When Costco Wholesale Corp. opened its first store in South China on Jan. 12, large crowds of shoppers flocked to the U.S. retailer’s new store in Longhua District in Shenzhen.

Shoppers had to wait for several hours to get in. Customers filled the aisles of the 15,000-square-meter shopping space, many with shopping carts loaded to the brim.

The opening day saw over 140,000 customers having successfully applied for memberships, a record for the membership-only retailer.

Yao Huiqiong, vice chairman and president of Galaxy Holding Group, once told Shenzhen Daily that Costco values Shenzhen for its administrative efficiency and consumption potential. Galaxy has teamed up with Costco to operate the Longhua store.

Strong retail sales

Official figures show that Shenzhen’s total retail sales of consumer goods, a major indicator of the city’s consumption strength, expanded 7.8% year on year to reach 1.05 trillion yuan (US$146.06 billion) in 2023.

Shenzhen’s consumption strength has allowed the city to muscle into China’s so-called “1-trillion-yuan consumption club” whose member cities are those with annual retail sales hitting the threshold of 1 trillion yuan.

Only four other cities in the country are currently club members — Beijing, Shanghai, Guangzhou, and Chongqing.

Shenzhen’s strength comes as the tech hub has rolled out relief measures over the past three years to boost economic growth and revitalize local consumption.

These incentive initiatives have not only helped consumers get better deals, but also boosted retailers’ confidence and supported the development of manufacturing firms, according to Huang Jun, executive vice president of the Shenzhen Retail Business Association.

Strong spending numbers during the Spring Festival holiday in February show that the city’s consumption has gained further growth momentum in 2024.

Shenzhen raked in 8.79 billion yuan in tourism revenue, an increase of 178.25% year on year, as tourists made 8.26 million visits to the city, an increase of 76.02% year on year. The amount of tourism revenue and the number of tourist arrivals both reached an all-time high, according to official data.

Consumption’s outsized role

With its residents’ strong spending power, Shenzhen has turned out to be an investment magnet for commercial firms to tap the consumption potential of the city’s large middle class.

Official figures released in January showed that 427 inaugural stores were launched in the city last year, a 33% increase compared with 321 stores in 2022. The growth rate of first stores remains at the forefront nationally, according to the figures.

As China’s policymakers move to make domestic demand a more prominent driver of economic growth, in order to wean the world’s second-largest economy off its decades-long reliance on the infrastructure and real estate sectors, consumption will play an outsized role and remain an increasingly important driver of China’s economic growth in the years to come, analyst have said.

First-store economy

The opening of internationally or domestically well-known commercial firms’ first stores in a city can spur commercial vitality in its business areas and drive consumption throughout the city. In many cities in China, developing the first-store economy has been an important approach to boosting consumption in recent years.

Typically, a first store marks the first physical appearance of a brand in a specific market. It can also include the launch of a new format for old stores showcasing an innovative business model or a trending retail philosophy — concept stores, experience stores, or flagship stores.

Shenzhen has been developing the first-store economy in a bid to boost the local retail market by attracting reputable global and domestic brands to set up stores that can be considered as first stores in the city, South China, or even the country.

The city government has introduced a slew of measures to make Shenzhen the top choice for high-end brands seeking to tap the local market. Property owners or operators bringing these brands into the city can receive subsidies worth a maximum of 5 million yuan, according to government directives.

The number of first stores in Shenzhen continues to rise, with national flagship stores steadily being launched. Official data showed that in 2023, Shenzhen introduced a total of 74 national flagship stores. JD.com has become the latest to tap Shenzhen’s thriving consumer market when the Chinese e-commerce behemoth opened a home appliances and electronics store in the bustling Huaqiangbei area Friday, its first flagship store in the city with a floor area topping 10,000 square meters.

An increasing number of big-name international stores have also been seeking to enter Shenzhen.

Firms from the U.S., France, Italy, Sweden, and the U.K. have moved in, further boosting the development of Shenzhen’s consumer market and enhancing the appeal of the city’s flagship stores, industry analysts said.

French luxury department store operator Galeries Lafayette opened a new store in Futian in July last year, marking its first location in southern China.

Additionally, Sam’s Club, the Walmart-owned high-end membership warehouse club, launched a flagship store in Qianhai in June. This is the second Sam’s Club flagship store in China and the largest in the Guangdong-Hong Kong-Macao Greater Bay Area.

Shopping centers have become the preferred choice for these retailers, with popular shopping malls like MixC, Shum Yip UpperHills, and Shenzhen Uniwalk Qianhai among the most sought-after locations.

“Obviously, Shenzhen has become a city that both domestic and international commercial firms must take very seriously when making their expansion plans or choosing a location for their business,” said Chen Wenhui, retail head of advisory and transaction services at CBRE Southern China, a real estate service provider.