Updated Dec. 7, 2017 5:15 p.m. ET Wayne Ma Sam’s Club, Your Store for Premium Goods and Rare Imports (in China) SHENZHEN, China—Some foreign businesses have a hard time being as successful in China as they are at home. It’s the opposite for Sam’s Club, the membership chain owned by Wal-Mart Stores Inc. Sam’s Club has struggled in the U.S. to attract higher-income consumers it covets, analysts say, in part because the chain is closely associated with Wal-Mart, which focuses on budget-minded households. That association hasn’t been an issue for Sam’s in China, which is home to three of the top five Sam’s Club stores world-wide as measured by sales. Since 2008, the top Sam’s Club store globally is one in Shenzhen, a tech center near Hong Kong. What’s different about China? For starters, Sam’s Club has positioned itself there as a place for imported goods and high-quality foods, not bulk items and closeouts. And in China, the chain has no on-the-ground competition from its main U.S. rival, retailer Costco Wholesale Corp. In the U.S., Sam’s Club stores have struggled to attract the kind of well-off shoppers who keep sales humming at Costco, analysts say. Sam’s Club stores are heavily concentrated in the Southeast, while Costco stores are densest along the wealthier West Coast. In China, Sam’s Club stores are positioned in some of the country’s most affluent and densely populated cities. “The quality here is guaranteed,” said 47-year-old Yu Yufang as she shopped at the No. 1 Shenzhen store. “A lot of Chinese products, I feel, aren’t trustworthy.” Another shopper, Zhou Rong, 39, fits squarely in the demographic Sam’s Club caters to in China: affluent moms. Ms. Zhou, whose 2-yearold daughter plunked on the keys of a digital piano as they shopped, said Sam’s carries imported products Chinese stores don’t stock. Sam’s now has nearly 1.9 million members in China, which is home to 19 of its 866 stores globally. About half of its members in China joined in the past five years as the retailer added outlets and sharpened its focus on affluent women with young children. “That target core member is a mom around 35 to 40 years old,” said Andrew Miles, president of Sam’s in China. “She wants better-quality products. She’s concerned about food safety and quality. She’s willing to pay for premium products, but she wants value.” Sam’s success is a reminder that retailers must tailor brands and products to meet the needs of specific groups, said Ben Cavender of China Market Research Group. “They’ve done a good job of segmenting the market and being choosy about who they market to and where they open their stores,” Mr. Cavender said of Sam’s. Sam’s in the U.S. also is sharpening its focus. During an investor presentation in October, Chief Executive John Furner said the chain served too many types of customers in the U.S. and would now focus on suburban families with household incomes between $75,000 and $125,000 a year, the fastest-growing segment of its membership. Despite its solid record in China, Sam’s faces challenges with the potential entry of Costco, which has operated in neighboring Taiwan for two decades. And online rivals pose an increasing threat. Chinese e-commerce giant Alibaba Group Holding Ltd., which is adding more imported goods, is also making bets on bricks and mortar. Last month, Alibaba said it would pay $2.88 billion for a 36% stake in Wal-Mart rival Sun Art Retail Group Ltd. Costco this year launched its own storefront on Alibaba’s Tmall marketplace, after selling some products on the platform since 2014. Retail consultant Stéphane Joly at Altavia Group in Shanghai said he expects Costco to build physical stores within the next two years. “We continue to explore the market” in China, Costco Chief Financial Officer Richard Galanti said. Eager to maintain its edge, Sam’s plans to “put our foot on the gas” in China by doubling the number of clubs to 40 by 2020, Mr. Miles said. The company also is selling products through Alibaba rival JD.com. Wal-Mart owns a stake of about 10% in JD.com, including a 5% stake it received from the site last year in exchange for control of struggling Chinese online grocer Yihaodian. Wal-Mart focused on building giant hypermarkets when it entered China in 1996, and they now number at least 430 here. Sam’s Club grew more slowly over the same stretch, opening fewer than one club a year on average. Wal-Mart doesn’t break out revenue for China. According to Wal-Mart’s earnings calls, sales growth for China stores open at least a year, including hypermarkets and clubs, has been roughly flat on average for the past 11 quarters. Mr. Miles said Sam’s membership numbers in China slipped last year after the chain raised its annual membership fee to about $40 from $22. Mr. Miles said membership is back up again but declined to offer specifics. The customers who let their memberships lapse “probably were the ones who couldn’t come with us on the journey,” he said. Sam’s doesn’t break out other memberships by country and hasn’t given an update on its global membership since 2013, when it stood at 47 million. Visiting a Sam’s Club here means a blizzard of pitches. Food samples abound, and there are dozens of product demos for shoppers to watch, for Dyson vacuum cleaners, Bose speakers and Oster juicers—many more than are found in a typical U.S. store, Mr. Miles said. The retailer also makes an effort to describe its products to Chinese customers, advertising that its “black pork” specialty meat is reared for at least 200 days among the mountains and pine forests of northeastern China. Fresh eggs are guaranteed to be no more than 12 days old, and each egg has a printed serial number members can type into their smartphones to learn production date, origin and other details. Last year, clubs began to offer carts big enough to seat two children, partly to reflect the loosening of China’s “one-child” policy. Mr. Miles added the top-grossing store benefits from another feature that would be familiar to U.S. customers: parking. The store became No. 1 shortly after it moved to a new location with more parking spaces, he noted. “Our target members pretty much all drive to the club,” Mr. Miles said. “The car park is crucial.” —Chunying Zhang in Shanghai and Sarah Nassauer in New York contributed to this article. Write to Wayne Ma at wayne.ma@wsj.com 1. How is Sam's Club positioned in China versus the United States? 2. What factors explain Sam's Club's success in China? 3. What challenges does Sam's Club face in China and in the United States? 4. Do you support Sam's Club's plans to put its "foot on the gas" in China by doubling the number of clubs to 40 by 2020? Explain your point of view.
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