A glimpse at streets in the city of Shanghai, where 28-year-old ad specialist Ms. Zhang enjoys her life, concludes a picture of exquisite cafes and convenience stores always within a one-mile radius. The urban fancy was recently further augmented by a new kind of shopping facility - membership-only wholesale clubs.

“Warehouse clubs target middle-class groups and are suitable for family wholesale buying,” Zhang, who has been to American chain Sam’s Club in Pudong District with her friend, said to PingWest, “their goods are of high quality.”

Unlike the local uprising supermarkets such as Hema or 7Fresh, warehouse clubs often require a yearly membership fee to the local customers, ranging from $30 to $50. To lure first-time shoppers who are not familiar with this type of store, the clubs sometime offer a 7-day entrance invitation free of charge.

In warehouse clubs, commodities are packaged on pallets in wholesale form with relatively low prices. In a 2011 study by ShopSmart, American warehouse clubs giants Costco and Sam’s Club beat supermarket prices on most groceries by at least 20%. In China, similar retailers show the product discounts directly on their price tags.

While the market is ramping up, so is chaos. For Zhang, a frequent online shopper, offline shopping experience grants novelty, but a membership fee is something to hesitate about.

In the meantime, Shanghai has recently become a battlefield of such commercial competition. Last Friday, Carrefour, a newcomer in the sector, sent out an apology letter to customers on the opening day of the first warehouse club in Pudong District. The company alluded to the monopolistic behavior of its competitor Sam’s Club.

“We felt sorry for our customers today because, on the debut of our first warehouse club, the competitor has forced our suppliers to buy up our goods in some categories, leaving customers nothing to purchase,” the letter read, “we’ve also received notices from our vendors, which asked for the termination of their cooperation with us.”

The practice Carrefour indicated is called forced exclusivity, or “choose one from two,” in which platforms force merchants to sell wares on only one company’s platform or services.

In April, e-commerce giant Alibaba was just slapped with a record $2.8 billion fine for violating the Anti-Monopoly Law, most notably for “forced exclusivity.” The fine amounts to about 4% of the company’s 2019 domestic revenue.

However, an insider who is familiar with this matter told PingWest that Sam’s Club might not have a practical “choose one from two” behavior. He said, “Most likely, Carrefour hasn’t made enough efforts to research on their suppliers”. 

“It’s also possible that Sam’s Club did conduct forced exclusivity, but that didn’t influence much negatively on Carrefour’s operation,” he added, indicating the report by Carrefour exaggerated the company’s troubles.

Besides Carrefour and Sam’s Club, players in this sector currently include Metro AG, Alibaba’s Hema, Yonghui, etc. 

Metro AG opened its stores for customers in 2013, operating from a previous business to business (B2B) model. The latter means the company for a long time only received orders from small and medium enterprises (SMEs). In any sense, its early strategy in China let it miss the opportunities amid the e-commerce boom.

Alibaba's Hema is more favored. In October 2020, it launched its first warehouse club in Shanghai, which was called Hema X. On June 16 2021, the first such store for Beijing opened.

For Zhang, who lives in Shanghai, the city’s human-centered management and convenience are absorbing and impressive. And warehouse clubs are building up the glamor.

The first warehouse club in China actually dates back to 1996, when Sam’s Club opened its first store in Futian, Shenzhen. In the same year, Metro AG opened its first store in Shanghai in a joint venture with the Jinjiang Group.

But many Chinese customers remained unfamiliar with the new way of shopping until 2019 when Costco opened its first store in Shanghai and saw a horde of furious customers. One of the major draws was Kweichow Moutai liquor, priced at 1,498 yuan, whereas the market price for the same bottle can be over 2,500 yuan. 

As All Weather TMT reported, in 2020, the yearly sales of Costco's Shanghai store hit 2.4 billion yuan ($375 million).

Carrefour China was too far behind to catch up with Costco and others. In 2019, it was suffering the pain when the French retailer agreed to sell an 80% stake in its China unit for $752 million in cash to Suning, while keeping the remaining 20% stake, according to Bloomberg.

Although warehouse clubs is originally a Western idea, Chinese homebred brands are embracing that. In Beijing, Fudi just opened a warehouse club in May. Fudi’s parent company, Yaodi Agricultural Technology, was primarily focused on grocery businesses. While three of Sam’s Club stores are in the suburb, Fudi is on the closest spot to the city’s center, seemly practicing a different strategy.

Cover Image: Sam's Club in Pudong District. Credit: Ms. Zhang