Reuters

(Reuters)

Costco to Open Chinese Online Store Through Alibaba's Tmall

Retail Reuters

U.S. retailer Costco Wholesale (COST) plans to open an online store in China using Alibaba Group's (BABA) fast-growing Tmall online marketplace, entering the country's booming e-commerce market to combat slowing sales at home.

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The warehouse club operator said the online store would sell branded products, which would initially comprise food and healthcare goods, and store-branded products under its Kirkland Signature private label.

"This low capital entry will give Costco a good look at the Chinese opportunity with nominal capital investment," Janney Capital Markets analyst David Strasser wrote in a note.

Alibaba's Tmall offers virtual store fronts and payment portals to merchants. Several western retailers, including Zara owner Inditex, Britain's Burberry and ASOS , have joined TMall this year as they look to boost their presence in China.

Costco said Tmall Global's warehouse stores would help it cut logistics costs and delivery time.

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"Costco sees tremendous growth opportunities in China, especially in light of Chinese consumers' increasing appetite for imported products," Executive Vice President Jim Murphy said in a statement on Tuesday.

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The move is part of Costco's push to grow its online business. Most U.S. retailers are struggling with falling store traffic as shoppers make more purchases online.

Costco has reported slowing same-store sales growth for the last three years.

"Longer term there's significant potential to grow (in China) ... we are talking five plus years," S&P Capital IQ analyst Joseph Agnese told Reuters.

China-based iResearch in July raised its 2014 growth forecast for the country's online retail sales to 45.8 percent from 32.4 percent. The consultancy forecast sales of 2.76 trillion yuan ($446.6 billion) for the year.

Tmall.com would also connect Costco with its consumer online marketplace Taobao.com and its daily deals site Juhuasuan.com.

Costco's Asian presence, as of May, included 19 shops in Japan and 10 each in Taiwan and Korea through majority-owned subsidiaries, while its online presence was restricted to the United States, Canada, the United Kingdom and Mexico.

Costco's shares were down nearly 1 percent at $125.95 on Tuesday. Up to Monday's close, shares have risen 6.7 percent so far this year, compared with a 1.8 percent fall in the broader Dow Jones U.S. retailers index. 

(Additional reporting by Rama Venkat Raman in Bangalore; Editing by Gopakumar Warrier and Savio D'Souza)