---
title: "A Distributor's Transformation: Private Label Hits 100 Million in Annual Sales, and It Also Opens Its Own Category Stores"
description: "During a period of industry upheaval, a distributor in a third-tier city transforms itself by developing private labels to become a 'factory-less manufacturer' and by opening its own category stores to extend its reach downstream, illustrating the shift from traditional distribution to a more integrated supply chain role."
author: "张思遥"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2017-08-21"
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# A Distributor's Transformation: Private Label Hits 100 Million in Annual Sales, and It Also Opens Its Own Category Stores

> During a period of industry upheaval, a distributor in a third-tier city transforms itself by developing private labels to become a 'factory-less manufacturer' and by opening its own category stores to extend its reach downstream, illustrating the shift from traditional distribution to a more integrated supply chain role.

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**Introduction**
During a period of major industry changes, we should not only focus on the continuous emergence of 'new species,' but also understand the transformation of the supply chain behind them.
In this issue of the 'Power of Going Down' column, 'Third Eye Retail' joins forces with Wanzhong, a leading commercial equipment brand, to tell the story of a distributor located in a third-tier city.
Facing industry reshuffling, this distributor has undergone a role change: on one hand, it has developed its own private labels, leveraging its downstream distribution system and upstream factory resources to become a 'manufacturer without factories'; on the other hand, it has opened its own category-specific stores, extending its industry chain downstream.
At this point, you will notice that retailers like Yonghui are venturing into processing and production; manufacturers are opening their own stores; and distributors, who connect retailers and manufacturers, are now involved in both production and retail. Competition among retail enterprises is no longer just at the store level, but a three-dimensional competition across the entire industry chain.
Dongguan Huiji Commerce is an enterprise that is difficult to define precisely.
From a traditional perspective, it is a distributor, supplying kitchenware, personal care, small appliances, and other household goods to retail enterprises and other downstream channels. Well-known retailers such as Carrefour, RT-Mart, Walmart, Better Life, and Dongguan Jiarong are its clients.
But at the same time, it also owns its own brands. Its private labels, including the 'Zhijia' series, generate annual sales of 100 million yuan, accounting for 20% of total sales. It is not an exaggeration to call it a brand operator or a production enterprise.
Furthermore, it also has its own retail stores. It has opened category-specific stores under the name 'Bainade,' claiming to be China's 'small IKEA + small MUJI + small Miniso.' From this perspective, it can also be considered a retail enterprise.
This 'neither fish nor fowl' enterprise, which combines brand operations, merchandise distribution, and retail business, is a true reflection of the current transformation of distributors.
For a long time, China's distribution and agency model for consumer goods has nurtured a large group of distributors. They connect one or more brands on one end and retailers or other downstream channels on the other, playing an important role in connecting upstream and downstream in the circulation of goods.
The impact of the internet has flattened the entire commodity circulation system:
On one hand, traditional retail enterprises have begun to 'awaken.' They extend their supply chains by directly sourcing products and developing private labels, connecting directly with brand owners. Moreover, giants like Yonghui and RT-Mart have opened up their supply chains, transforming themselves into 'suppliers.'
On the other hand, various forms of consumer goods B2B platforms use internet technology and logistics systems to connect millions of individual retailers with brand owners, further compressing the circulation links. Just on the 18th of this month, Alibaba's B2B platform Lingshoutong announced plans to set up forward warehouses in more than 2,000 cities nationwide to enhance delivery efficiency and better serve brand owners and individual retailers.
When all forces extend their hands into the supply chain, this has a huge impact on traditional distributors, forcing them to seek transformation paths.
Huiji Commerce proposed its transformation strategy in 2012, namely the 'Go Left, Go Right' strategy. 'Go Left' refers to developing private labels, starting with household miscellaneous categories with low brand loyalty, and gradually expanding scale; 'Go Right' refers to laying out retail terminals, opening category-specific stores positioned as 'small IKEA + small MUJI + small Miniso,' and attempting to create its own e-commerce business.
**Role Change**
**From 'Low Quality, Low Price' to Service-Oriented Supplier**
Distributor transformation can be divided into two major types: 'getting bigger' or 'getting specialized.' 'Getting bigger' refers to platform-based distributors represented by ETA (Eternal Asia) that expand scale through mergers and acquisitions of small and medium-sized distributors, making the original deep distribution system more flat. 'Getting specialized' refers to some regional distributors that change their traditional business models and gradually transform into service-oriented suppliers with merchandise management capabilities.
Huiji Commerce belongs to the latter. On one hand, based on its understanding of consumers and market judgment, it advocates a 'quality at a fair price' merchandise strategy to retailers in the role of a 'merchandise consultant'; on the other hand, it helps retailers with category management through data analysis and customer research, deeply participating in retailer operations.
Under the traditional procurement model, retailers usually require suppliers to support returns and exchanges, and channel fees and payment terms impose a large amount of hidden costs on suppliers. To protect their own interests, suppliers typically choose to provide retailers with price-oriented 'low quality, low price' products.
This on one hand leads to serious homogenization of retail merchandise, and on the other hand allows 'low quality, low price' products to occupy a large market share, creating a situation where bad money drives out good.
To this end, Huiji Commerce proposed a 'quality at a fair price' merchandise strategy. In its view, under the backdrop of consumption upgrading, consumers are willing to pay for higher-priced products.
The data shows this trend. Huiji Commerce distributes 10 rice cookers with retail prices ranging from 204 yuan to 1,692 yuan. Among them, a high-end Midea rice cooker priced at 1,291 yuan accounts for 3.19% of sales, ranking first.
Two data points are worth noting. First, this high-end rice cooker has the highest sales growth rate, rising from a 23% year-on-year increase in 2015 to a 55% year-on-year increase in the first quarter of 2017. This shows that consumers tend to buy high-quality products and are willing to pay higher unit prices.
Second, compare the sales volume and sales value of two rice cookers. Product A, priced at 1,291 yuan, sold 5,320 units in the first quarter of 2017, with sales value of 6,868 thousand yuan; while Product B, priced at 204 yuan, sold 28,522 units, ranking first in sales volume, but total sales value was only 5,821 thousand yuan.
In other words, low-priced products sell in large quantities, but the sales value they create is not necessarily high, and profit margins are even more limited. This gives retailers a revelation: blindly reducing procurement costs may risk lowering overall sales.
Another aspect of transforming into a service-oriented supplier is helping retailers with category management and deeply participating in retailer operations. Huiji Commerce has two basic strategies: on one hand, it assists retail enterprises in optimizing category structure and improving product turnover; on the other hand, it increases the frequency of product updates to give consumers a sense of 'always new,' thereby increasing their store visit frequency.
'Third Eye Retail' learned that Huiji Commerce once did a category update for a listed retail enterprise in Shandong. Based on industry information and logistics supply chain data, Huiji found that a huge number of stainless steel products were sold to the Shandong region nationwide, but in this retail enterprise, sales were very low. So Huiji Commerce suggested that the enterprise try introducing stainless steel paper products. The enterprise purchased a large batch of stainless steel basins with a retail price of 3 yuan, which became a best-selling item in the store.
Subsequently, Huiji Commerce assisted the enterprise in selecting a higher-quality stainless steel basin priced at 5 yuan, which increased the average transaction value for this single item by about 60%. According to sales data, compared with the 3 yuan item, the 5 yuan item saw a 20% decrease in sales volume during the comparable period, but overall sales value increased by 33%.
This also reflects the problem of retail enterprises 'not seeing the forest for the trees.' When optimizing product structure, retail enterprises usually calculate based on historical sales data or use regional commodity circulation trends as a reference, making it difficult to select incremental items nationwide and discover consumers' potential needs.
**Private Labels Account for 20%**
**Intensive Production Like Li & Fung**
'Without private labels, we might not have been able to leave Dongguan,' said Jian Xiwei, General Manager of Huiji Commerce, told 'Third Eye Retail.'
As the main content of the 'Go Left' strategy, Huiji Commerce has developed eight private labels, including 'Zhijia.' Currently, private label annual sales exceed 100 million yuan, accounting for 20%, which is rare in the industry.
When some retailers develop private labels, they usually choose categories with high sales in stores. The purpose is to ensure sales volume and to enhance product commonality, allowing joint development with multiple retail enterprises to reduce production costs.
In the short term, this strategy may bring performance growth and product differentiation to retailers. But in the long run, dabbling in private labels 'big and comprehensive' makes it difficult for retailers to build their own brand advantages and compete with manufacturer brands.
Huiji Commerce defines its private label development strategy as 'refined products, expanded channels, strong marketing.' 'Refined products' means selecting categories with low market recognition thresholds for private label development; 'expanded channels' means deepening single categories through omnichannel sales to accumulate supply chain advantages; 'strong marketing' means Huiji Commerce provides differentiated marketing strategies for sales entities based on different sales channels.
It is worth noting that Huiji Commerce connects downstream channels such as retail enterprises and wholesalers on one end, and factories on the other, transforming itself into an intensive production platform. This is very similar to the well-known supply chain enterprise Li & Fung Group.
It first provides customized production based on retailer needs. A relevant person in charge of Huiji Commerce revealed that based on its private labels, it has formed its own urban distribution system: mainly in the form of wholesale, while also serving international hypermarkets, local large and medium-sized retail terminals, and chain convenience store systems, as well as supplying its own Bainade stores and Huiji Tmall flagship store and other retail terminals.
After integrating sales demand, Huiji Commerce centrally purchases raw materials and assigns production tasks to factories, which complete assembly, thereby reducing production costs and shortening production cycles. Liu Zhiqiang, Product Director of Huiji Commerce, told 'Third Eye Retail' that Huiji Commerce has a mop priced at 9.9 yuan, and when producing it, orders are distributed to three factories. Because Huiji Commerce centrally purchases raw materials, a component that costs a factory 1 yuan can be obtained by Huiji Commerce for 0.7 yuan.
Through private label development, Huiji Commerce has actually become a brand operator. Compared with retailers developing private labels, Huiji Commerce's advantages lie in two aspects.
The first is independence. That is, retailers often choose joint development to gain scale advantages, which for enterprises in the same region may lead to homogenization of products dominated by private labels. In cross-regional cooperation, there is the question of who leads.
The second is professionalism. Huiji Commerce independently operates private labels in the household miscellaneous category, with a complete system for product selection, production, distribution, marketing, after-sales, and product lifecycle management. In the long run, this is conducive to private labels growing into 'social brands' that can face consumers nationwide.
**Opening Its Own Specialty Stores**
**Huiji Lays Out the Entire Industry Chain**
Jian Xiwei, General Manager of Huiji Commerce, told 'Third Eye Retail' that they have opened their own category-specific stores and are also laying out online retail, officially extending downstream in the supply chain.
'To understand consumer needs, we opened the Bainade category store. Initially inspired by Japan's 100-yen store Daiso, we positioned it as a Chinese version of a 10-yuan store. The first store was located at the exit of a Walmart hypermarket. Although there was high foot traffic, it ultimately failed,' said Jian Xiwei.
When Bainade first launched, the product quality was not strong, and the categories tended to be homogeneous with hypermarkets, yet it was located near hypermarkets like Walmart, giving it almost no competitive advantage.
After painful reflection, Huiji Commerce repositioned Bainade as a 'small IKEA + small Miniso + small MUJI' European-style household goods category store, and can adjust the product structure according to the characteristics of the business district.
For example, if the store is in a community, the product structure is divided as small IKEA > small MUJI > small Miniso, while in commercial areas, it is adjusted to small Miniso > small MUJI > small IKEA. Jian Xiwei said, 'The advantage of a category store lies in the clustering effect generated through product combination.'
In e-commerce channels, Huiji Commerce focuses on 'single product hits.' This is because when consumers choose household miscellaneous products through e-commerce platforms, they usually search for product keywords rather than brand names. To this end, Huiji Commerce typically uses product name, main selling points, and price advantages as marketing points to improve turnover.
Take a stainless steel insulated lunch box priced at 79 yuan as an example. Huiji Commerce highlighted the core selling point 'No fear of food spoiling when bringing lunch in summer, made of 304 steel,' while also emphasizing its material, price, and special functional advantages, resulting in sales of 2,947 units in the first half of August.
From developing private labels to focusing on retail terminals, the case of Huiji Commerce shows that the retail industry is undergoing disruptive changes. Retail enterprises are engaging in production; manufacturing enterprises are opening stores; and as a distributor connecting retail enterprises, Huiji is both engaging in production and opening stores. It can be seen that competition among retail enterprises is no longer just at the store level, but a three-dimensional competition across the entire industry chain. [End]
Source: Third Eye Retail (ID: retailobservation)
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