"Since the salary is predictable, buy in bulk and divide it for use"... 'Warehouse-type discount mart' laughs amid record domestic demand slump [Why&Next]

Costco and Traders Both Report Strong Earnings
Consumer Traffic Increases Amid High Inflation and Economic Downturn
Sales Per Store Over Three Times Higher Than Discount Marts... Food Court and PB Products Key to Popularity

As the domestic distribution industry faces an unprecedented domestic demand slump, warehouse discount marts are quietly thriving. While major domestic large marts are experiencing a decline in performance, warehouse discount marts are achieving strong results due to increased demand for purchasing bulk products at low prices amid high inflation.

According to the distribution industry on the 3rd, Traders Wholesale Club, a warehouse discount store operated by E-Mart, recorded sales and operating profit of 965.2 billion KRW and 34.4 billion KRW respectively in the third quarter of this year. Compared to the same period last year, sales increased by 2.3% and operating profit by 30.3%. Looking at the cumulative figures from the first to the third quarter of this year, sales surged by 5.9% and operating profit by 85.3%.

Interior view of Traders Suwon Hwaseo Store. Provided by E-Mart

E-Mart’s core discount store business division saw its third-quarter sales and operating profit decrease by 2.5% and 3.8% respectively compared to the same period last year.

Prolonged Recession... Popularity of Cost-effective Bulk Products

Costco, considered the pioneer of domestic warehouse discount marts, has also shown annual growth in performance. Costco Korea’s sales and operating profit from September last year to August this year reached 6.5301 trillion KRW and 218.6 billion KRW respectively. Compared to the same period the previous year, sales increased by 7.6% and operating profit by 15.8%. Compared to five years ago, from September 2019 to August 2020, sales surged by 44.4% and operating profit by 53%. Costco, which closes its fiscal year in September, discloses its performance from September of the previous year to August of the current year.

Image related to Costco.

The strong performance of warehouse discount marts is attributed to the worsening high inflation and economic recession. Warehouse discount marts sell the same products in bulk or bundled units with lower profit margins, pricing products cheaper than other distribution channels. Their store layout also adopts a simple product display method to reduce related costs. Consumers can purchase products in bulk, enabling cheaper purchases compared to regular discount stores.

Since the products sold are mainly bulk items, the higher average spending per customer also appears to have contributed to improved performance. Costco’s average sales per store from September last year to August this year reached 343.7 billion KRW. This is more than three times higher than E-Mart’s average sales per store last year, which was 92.3 billion KRW, ranking first among domestic large marts. Traders’ average sales per store last year were also high at 160.6 billion KRW compared to regular marts. Average sales per store is calculated by dividing each company’s annual sales by the total number of stores.

Private Brands and Membership Systems Driving Performance

Private brands (PB) and food courts are also cited as reasons for the popularity of warehouse discount marts. Traders sells the PB 'T Standard,' which is popular among consumers for its cost-effectiveness. The food court, 'T Cafe,' is also famous for its value, selling slice pizzas at around 3,000 KRW.

T Cafe store scene. Provided by Traders Wholesale Club

Costco’s PB, 'Kirkland Signature,' is also known among consumers for selling high-quality products at low prices. As a global company, Costco’s product sourcing capabilities from overseas, including the U.S., are a differentiating factor. The food court is also famous for its low prices. The representative product, the hot dog set, has been maintained at 2,000 KRW without price increases since Costco entered the Korean market.

The membership system is another aspect that differentiates warehouse discount marts from other marts. It generates stable revenue by collecting fixed annual fees from customers. Non-members cannot use Costco. Before checkout, membership cards are strictly checked, and non-members are refused service. Costco’s annual fees range from 33,000 KRW (Business) to 80,000 KRW (Executive) depending on the membership type. Payment methods are also exclusively contracted with one card company per country to apply low card commission rates. In Korea, only Hyundai Card can be used for payment at Costco.

On the other hand, E-Mart Traders and Lotte Mart Max allow anyone to shop without membership. However, Traders operates a membership system that charges an annual fee but rewards points. The 'Traders Club' membership system, introduced in October 2022, accumulates a certain percentage of the purchase amount as points that can be used at Traders stores depending on the annual fee. Lotte Mart Max, formerly 'Big Market,' required an annual fee for store access but abolished the fee system in 2020.

The growth trend of warehouse discount marts is expected to continue. In addition to their main customers?households of four or more and business customers?the number of one- to two-person households visiting warehouse discount marts is increasing. A distribution industry official explained, "The trend of one- to two-person households, who find it difficult to purchase bulk products, buying bulk meat and vegetables at warehouse discount marts and storing them in smaller portions is increasing."