Membership warehouse chain war
Will VIC Market become archrival of Costco?
By Bahk Eun-ji
“Show me your card, please.”
Clerks wearing red vests are checking membership cards of customers carefully in front of the entrance. Some are standing in line to get the membership cards at the counter. This is the typical scene that customers would see as soon as they step in through the sliding door of Costco Wholesale.
Costco, the U.S.-based membership discount chain, owns seven stores nationwide in Korea, having started its business here in 1994.
As far as its payment policy is concerned, Costco seems to employ a de-marketing strategy _ it receives only cash or Samsung credit card and any other cards are rejected.
Still, the warehouse has been famous for attracting local consumers with a variety of imported products at relatively low prices and although it was Wednesday afternoon, the store was busy with people pushing carts and loading goods onto them.
The situation was a bit different at VIC Market, the first membership-based wholesale chain launched by Lotte Mart, the nation’s third-largest discount chain, in Geumcheon, southern Seoul on Thursday afternoon. The store was quiet and there were few families and couples strolling down the aisle.
The local firm opened at the end of this June to compete with Costco with the aim of becoming a contender as a “nation’s first membership warehouse based on deeper understanding of Korean sentiment,” as the company put it.
However, its hype appears to be still a distant dream as of now.
VIC Market blues?
“I’m not a regular customer but visit this mart from time to time as one of residents in the neighborhood. It was crowded for about a month since it was launched, but recently become less busy.” said Jang Sook-jin, a 40-something housewife who labeled herself as a regular customer of Costco located in Yangpyeong.
“VIC Market and Costco have similar goods, but products in Costco are more diverse. Take bakery items such as a bag of cookies, muffins and bagels that both VIC Market and Costco make directly at the store and provide at a low price, the ones from Costco are more delectable.”
Accumulated number of VIC Market’s members reached 85,000 at the end of July since its debut and the sales were over 10 billion won during the same period, according to the report released by Lotte Mart. Its August performances have yet to be announced.
Although it’s significant number, observers point out that VIC Market is required to come up with more differentiated features and services to live up to its original target of evolving into an archrival of Costco.
In other words, they note that the concept and system of VIC Market are very similar to Costco, giving a little variation, which is not enough to commensurate the ambition of being the first Korean warehouse based on understanding of the unique Korean sentiment,
The size of the store is 12,550 square meters, including parking lots, and annual membership fees range between 30,000 won and 35,000 won, the same as Costco.
Few differences are that VIC Market has beauty parlor and nursery facilities named Kid’s Cafe while Costco is just about shopping and large-sized parking lots.
But some customers outsmart VIC Market _ they take advantage of the convenience facilities but do not shop.
“I often to take my son to Kid’s Cafe, which has a nice setup, but rarely do grocery shopping,” said a 36-year-old housewife who has a two-year-old son.
Against this backdrop, the question is whether or not VIC Market will be able to extend its customer base with those who visit its facilities. Simply put, will it prompt parents of Kid’s Cafe to start a shopping binge?
If it can do so, things are looking up for to VIC Market in consideration of its popularity.
Around 15,000 kids visited the nursery during a month since the advent of VIC Market on June 28 and the number is three times a similar facility at Lotte Mart’s Jamsil store, where the most customers visit among its outlets.
Jeong Seong-hoon, a senior analyst at Kyobo Securities said that it really depends on how quickly VIC Market understands customers’ tendency and demand. Namely, each shopper visiting Costco and VIC Market has different purpose and reasons.
In that sense, Jeong argued that VIC Market is on the right path, providing differentiated services from Costco if they can attract Kid’s Cafe visitors to the shelves of its stores.
“Along with those services and facilities, having comparative advantages in terms of accessibility and price competitiveness are key to attract local consumers. In other words, how much the store is adjacent to customers and how much it can provide products at cheaper prices compared to other rival companies,” he said.
When contacted, a VIC Market operator said that it continues to forge ahead with the aim of becoming a genuine contender.
“As its concept of Korean-style of membership warehouse shows, we will keep trying to provide customized services and goods for Korean consumers so that strengthen the competitiveness,” said Choi Choon-seok, a product manager of Lotte Mart.