In Mainland China, consumers are flocking to the big box stores operated by Costco Wholesale Corporation (NASDAQ:COST) and Sam’s Club (NYSE:WMT), signifying a significant shift in growth expectations for these U.S. retail giants.

Costco’s Phenomenal Launch in Southern China

The recent opening of Costco’s (COST) first store in southern China resulted in large crowds and an initial surge in sales. The warehouse club’s new outlet in Shenzhen, its sixth store in China, drew such huge crowds that local officials had to implement crowd-control measures. Notable items that flew off the shelves on the store’s opening day included fruits, bread, frozen meat, seafood, and Disney’s (DIS) Lotso bear from Toy Story 3.

Attraction for Hong Kong Residents

The allure of the new Costco (COST) store extends to Hong Kong residents, who make weekend trips to mainland China to purchase affordable grocery products in bulk, largely influenced by the strength of the Hong Kong dollar. Meanwhile, Walmart (WMT) Sam’s Club outlets have become a popular choice for Hong Kong consumers, particularly in the wake of the pandemic, and have also become a target for shopping agents who buy products in bulk for resale in Hong Kong.

Strategic Expansion Plans

During Costco Wholesale’s (COST) last earnings call, management highlighted the challenge of expanding in China due to the difficulty in staffing stores with experienced managers. Similarly, Walmart (WMT) is adopting a cautious approach to expansion but recognizes the greater potential of big box stores compared to smaller format stores in China. This has led to Walmart (WMT) doubling the number of Sam’s Club stores in China since 2020, as part of strategic investments to capitalize on the preferences of Chinese consumers.

Market Response

For the early part of 2024, Costco (COST) shares have surged by 3.5%, while Walmart (WMT) has seen a 2.3% increase, outpacing the broader stock market return.