Click to read the original article for details ■ New retail formats represented by Hema, once market darlings as disruptors, are now collectively in trouble as the wave recedes: Alibaba's Hema has seen its valuation shrink significantly, Yonghui's Super Species has returned to offline retail, JD's 7Fresh has reduced its store count, and Meituan's Xiaoxiang Fresh has ceased operations. ■ Whether online or offline, Hema struggles to break even. A Hema membership store, covering retail, dining, and warehousing, spans about 3,000 square meters with upfront costs up to 30 million yuan. In contrast, Meituan Maicai and Dingdong Maicai's front warehouses are only about 300 square meters, with initial investment in first-tier cities as low as 500,000 yuan. ■ The internet excels at creating concepts. Six years ago, Jack Ma predicted that pure e-commerce would be replaced by new retail. Subsequently, JD proposed unbounded retail, and Suning proposed smart retail. A brand-new trend was lifted. But burning money to grab market share, lacking model innovation and technological breakthroughs, new retail has yet to disrupt traditional retail. Cover image source | Shetu.com When the wind rises, the internet can add everything, and new models easily fly high. When the wind stops, it often leaves a mess. Hema, weaned by Alibaba, is busy looking for money these days. According to Reuters, Hema is seeking to raise funds at a valuation of $6 billion. This valuation is nearly half of the $10 billion at the beginning of 2022. Six years have passed, the new retail wave is receding, and Hema's followers are falling into survival crises. Yonghui's Super Species has returned to offline retail, JD's 7Fresh has reduced its store count, and Meituan's Xiaoxiang Fresh has announced the cessation of operations. New retail, once sought after by big companies during the internet boom, is now facing unprecedented skepticism. Even Hema rarely mentions the term in public. When the enthusiasm of capital fades and the bubble thins, what fate awaits man-made trends? 01 The Weight Hema Cannot Bear As the former top student in the new retail battlefield, Hema's valuation has shrunk by 40%, which is both unexpected and reasonable. Hema, growing heavier, is drifting away from the asset-light model favored by capital, and long-term losses are consuming Alibaba's and the outside world's expectations and patience. At the end of 2021, Alibaba implemented a comprehensive business responsibility system, and Hema transformed from a business group into an independent company. Under the pressure of self-financing, Hema CEO Hou Yi emphasized in an internal letter that Hema's 2022 goal was upgraded from single-store profitability to overall profitability. This means Hema urgently needs to tighten its belt and quickly solve the profitability problem. However, the resurgence of the pandemic has made the situation more severe for Hema, whose main battlefields are Beijing and Shanghai. Hema's once-proud advantages, including the "store-warehouse integration" model, continuous exploration of the supply chain upstream, and 30-minute instant delivery, have become unbearable burdens amid repeated pandemic outbreaks. A senior industry insider with over 30 years in retail told Snow Leopard Finance and Economics that a Hema membership store, including retail, dining, and warehousing areas, covers about 3,000 square meters with upfront costs up to 30 million yuan. In contrast, Meituan Maicai and Dingdong Maicai's front warehouses are only about 300 square meters, with initial investment in first-tier cities as low as 500,000 yuan. In terms of location, Hema mainly focuses on core business districts and office buildings with high foot traffic. During the pandemic, even with optimized store operating costs, high rent, property, and labor costs squeeze profit margins. In terms of supply chain, Hema has been extending upstream in food production in recent years, such as incubating shrimp factories and creating private labels for liquor and bakery. The two supply chain operation centers with a total investment of nearly 2 billion yuan were also officially launched recently. Building its own supply chain can indeed help Hema build high barriers and gain long-term advantages, but it is difficult to solve the urgent problem of profitability. Especially during the pandemic, pressure from the channel side inevitably transmits upstream. "Online + offline" is the core model of new retail, but 30-minute instant delivery undoubtedly increases Hema's burden. According to an article in Caijing Tuyu, during the pandemic, although Hema's online order volume increased, the average order value was halved compared to offline, at only about 40 yuan, basically on par with Meituan Maicai and Dingdong Maicai. Coupled with its self-built delivery system with high investment and heavy model, it further diluted the profits of online orders. Whether online or offline, Hema finds it difficult to break even, so it can only strictly control costs, even resorting to cutting off its own arm to survive. After being exposed to a 20% layoff in March this year, Hema was again embroiled in layoffs in May, optimizing and adjusting specific business departments such as regional procurement and operations. During the same period, Hema also experienced unprecedented store closures. On March 1, Hema Fresh closed five large fresh food stores simultaneously in Nanjing, Qingdao, Chengdu, and Guangzhou. In April, the "star format" Hema Neighborhood fully withdrew from Beijing, Xi'an, Chengdu, and Wuhan markets, retaining only self-pickup stations in Hangzhou, Shanghai, and Nanjing. One day in late July, Snow Leopard Finance and Economics visited the Hema Fresh membership store at Lotte International in Shuangjing, Beijing. A staff member said that nearly two months after the resumption of work and production in Beijing, Hema store traffic had not yet recovered to pre-New Year levels. That day was Hema's membership day, but as of 8 p.m., the total number of visitors for the day was less than 5,000, only one-third of the usual membership day traffic. A staff member responsible for online order picking told Snow Leopard Finance and Economics that Hema's online order volume has significantly decreased this year. When he first joined last winter, he had to complete nearly 2,000 orders a day, but now each person can only receive 500-600 orders per day. On the day of the visit, Snow Leopard Finance and Economics noticed that about one-fifth of the store's area was reserved for dining, with nearly 100 seats, but during the weekday dinner period, only three tables of guests dined within two hours. (At 7 p.m. on a weekday, the dining area of a Hema Fresh store; Image source: Snow Leopard Finance and Economics) 02 New Retail Trapped in Its Model Six years ago, when the wind rose, new formats represented by Hema quickly became market darlings as "disruptors." Six years later, as the tide recedes, the darlings have become abandoned, and the new formats are collectively trapped in model difficulties. In October 2016, Jack Ma first proposed the concept of "new retail." Internet companies and traditional retail enterprises such as Alibaba, JD, Suning, and Yonghui plunged into the wave. Following closely on Hema's heels was Yonghui's Super Species. Since opening its first store in Fuzhou in 2017, Super Species was given extremely high expectations and was regarded by industry insiders as Hema's rival. Super Species' business model is similar to Hema's, both being "high-end supermarket + fresh food dining + O2O home delivery." But the logic of retail and dining is completely different, and the combination of the two formats may not necessarily result in 1+1>2. Winshang.com previously quoted informed sources as saying that Super Species was actually using dining rent for retail, which was inherently mismatched. The rent for ordinary supermarkets is about 2 yuan per square meter per day, while dining store rent can be as high as 10 or even 20 yuan. In addition, Super Species mainly operates small stores, covering 300-500 square meters, with half the space for shelves for retail and the other half for tables for dine-in, leaving no more space for online order warehousing. After Tencent's investment, Super Species expanded rapidly, opening more than 80 stores nationwide by 2019, surpassing Hema. But rapid expansion did not translate into high-quality growth. From 2016 to 2019, Super Species lost 2.6 billion yuan, significantly dragging down Yonghui Superstores, and was divested from the listed company system. Two years after Hema and Super Species sprinted, 7FRESH, defined by JD as "unbounded retail," came into being, with a model similar to Hema and Super Species. In January 2018, 7FRESH opened its first store in Beijing, and by the end of 2021, it had fewer than 50 stores. In addition, 7FRESH also launched the mini format Qixian Life, and Qifan'er, which targets white-collar scenarios and features a bar inside, later renamed "Qifan'er·Wine," offering light meals and mixed with barbecue and food stalls. But excessive innovation and mixed formats led JD to never establish its own barriers, and 7FRESH's positioning gradually became blurred, wavering between gourmet supermarkets and fresh food supermarkets. Besides the three giants, Suning's Su Xiansheng and Meituan's Xiaoxiang Fresh were also products of big companies benchmarking against Hema. Su Xiansheng was the representative work of Suning's "smart retail," opening more than 20 stores nationwide at its peak, but during the 2020 pandemic, its dining stalls were on the verge of death, and it was transformed into "Carrefour Select," cutting the dining format to barely survive. Meituan's Xiaoxiang Fresh announced the cessation of operations in just two years. New retail, which is both a tailwind and a shackle, has yet to find a clear profit model. Is this increasingly forgotten new term a product of natural industry evolution or a trend created by big companies with money? 03 The Trend Disappears, the Bubble Bursts The internet is good at creating words, memes, concepts, and even trends. Back in 2016, big companies that had been entrenched in e-commerce, social networking, and other tracks for years, with solid foundations, were energetically shouting the slogan "Internet+" and sounding the clarion call to transform traditional industries. At that time, the O2O war had just ended, Meituan and Dianping merged to transform the traditional catering industry, and Ctrip and Qunar joined forces to reshape the hotel and travel industry landscape. "Internet+" seemed to have become a proven and viable model, and an optimistic sentiment was widely accepted: "All industries are worth redoing with the internet." When the target was aimed at traditional retail, the concept of new retail was born. In 2016, Jack Ma predicted at the Yunqi Conference that the pure e-commerce era would soon end, and in the next 10 or 20 years, new retail would replace e-commerce. Only by combining online, offline, and logistics could a truly new enterprise emerge. A year later, JD proposed unbounded retail, and Suning proposed smart retail, which were almost identical to the concept of new retail. A brand-new trend was thus lifted by the big companies. IT Juzi, a venture capital data service provider, once released a set of data: in 2017, as many as 57 new retail companies were established, with a total of 172 investment events throughout the year, a year-on-year increase of 60.75%, with a total investment of 62.536 billion yuan. But what exactly constitutes new retail has never had a standard answer. What exactly is the barrier of this business? No one can say clearly. Looking back at the new formats represented by Hema, labels such as "online-offline integrated innovation," "terminal delivery for the last mile," and "seizing the window period for fresh food e-commerce" give a glimpse of their attempts to break through traditional retail from multiple dimensions and go further in every link. However, burning money to grab market share, neglecting cost management, and lacking substantial technological breakthroughs, new retail has not realized its dream of disrupting traditional retail. Facing the harsh market, the bubble is becoming thinner and thinner. The combination of "supermarket + dining + home delivery" seems to create a new consumption scenario, but when broken down, it is nothing more than a wet market, a premium supermarket, fresh food e-commerce, and dining stores mainly offering ready-to-cook fresh food. This model is a slight upgrade over traditional formats, but there is no obvious differentiation, let alone irreplaceability. Offline, the new formats have to compete with traditional supermarkets and department stores. Online, they also need to deal with the interception of Meituan Maicai, Miss Fresh, and Dingdong Maicai. To survive, new retail, which has become an "endangered species," is trying to abandon internet elements. Super Species and 7FRESH have announced a return to the essence of traditional retail, operating "people, goods, and places" down-to-earth, while Hema is also getting heavier and moving closer to traditional retail. When the trend disappears, for new retail that is destined for a major defeat, will this be the best ending? Source: Snow Leopard Finance and Economics (ID: xuebaocaijingshe) Author: Li Xintong -END-