---
title: "Membership Stores 'Move into the City' to Avoid a Mess"
description: "Moving into the city means getting closer to consumers and urban life, potentially shifting the positioning logic from 'weekly trips' to 'multiple times a week' or from 'stocking up' to 'convenient shopping'. Membership stores have gradually expanded from 'outer suburbs' into 'urban areas', as seen in recent openings. On September 2, Carrefour's membership store in Nanxiang officially opened, with the Zhongshan Park store soon to follow, marking the first time membership stores have entered Shanghai's central urban area. Similarly, Sam's Club's Baoshan store, which opened in Shanghai at the end of August, has also shifted its focus away from the 'outer suburbs'."
author: "十里"
publisher: "New Distribution"
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published: "2022-09-21"
language: "en"
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---

# Membership Stores 'Move into the City' to Avoid a Mess

> Moving into the city means getting closer to consumers and urban life, potentially shifting the positioning logic from 'weekly trips' to 'multiple times a week' or from 'stocking up' to 'convenient shopping'. Membership stores have gradually expanded from 'outer suburbs' into 'urban areas', as seen in recent openings. On September 2, Carrefour's membership store in Nanxiang officially opened, with the Zhongshan Park store soon to follow, marking the first time membership stores have entered Shanghai's central urban area. Similarly, Sam's Club's Baoshan store, which opened in Shanghai at the end of August, has also shifted its focus away from the 'outer suburbs'.

Moving into the city means getting closer to consumers and urban life, potentially shifting the positioning logic from 'weekly trips' to 'multiple times a week' or from 'stocking up' to 'convenient shopping'. Membership stores have gradually expanded from 'outer suburbs' into 'urban areas', as seen in recent openings. On September 2, Carrefour's membership store in Nanxiang officially opened, with the Zhongshan Park store soon to follow, marking the first time membership stores have entered Shanghai's central urban area. Similarly, Sam's Club's Baoshan store, which opened in Shanghai at the end of August, has also shifted its focus away from the 'outer suburbs'. Coincidentally, in the past two years, retailers such as Fudi Supermarket, Metro, and Jiajiayue have chosen locations in main urban areas or areas with dense foot traffic for their membership stores, while Hema X membership stores have directly opened in residential areas. These signals seem to indicate that membership stores are evolving into a new localized model.

**01**
#### **Membership Stores Move into the City**
In the early days, whether it was Costco near Shanghai Hongqiao Airport or Sam's Club in Beijing's Yizhuang, their locations in the Chinese market were in 'outer suburbs', driven by low property costs. Delving deeper, foreign membership stores are characterized by fast inventory turnover, which leads to higher profits. Costco even has a famous saying: the best way to reduce costs is to increase sales. Increasing revenue and reducing expenses is the path to high profits: on one hand, achieving extreme turnover rates; on the other, controlling expense ratios. Low operating costs permeate every aspect of foreign membership store operations, reflected in lower site selection costs, decoration expenses, labor costs, and transportation costs. Therefore, locating stores in outer suburbs not only allows for large floor areas to display bulky items and packaged goods but also provides large free parking lots for consumer convenience, while controlling property costs.

But now all this is changing. After the hypermarket format has been phased out in city centers, membership stores are taking over. According to Lingshou, compared with previous suburban membership stores, city-center membership stores have relatively smaller areas and fewer parking spaces, but in terms of products and paid membership services, they continue the practices of large suburban stores. Sam's Club's Shanghai Baoshan store was converted from a Walmart hypermarket, covering over 8,000 square meters, smaller than the standard Sam's store of about 10,000 square meters. The parking lot has only 400 spaces, while standard stores have one to two times that number. It is reported that this store began renovation in September last year, but due to the pandemic, it took a year to complete. This is Sam's first attempt to improve operational efficiency under conditions of being closer to consumers and having a smaller store area. Similarly, Carrefour's first city-center membership store was also converted from an old Carrefour hypermarket. Carrefour has stated that it will convert 7,000-square-meter hypermarkets into membership stores in the future. Regarding the reasons for opening city-center membership stores, Walmart and Metro have openly admitted that in China's first- and second-tier cities with high density, it is not easy to find suitable properties for standard membership stores, so they have to convert existing stores and test smaller membership stores in city centers. This is indeed a way to get closer to consumers, but Lingshou, browsing user reviews on Dianping and other platforms for city-center membership stores, found that positive reviews focus on convenient transportation, convenience, and rich in-store categories, with little difference from standard stores, especially for popular products. Complaints, aside from some out-of-stock items, include that small stores have poorer service than large stores, too few parking spaces, difficulty finding parking, and long waits of 1 hour to enter and 1.5 hours to check out during opening periods. This indicates that users' praise for city-center stores still stems from the 'parent' supply chain and product advantages, while 'deductions' are concentrated on the shortcomings and changes of city-center stores.

**02**
#### **City-Center Stores Rely on Conversion**
Looking at these membership stores opened in city centers, most have adopted the approach of converting hypermarkets to explore new models.
The decline of hypermarkets is a trend, especially when the hypermarket format expanded rapidly in China around 2000, with retail enterprises grabbing land in city centers across various cities. At that time, leases were typically signed for 15 to 20 years. Once the cycle ended, hypermarkets, as a format that could no longer attract foot traffic to shopping centers, had to step off the historical stage. After closure, the properties of hypermarkets still exist and need to continue attracting tenants to meet the needs of surrounding consumers. Meanwhile, the popular retail format of membership stores also needs more locations to expand their competitiveness, hence the conversion of hypermarkets into membership stores in cities. Additionally, from a cost perspective, although rents in city centers are higher than in outer suburbs, the cost of building a new membership store is not on the same scale as converting an existing hypermarket. The cost of new construction is definitely much higher than rent and is a one-time expense, putting pressure on cash flow. An industry insider told Lingshou that if a company builds a membership store from scratch, a single store requires an investment of over 100 million yuan, basically 200 million to 300 million yuan (excluding land costs), with a construction period of about 2 years. In contrast, converting a hypermarket can be completed in less than half a year, with a single-store conversion cost of around 50 million yuan. Compared with building from scratch, conversion indeed costs less. Moreover, in recent years, the financial reports and net profits of various retail formats have not been ideal. In the past, a profit margin of 2% was considered a very good state, but now few companies maintain positive net profits, with more experiencing significant revenue declines and net losses. Although the rent share has exceeded the 20% red line, it is still much lower than the investment of over 100 million yuan for a new store. Currently, the models adopted by membership stores include: Costco's self-built model, Metro's self-built and conversion model, Sam's mostly leasing model, and Carrefour and Hema's conversion models. The aforementioned insider said that different store-opening models have their own merits. The self-built model, despite huge capital and time costs and slow expansion, has the advantage of property appreciation and value preservation, and can be fully customized. Combining self-built and conversion maintains the characteristics of hypermarkets, offering more autonomy and a certain expansion speed. The leasing and conversion models have the biggest advantage of saving costs and enabling rapid layout, especially for hypermarkets with operational pressure, where converting to membership stores is a lifeline they can grasp now.

But the core issue is that the lifeline may also be a trap. Converting to membership stores faces significant challenges. Not long ago, Sam's Club's Baoshan store in Shanghai caused disputes between the merchant and residents due to the conversion. More critically, after conversion, will it definitely make money? Therefore, in conversion projects, retailers need to fully weigh the pros and cons before deciding whether to convert, such as the reactions of nearby residents, the design of parking lots, the supporting facilities for loading and unloading areas, and potential traffic congestion. These are all things that retail enterprises need to comprehensively assess; otherwise, they may end up with nothing and even lose their principal.

**03**
#### **Differentiation**
From an operational perspective, completing the conversion from hypermarket to membership store is only the first step.
More critically, opening membership stores in city centers means getting closer to consumers and urban life, which changes the underlying logic of membership stores' positioning in outer suburbs—the positioning may shift from 'weekly trips' to 'multiple times a week', and from 'stockpiling' to 'providing a convenient shopping experience'. Lingshou believes that specifically in the business model, the store's location, area, rent, product structure, and even the shopping channels available all need to change, and the backend replenishment, operations, and supply chain also need corresponding adjustments. This may be similar to the motivation of supermarkets entering communities in previous years: to be independent of standard membership stores, densely located in city centers or communities, complementing and supplementing existing store formats, reducing costs by improving efficiency, strengthening coverage density in cities where they have already entered, providing more choices for community residents, and attracting more consumers to become members. Using 'standard stores to lead city-center areas' to achieve expansion, but not simply copying standard stores into smaller membership stores. In standard membership stores, items like croissants sold in packs of 10 or more, ketchup sold in pairs, boxes of fresh fruits, and vegetables in 5-jin portions are no longer suitable in terms of consumer demand, space, or shelf area. Instead, they require more scientific, reasonable, and efficient replenishment and better use of inventory space, with continuous operational adjustments and innovations. Especially when the operating area becomes smaller, the 'additional services' of membership stores, such as beauty, hairdressing, and car washing, will also be reduced. More importantly, as city-center membership stores provide more convenience to consumers in terms of location, the online business will expand accordingly, shortening delivery and radiation distances. If a standard membership store can radiate 15 kilometers, a smaller version may only radiate 5 kilometers. Walmart has stated that with the rapid growth of e-commerce business, the demand for space is increasing, so they have set up front warehouses outside stores to support cloud warehouse replenishment and share the pressure on store capacity.

Now, after two years of competition, the membership store format shows no signs of slowing down; instead, it is intensifying. Fierce competition is forcing giants to accelerate their store-opening pace. Carrefour has said that in three years, there will be a Carrefour membership store within a 15-minute drive in Shanghai, and it plans to open 100 membership stores nationwide. Hema X membership store plans to add one more store in the competitive Shanghai market by the end of this year. In November 2021, Metro also announced that all its domestic stores would be converted to membership stores in the future. Fudi expects to open 8-15 stores in Beijing by 2023. As membership stores compete from 'outer suburbs' to city centers, they are caught in involution in site selection, supply chain resources, and products. While they are engaged in fierce competition, have they considered whether China really needs so many membership stores? At the beginning, membership stores may be able to 'harvest' consumers into membership, but how to maintain growth and keep consumers renewing their memberships is the biggest test under involution. Ultimately, only those that can build core supply chain barriers, find products that meet local consumer needs, and explore mature and replicable business models can stand firm in the industry. Otherwise, the giants' exploration of city-center membership stores will end like many supermarkets' exploration of mini stores: a mess and closure.

Source: Lingshou (ID: lingshouke)
Author: Shili


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