On February 26th, Shenzhen Municipal Government, Longhua District Government and Costco, the second largest retailer in the world, and Xinghe Holdings Group formally signed the Land transaction confirmation and Industrial Development Supervision Agreement, which marked the successful completion of the Shenzhen Longhua Super Business Center headquarters project (hereinafter referred to as "Longhua Costco Xinghe Project").

According to Xinghe Holdings, the Longhua Costco Xinghe project is expected to have a total investment of about 9 billion yuan (including US $200 million in foreign investment), including warehouses, offices, hotels, and selling talent housing. More strikingly, the project will also introduce the regional headquarters of Costco in South China and open the first flagship store of Costco in South China.

Joint acquisition of land with Xinghe for many times

According to the information of Shenzhen Land and Real Estate Trading Center, A817-0613 pieces of land are located in Minzhi Street, Longhua District, which belongs to commercial land + second-class residential land. After completion, it is necessary to build selling talent housing. The land area of the plot is 43928.35 square meters, and the construction area is 200330 square meters. The starting price for listing is 2.232 billion yuan, and the maximum limited land price is 3.2364 billion yuan. In addition, the average sales price of A817-0613 land sales type talent housing shall not be higher than 44900 yuan per square meter, and the maximum sales unit price shall not be higher than 47100 yuan per square meter (excluding interior decoration).

As a matter of fact, there has been a clue that Costco has settled down. On August 31, 2020, Shenzhen Municipal Government and Costco International Company formally signed a cooperation agreement on headquarters economic development, and the two sides cooperated on the establishment of Kaike headquarters in South China and the opening of warehouse member stores. At the same time, Xinghe Group formally signed the Framework Agreement for Cooperation in the Development of Shenzhen Longhua Project. At that time, Yao Huiqiong, vice chairman and president of Xinghe Holdings Group, was already a "spoiler": Longhua Costco Xinghe project is expected to invest about 9 billion yuan (including US $200 million in foreign investment), opening the first flagship store in South China, and supporting high-end retail, office buildings, high-end hotels and so on.

This is not the first time Xinghe and Costco have worked together. On February 18, 2020, Xinghe Holdings and Costco jointly won a commercial plot in Shanghai's Pudong New area. Costco said it will set up Costco China investment headquarters in Pudong Kangqiao and jointly build a retail flagship store of member clubs with Xinghe Holdings. Once again holding hands with Costco, it is seen as a signal that Xinghe Holdings will speed up its business following the listing of its commercial real estate company.

According to public data, as of March 2020, there were 118 Xinghe Holdings reserve projects, involving Shenzhen, Guangzhou, Huizhou, Nanjing, Wuxi and other cities, including 72 urban renewal projects. By the end of March 2020, Xinghe Holdings had achieved an operating income of 11.582 billion yuan and a net profit of-361 million yuan. There are 37 projects under construction for sale, involving Shenzhen, Guangzhou, Dongguan, Zhuhai, Huizhou, Jieyang, Tianjin, Nanjing, Changzhou and other 12 cities, with a total construction area of more than 20 million square meters.

On January 26th this year, Xingsheng Commercial, a spin-off subsidiary of Xinghe Holdings, was listed on the Hong Kong Stock Exchange, raising a total of about US $150 million. The proceeds will be used for strategic acquisitions of other small and medium-sized business operation service suppliers and minority investments in project companies with high-quality commercial properties. According to the prospectus, as of September 30, 2020, Xingsheng provided services to 53 contract projects, covering 20 cities in China. Of the 45 projects under management, 27 are located in the Greater Bay area, accounting for 44.4% of the contract area. In addition, 80% of Xingsheng's revenue is concentrated in the Greater Bay area, of which Shenzhen accounts for 75%.

A new round of competition in membership retail

The "grand event" of Costco's first day of opening in Shanghai Minhang has been impressive so far. According to public data, Costco (Market opener) is the largest chain of membership warehousing stores in the United States, established in Seattle, Washington, USA in 1983. Since its inception, Costco has been known as "not on goods, but on members", meaning that the company's profits mainly come from paid annual membership cards rather than profits from merchandise sales. At present, Costco has more than 770 stores and more than 96 million members in 11 regions around the world.

In the past two years, the pace of Costco entering the Chinese market is undoubtedly accelerating. In August 2019, Chinese mainland's first Costco store opened in Shanghai's Minhang District, covering an area of nearly 14000 square meters, offering 4000 items in 27 categories; then, on February 18, 2020, Xinghe Holdings and Costco jointly acquired a site in the eastern part of Kangqiao Industrial Zone, Pudong New area, Shanghai, with 898 million yuan, in preparation for the second Costco store in China.

Outside Shanghai, the expansion radius of Costco radiates to Jiangsu, Zhejiang and Shanghai. On April 9, 2020, Kaishi (Suzhou) Trading Co., Ltd. sold more than 50, 000 square meters of land in Suzhou High-tech Zone for 142.543 million yuan. Suzhou Costco is also the third Costco in China and will open within two years.

According to Costco's results for the first quarter of fiscal 2021, Costco's total revenue for the first quarter was $43.21 billion, up 19.2% from a year earlier. Of this total, net sales of goods were US $42.35 billion, an increase of 16.7% over the same period last year. Membership fee income was 861 million US dollars, an increase of 7 percent over the same period last year. Net profit was $1.166 billion, up 38 per cent from a year earlier. Net income per basic common share was $2.63.

As an American membership warehouse supermarket, Costco's core business model is low-cost, streamlined goods and membership, which is a strong competitor to Walmart Inc's similar warehouse supermarket Sam's club. Before Costco entered China, other foreign retailers with warehouse-paid membership did not develop smoothly in China. Only Sam's Club and Metro survived, among which Sam's Club was the best.

Walmart Inc, the parent company of Sam's club, is headquartered in China in Shenzhen. Sam's first store in China is also opened in Shenzhen, and the door has held the top spot in Walmart Inc's annual global sales for 10 years in a row. At present, Sam has opened 28 stores in China, covering key cities such as Beijing, Guangzhou, Shenzhen, Suzhou, Hangzhou and Wuhan.

This time Costco has set up its South China headquarters in Shenzhen, which, to some extent, means that it has a head-on fight with Sam's Club. Costco has announced four new stores in just one and a half years since the opening of the first store in Shanghai. Compared with Sam's 24-year opening of 28 stores, Costco is expanding rapidly in China. It can be predicted that the membership retail giant will launch a new round of competition in the land of Shenzhen.