Costco Korea on verge of falling into low-growth trap

South Korea, one of the most lucrative markets for Costco Wholesale Corp., appears to be losing its appeal in the face of China’s rapid ascent as the US big-box retail giant’s key new market and fierce competition from e-commerce players.

Cho Min-soo, Costco Wholesale Korea’s country manager, boasted early last month at a friendly golf event for local vendors that the Korean operations together reaped over 5 trillion won ($3.8 billion) in sales in the fiscal year of 2023 ended on Aug. 31.

He attributed business system reform partly to the sustained growth of the membership-based warehouse club’s Korean operations with 18 outlets across the Asian country.

But the country manager’s cheerful message did not resonate amid the growing challenges the American retail giant is facing in Asia’s No. 4 economy in recent years.

Considering that its sales first topped 4 trillion won in fiscal 2019 and 5 trillion won in fiscal 2021, the latest sales figure remaining in the 5 trillion won range for the third consecutive year may be a sign of a growth slowdown in Korea. 

Costco is also considering the closure of one outlet in Seoul, which would be the US big-box retailer’s first-ever store restructuring in Korea since its first advance into the country in 1998, despite the potential closure being a matter of operating efficiency.

Its new store opening outside the country’s capital has also been slow, while Koreans’ interest in the membership-based warehouse club has fizzled amid the growing number of single-person households in the country, which prefer small orders from Coupang-like e-commerce players.  



Last year, the membership warehouse club began one-day delivery services in Korea where e-commerce has become the norm in shipping. This was a remarkable reversal of its long-held no-delivery policy.  

CHINA'S FAST ASCENT 

But such efforts don't seem enough to revitalize its business in Korea, said the Korean retail industry.

Without a breakthrough, its US parent is expected to shift its focus to China, Korea’s close neighbor that is quickly changing the retail landscape.

Since its first venture into China in 2019, Costco has succeeded in appealing to Chinese consumers with premium foreign goods at lower prices.

Its third location in China raked in 16 million yuan ($2.2 million) in membership fees after attracting about 80,000 members even before its actual opening in March.

As Costco was welcomed with great enthusiasm in the world’s No. 2 economy, the Seattle-based retail giant plans to operate a total of seven outlets in China within this year.

Considering that Costco has opened 18 locations in Korea over 25 years since its foray into the country, its expansion in China is much faster and more aggressive.

The company’s recent relocation of core Korean staffers to China for new store openings suggests that Costco’s Asia center would move to China from Korea despite Costco’s Chief Financial Officer Richard Galanti’s assurance in May this year that it will keep opening stores in Korea.

In the face of crosstown rival Sam’s Club’s aggressive expansion plan in China, Costco’s shift toward China could accelerate further.  

Write to Dong-Hui Park at donghuip@hankyung.com

Sookyung Seo edited this article.