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Costco plans more China openings as sales boom at Shanghai store

But US discount chain says first China store will take few years to break even

Better-than-expected sales at Costco's Shanghai store has convinced analysts that the Chinese market could be a huge growth driver the U.S. retailer. (Photo courtesy of Costco)

PALO ALTO, U.S. -- Costco, one of the biggest U.S. wholesale chains, said it has seen record signups at its new store in China, with more than 240,000 new customers becoming members at its Shanghai location since it opened in August.

"It [the Shanghai store] is beyond good. ... We've had locations in other countries in Asia where we might be at 120,000 [signups] after a year or two. This one is more than twice that," said Costco CFO Richard Galanti during the earnings call on Thursday.

Due to that strong performance, the company plans to open another location in China in 2021. Costco is known for its bulk products and huge savings, but only paid-up members can shop there.

"Another store in China is roughly about a year and a half away. We'll continue to see what we want to do next, but overall the Shanghai location has exceeded our expectations," said Galanti.

The company had to shut its first store in China early on its opening day in August as large crowds flooded into the store and caused traffic jams in nearby neighborhoods. Posts on Chinese social media showed thousands of people crowding the aisles, while signs outside warned incoming shoppers that they might have to wait three hours to park.

Despite the warm welcome by Chinese consumers, Costco said it may take several years for the location to break even after more stores open in the country and average shipping and stock costs are reduced.

"We brought some additional people [to the Shanghai location] in from Taiwan that do speak the local language and understand our concept and it's been the greatest..but it's also cost some more," Galanti said. "It may take a couple of years to improve efficiencies."

"That's one of the reasons why we generally go slow in new countries because we want to get it right from customer experience and also from the operational side," he added.

For the quarter ended Nov. 24, Costco reported lower-than-expected quarterly revenue partly due to a slowdown in e-commerce sales growth and a late Thanksgiving weekend this year.

Costco's shares fell nearly 1% to $294.63 in after-hours trading. The stock is up 46% so far this year, beating the comparable gains of the S&P 500 and the Dow Jones Industrial Average.

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