China’s Paid Memberships in Retail
- Categories:Retail Insights
- Author: KT Wu
- Origin:Hanshow Retail Academy
China’s Paid Memberships in Retail
Paid memberships refer to the membership programs where customers have to pay for their member identity/benefits before making purchases. This gives the corporations an extra income that is steady and long-term. For retailers, paid membership means selecting differentiated products for a targeted customer group who recognize and appreciate their brands.
In China, Hema Xiansheng (under Alibaba) just opened its first X member store on October 1st. With the existing Costco and Sam’s Club, membership-based wholesale format seems to be on the rise in China. Besides that, paid membership programs can also be found in some e-commerce retailers, convenience stores and department stores, etc.
Membership-based wholesale stores
Like the name suggests, membership-based wholesale stores only serve members. In 1996, the first Sam’s Club store opened in China. Later in 2016, local retailers in China started to test this format.
Example: Sam’s Club
In China, Sam’s Club mainly operates brick & mortar stores, while simultaneously extending to online platforms like JD. As of October 2020, Sam’s Club already has 29 stores in China, and serves over 3 million members. Most of the stores are in the major cities.
Picture1: Two types of Sam membership
Source: Sam’s Club APP
In China, Sam’s main advantage is its global supply chain. The rigorous product selection process brings members products from over 4000 sources in China, and over 30 countries globally. In Sep 2020, Sam’s also announced that the newly opened stores will follow a ‘Warehouse First, Store Later’ strategy, meaning each store will first function as a warehouse for on line orders before it opens to customers. This indicates its determination of developing O2O business.
Picture 2: Sam’s Club store/ warehouse
In August, 2019, the first Costco store in mainland China opened in Shanghai. The membership fee was set at 299 RMB per year, and on the first month of opening, it registered almost 200,000 members. Costco has also released its plan of opening four new stores in mainland China. Compared to Costco in the U.S, the store layout here are quite similar, only that they have larger parking lots and seem to sell less products (especially in the dietary supplements and clothing sections). But they have more customers. The first Costco store opened has over 200,000 members so far. This number is significantly larger than the global average of a Costco store, roughly 120K.
Picture 3: The first Costco store in mainland China, located in Shanghai
Example: Hema X member store
This newly opened store has a membership fee of 258 RMB per year. The store is located in a densely populated area of Shanghai, different from Costco and Sam’s, which tends to open stores in suburbs. In addition, well established in O2O model, for this format, Hema Xiansheng also expanded the member store’s range of delivery, and upgraded its delivery tools.
The Hema membership store has the advantage of being more ‘local’ than its competitors. The store maintained some Hema elements, which cater to the purchasing habits of Chinese shoppers, such as the seafood section that resembles a traditional wet market – cleaner of course. As for the selected products, 40% of them are Hema’s private label products, and imported products only take up 10%.
Picture 4: Hema X membership store and its private label product Hema MAX
Paid memberships among e-commerce retailers
Due to the COVID-19 pandemic, e-commerce platforms became more suitable for Chinese people’s purchasing demands. At the point where online retail is reaching its peak, paid membership becomes a potential breakthrough. Most of the existing paid memberships in e-commerce are value-adding, which means that retailers do not only serve members. But by paying to become a member, users can get more value-adding services. Currently in China, the typical examples of this category include Kaola Global VIP, JD Plus, Suning Super, Taobao 88VIP, Vipshop Super VIP, etc.
Example: Taobao 88VIP
The Taobao 88VIP was launched in August, 2018 by Alibaba. Its membership fee varies based on each user’s activity on Taobao, which is reflected by one’s ‘Taoqi Value’. When the value is larger than 1000, the membership fee is 88 RMB per year, otherwise it’s 888 RMB. As an 88VIP, one can enjoy an extra 5% discount for the products of certain brands. But more importantly, this member identity can be extended to many other platforms that are reliant on Alibaba. These include video platform Youku, music streaming platform Netease Music, and food delivery platform Ele.me, etc. The member data from all these platforms are shared internally. In the future, Alibaba plans to include their O2O business by adding Hema Xiansheng into the 88VIP matrix.
Picture 5: Joint services that are accessible to Taobao 88VIP
Source: Taobao App
Example: JD Plus
JD’s membership program JD Plus has a membership fee of 149 RMB per year. The services provided include discounts on prices and deliveries, and other joint services that are similar to those of 88VIP. Since 2016, JD has been heavily promoting the Plus service, and just on October 20th, JD announced that their number of Plus members have reached 20 million. It’s worth noticing that the logic behind JD Plus is not benefitting from membership fees, instead, it’s about increasing members’ transaction amounts by giving discounts.
Picture 6: Services that are accessible to JD Plus members
Source: JD App
Paid memberships among convenience stores and department stores
Most of the memberships in this category are also ‘value-adding’. The typical examples include Bianlifeng, Familymart, Haolinju, and Yintai, etc.
Example: Bianlifeng’s Super Membership
As a local convenience store brand, bianlifeng has opened over 1500 stores in more than 20 cities in China. Its Super Membership costs 38 RMB per month. Besides discounts of products, super members could access Bianlifeng’ own shared bikes free-of-charge. According the company, their customers pay significantly more on each purchase after becoming a member, partially because of Bianlifeng’s cash back policies.
Picture 7: Bianlifeng store
Example: Yintai 365 Membership
Yintai is a department store brand in China with a history of more than 20 years. Its 365 membership was the first membership program launched by a department store. The ‘365’ means that its membership fee is 365 RMB per year, or in other words, one buck a day. Members could enjoy an extra 10% discount and earn cash back by collecting points. In 2017, Alibaba invested in Yintai, and since then the 365 membership became more digitalized. Now it is operated both online and offline, and is connected to the Alibaba membership system.
Currently in China, most paid memberships in retail are corporations’ extended services after they have developed their business to a certain scale. In fact, most Chinese consumers have always paid attention to convenience and cost-effectiveness while shopping. Yet many membership programs devote to provide diverse and high-quality products. However, last year, the popularity of the first Costco in China has set a new trend, and in some way, refreshed some Chinese customers’ opinions on paid memberships.
In the future, Chinese retailers have to work on building multi-layer product structures, diving deep into the need of customers, and increasing the variety of customer services. From this viewpoint, paid membership shall offer them great opportunities, because it can allow corporations to refine their operations and record their customer behaviors more accurately.
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