---
title: "The Truth About Warehouse Club Profitability"
description: "Warehouse clubs originated in the U.S. after WWII, driven by urbanization, a growing middle class, and suburban commercial development. Unlike traditional retail, which profits from product markups and offers a wide SKU range, warehouse clubs act as 'trustees' for consumers, curating a limited selection of high-value items and relying primarily on membership fees for profit. In China, the format is booming again due to changing consumer attitudes, rising car ownership, and the suitability of bulk shopping for families."
author: "我是庄帅"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2021-07-01"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/the-truth-about-warehouse-club-profitability-c1dd5c93/"
markdown: "https://xinjignxiao.com/en/articles/the-truth-about-warehouse-club-profitability-c1dd5c93.md"
original_source: "https://mp.weixin.qq.com/s/ZQjZjsd5_7xtp8Q1Q2kNow"
translation: "https://xinjignxiao.com/zh/articles/%E4%BB%93%E5%82%A8%E4%BC%9A%E5%91%98%E5%BA%97%E7%9B%88%E5%88%A9%E7%9A%84%E7%9C%9F%E7%9B%B8-c1dd5c93.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/the-truth-about-warehouse-club-profitability-c1dd5c93/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# The Truth About Warehouse Club Profitability

> Warehouse clubs originated in the U.S. after WWII, driven by urbanization, a growing middle class, and suburban commercial development. Unlike traditional retail, which profits from product markups and offers a wide SKU range, warehouse clubs act as 'trustees' for consumers, curating a limited selection of high-value items and relying primarily on membership fees for profit. In China, the format is booming again due to changing consumer attitudes, rising car ownership, and the suitability of bulk shopping for families.

**Scan the QR code in the image to register**
Warehouse clubs originated in the United States. After World War II, the rise in urbanization, the expansion of the middle class, and the development of commercial circles on the urban periphery gave birth to the warehouse club format. Traditional retail's core lies in earning product price differences, based on the Long Tail theory, with a large number of SKUs and a focus on 'one-stop shopping.' In contrast, warehouse clubs position themselves as 'trustees' for users, carefully selecting the most cost-effective products, with a small number of SKUs and a focus on 'curation,' with membership fees as the primary profit.
Since the rise of the warehouse club format in the U.S., the industry grew rapidly and became highly competitive, eventually forming a triopoly dominated by Costco, Sam's Club, and BJ's Wholesale. Costco was founded in the U.S. in 1983, and by the end of 2020, it operated 803 stores across 12 countries and regions. In fiscal year 2020, sales grew to $163.2 billion, with over 105.5 million members, making it the world's second-largest retail group, second only to Walmart. In North America, Costco consistently ranks first in customer satisfaction. Its performance in Japan, South Korea, and Taiwan (China) is also outstanding. Since 2014, Costco Taiwan's total revenue exceeded RMB 14 billion, with three stores ranking in the global top 10. Although Costco's gross margin is lower than traditional retail, its inventory turnover is higher. **In fiscal 2020, Costco's gross margin was 13.09%, far lower than Walmart's 24.83%, but its inventory turnover was 12.26 times, significantly higher than Walmart's 9.40. This excellent turnover helped Costco achieve a higher return on equity.**
Additionally, Costco's significant profit source is membership fees. From fiscal 2011 to 2020, membership fees as a proportion of revenue remained highly consistent with net margin. Membership fee income is the main profit source, while product gross profit only covers daily operating expenses.
**In August 2019, Costco opened its first mainland China store in Shanghai, which was an instant hit. Paid members reached 200,000 within a week, generating nearly RMB 60 million in membership fees.** After the initial opening buzz, business remained thriving, with paid members stabilizing at around 300,000 and daily customer traffic around 5,000. As early as 1996, Sam's Club had already opened in Shenzhen, and 25 years later, it serves over 3 million members. **According to Walmart's financial data as of February 2021, Sam's Club's comparable sales grew 13.3%, membership income was the highest quarterly growth in five years, new member growth exceeded 60%, and core member renewal rate exceeded 80%.** According to official data, Alibaba's first Hema X Membership Store achieved profitability within two months of opening, and after three months, the average transaction value approached RMB 1,000, with daily revenue peaking at over RMB 10 million.
**Three Main Reasons for the Warehouse Club Resurgence in China**
The development of warehouse-style supermarkets in China has been full of twists and turns, but in recent years, it has turned a corner. Besides Costco's entry and accelerated store openings, Walmart in China has been closing many underperforming stores in first- and second-tier cities while reviving the membership-based warehouse format it had neglected for over a decade, planning to aggressively expand Sam's Club in first- and second-tier cities. Metro, acquired by Wumart, opened 12 new stores, with sales growing 8%. Alibaba's Hema Fresh opened its first X Membership Store in Shanghai in October 2020, with founder Hou Yi stating, 'From today, we are in direct competition with Costco and Sam's Club.' Yonghui Superstores also opened its first warehouse store in May 2021 (converted from an old store), and soon six more warehouse stores opened in Fujian, Chengdu, and Chongqing. Beijing Hualian (BHG) is expected to open its first 6,800-square-meter warehouse membership store in Lanzhou within this month. Carrefour announced in May that it would launch a membership store format in Shanghai in the fourth quarter, though not necessarily in the warehouse model.
**1. Old forces and new powers are entering the warehouse club format for three main reasons:**
**First and foremost, decades of development in China's retail e-commerce industry have continuously changed consumer attitudes.** Before 2015, charging a fixed annual membership fee was inconceivable to early Chinese consumers. Moreover, the annual shopping amount per consumer was limited, making the fee proportion too high, so consumers naturally felt it was not worth it. However, with improved quality of life and income, consumers now place more emphasis on product quality. At the same time, relative to personal and family income, the membership fee proportion has decreased, making it easier for consumers to accept. The success of JD.com's Plus membership and Taobao's 88VIP over the years also confirms this shift in consumer attitudes. In October 2020, JD.com announced that its PLUS members exceeded 20 million. **The other two reasons are the increasing car ownership among Chinese families and the fact that the bulk shopping format of warehouse clubs also fits Chinese family consumption.**
**How Can Warehouse Clubs Ensure Sustained Profitability?**
Any retail format cannot escape the three key elements of 'people, goods, and place.' To achieve sustained profitability, warehouse clubs must also differentiate their operations in these three areas.
**1. In terms of target audience, basically all paid members, both online and offline, are mature, high-income urban middle-class consumers.**
**Costco's target customers are U.S. households with annual incomes of $80,000–$100,000, in the top 30%. The average transaction value at Costco is much higher than that of other competitors.**
**2. In terms of 'goods,' warehouse clubs generally adopt a 'wide category, shallow SKU' strategy.**
Costco selects 1–3 brands per category, with each brand having fewer than 4 SKUs, totaling about 3,700 active SKUs in the store. Hema X Membership Store's first Beijing store, as version 2.0, increased SKUs from 1,500 to nearly 3,000 compared to the Shanghai store. The 'wide category, shallow SKU' strategy greatly reduces supply chain and in-store management pressure while improving sales per square foot. **Costco's weekly sales per square foot reach $270, better than Walmart's and Carrefour's $100.**
The 'wide category, shallow SKU' strategy is low-cost and efficient, allowing a single store to achieve a certain scale of sales in the short term, enabling strong bargaining power with upstream suppliers without needing multiple chain stores. Then, by fully leveraging supplier resources, they can deeply involve suppliers in product development, offering differentiated products and packaging designs, further strengthening quality and cost-performance advantages, gradually increasing supplier market share, and ultimately integrating suppliers into the warehouse club's 'user trustee' business philosophy. Once the cooperation between warehouse clubs and suppliers reaches a certain depth, the most important profitability capability at the 'goods' level is building private labels based on supply chain management experience. Private labels start with high-margin, high-demand items and supplement with quality products. Costco launched its private label Kirkland Signature in 1995, which is now the No. 1 health brand in the U.S., offering quality products including snacks, health supplements, bread, and frozen foods. **Since 1999, Costco's private label sales share has continued to rise, reaching about 30% in 2020. At Hema X Membership Store, private label products account for over 40%, with the private brand 'Hema MAX' accounting for over 20%.**
**3. Finally, warehouse clubs not only curate high-cost-performance products for consumers but also provide rich scenario experiences.** From Costco's product displays, it offers services such as food, health and beauty, vision and hearing tests, and tire repair. Hema X Membership Store also plans to explore services related to audiovisual, fashion, fitness, and pets to enhance lifestyle quality.
In addition to the differentiated 'people, goods, and place' strategy, warehouse clubs also excel in controlling operating costs compared to other retail formats. By streamlining staff, choosing suburban locations, bulk packaging, building their own logistics, and saving on marketing, they compress various cost expenses to the extreme, maintaining their cost-performance advantage over the long term.
Given the current consumption environment, warehouse clubs are indeed a good format and a good business for China's retail industry. Ultimately, the competition still lies in in-store operations, membership services, and supply chain integration capabilities.
Source: Zhuangshuai Retail E-commerce Channel (ID: zhuangshuaiec) Author: I am Zhuangshuai
 **-END-**


---

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671