One part of China’s consumer market is holding up in a broad decline


Customers enjoy food at a new Costco store in Shanghai on the first day of its trial operation on March 10.

China News Service | China News Service | Getty Images

BEIJING — If retail sales slowed this summer, it hasn’t felt that way in parts of China.

In the weeks around early July, New York residents David and Susan Schwartz visited three Costco stores, known as warehouses, on the outskirts of Shanghai and the neighboring city of Suzhou.

They said average daily foot traffic was around 7,000 people — double that of the U.S. — for stores that are about the same size.

“In China we just saw a lot of people every day we went, anytime we went, from morning to evening, weekdays and weekends, just lots and lots and lots of people,” said David Schwartz. “We didn’t get a sense of any ebb and flow at all.”

That contrasts with Costco locations in the U.S., where weekdays aren’t as busy as the weekends, he said in an interview last week.

David and Susan are co-authors of the forthcoming book “The Joy of Costco: A Treasure Hunt from A to Z.” They spent seven years visiting warehouses in nearly every region where Costco has a presence — more than 10 countries and over 40 U.S. states.

The book is not sponsored or officially authorized by Costco, although the U.S. retailer has put in orders to stock it, the Schwartzes said. Costco did not immediately respond to a request for comment.

China’s retail sales slowed to a 2.5% year-on-year increase in July, adding to growing uncertainty about the country’s future growth.

Meanwhile, Costco opened two new stores in China this summer: One in Hangzhou, where Alibaba is headquartered, and another in the city of Ningbo, a two-hour drive away. Annual membership, excluding promotional discounts, costs 299 yuan ($41) versus $60 in the U.S.

The premium market

Read more about China from CNBC Pro

Definitions of middle class can vary by country. In China, McKinsey Global Institute estimates the upper-middle class earns an annual income of more than 160,000 yuan ($21,950).

Between 2019 and 2021, that income category grew from 99 million households to 138 million, the institute estimates. It expects another 71 million households could enter that higher income bracket by 2025.

As large those numbers may be, that also means most households earn far less. China has a population of 1.4 billion — about four times the size of the U.S.

Ad spending drops

Pockets of growth haven’t been enough to assuage uncertainty.

Companies are holding off on marketing campaigns, Ogilvy’s Reitermann said.

“Media spending is between 10% to 20% down versus last year, and last year was not a good year because last year was down versus the year before,” he said. “So you have a kind of a double decrease. That’s across the board.”

China’s economic recovery from the pandemic lost steam after the first quarter, with tourism a rare bright spot. The official consumer confidence index plunged in April to near lows last seen in fall 2022, when China was still grappling with Covid controls.

Even at the lower end of the spectrum, [China is going to have] 3% to 4% GDP growth over the next three years.

Chris Reitermann

CEO, Ogilvy Asia Pacific and Greater China

New business skills

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