily a good thing. The large number of daigou and single-day card sales on online platforms have, to some extent, disrupted its original membership ecosystem. The check-in consumption driven by internet hype also conflicts with membership warehouse clubs, which have always valued long-term customer value. These all lay hidden dangers for the expansion of membership systems in China."**
******Misplaced Bet**
Domestic membership models can be roughly divided into three categories: **single-track paid membership, dual-track paid membership, and free membership.**
Dual-track paid membership is widely present in China's e-commerce industry. The most well-known is JD.com's membership system. Ordinary users can shop on the JD platform, but JD Plus members enjoy more rights: additional services like free door-to-door returns, which is the familiar "paying for privileges."
Taking RT-Mart as an example of traditional Chinese supermarkets, they mostly adopt free membership. Consumers can apply for a membership card for free, and points accumulated through shopping can be exchanged for gifts and services. In the development of free membership, to retain members, many supermarkets also lower prices on some items and label them as member specials to attract consumers.
**Whether it's dual-track paid membership or free membership, user stickiness is far lower than that of single-track membership.**
The reason behind this is simple: for membership warehouse clubs like Sam's Club and Costco, membership fees serve as a pass for consumers, allowing them to enter the store and shop.
Consumers may not necessarily buy because of the low prices brought by free membership, but they will definitely regret wasting membership fees if they don't enter the store. This is what we often call loss aversion: **people's sensitivity to losses and gains is asymmetric, and the pain of losses far exceeds the pleasure of gains.**
The transformation of supermarket membership is actually a manifestation of the consumer market shifting from **"product-centric"** to **"consumer demand-centric."** Moreover, membership warehouse clubs' emphasis on long-term customer value makes them pay more attention to products and channels.
The business model of single-track paid membership warehouse clubs is to attract traffic with low-priced, high-quality goods and rely on membership fees for main profits.
In other words: **The essence of membership is that it no longer relies on price differences for profit like traditional supermarkets, but rather acts as a service provider for paid members, using strict selection to filter higher-quality products, reducing consumers' concerns about quality, and shortening decision-making time.**
Therefore, loyal customers of membership warehouse clubs are mostly those willing to pay for time or convenience.
In New Distribution's view, a membership warehouse club is no longer just a supermarket but a service company. The membership fee is essentially an admission ticket to the store. It hires global buyers on your behalf to select low-priced, high-quality products and creates a warehouse for you, where you can comfortably choose the items you want. Every penny you spend there represents a trust, and they use that trust to serve more people and earn service fees.
******Conflict Between Consumption Habits and Mechanisms**
Membership warehouse clubs have landed well in some regions, but that doesn't mean they are the optimal solution for the future evolution of supermarkets.
Let's first look at a set of data: **As early as 2018, China's middle-income group exceeded 400 million people for the first time, accounting for 31% of the total population.** Although the number of middle-class consumers has increased, they are mostly concentrated in first- and second-tier cities, where rents are not low. If they move out of these cities to tap into lower-tier markets, how many families can afford to spend over a thousand yuan per visit?
**In other words, how many people in China are actually willing to pay for this service?**
Looking at the structure of private consumption, the share of service consumption in China is far lower than that in developed countries. For example, in China, services and goods each account for 50% of private consumption, while in the U.S., services account for 70%.
Therefore, although people's consumption capacity is continuously improving, given the current consumption structure, the awareness of paying for services still needs to be cultivated, and how many middle-class consumers are willing to pay membership fees year-round remains unknown.
According to domestic consumption habits, fruits and vegetables need to be fresh, and there is no habit of stockpiling like in the U.S. Moreover, since Chinese families are mostly small, the large packaging in warehouse clubs inevitably leads to unnecessary waste, which goes against the traditional Chinese virtue of thrift.
Furthermore, Chinese people live relatively densely, and logistics are well-developed, making it very convenient to buy daily necessities nearby. In addition, China's small commodity wholesale markets are well-established, and for consumers with bulk purchase needs, wholesale markets and e-commerce platforms are sufficient.
**A detail that cannot be ignored is that the development of the supermarket industry has always relied on the balance between supply and demand.**
Take community group buying as an example: this is a species that doesn't exist abroad, but it thrives in China, incubating players like Xingsheng Youxuan and Dingdong Maicai. This is because community group buying is based on Chinese consumption habits, institutionalizing those habits. In contrast, membership warehouse clubs are the opposite; they use mechanisms to try to cultivate a new consumption habit.
Therefore, it is natural that the market education cost for the latter is much higher than for the former, and it is clear that the former lands more smoothly, with community group buying having a broader audience in China.
Regarding whether we need membership warehouse clubs, everyone will have their own answer. However, it is certain that the current wild growth of membership warehouse clubs is definitely not the optimal solution for the transformation of traditional Chinese supermarkets. More retail formats suitable for China's local conditions are what we should look forward to.
**Are you "watching" me?**


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