On March 18, Alibaba Group announced in an internal letter that Hema founder and CEO Hou Yi officially retired at age 60 and will serve as Hema's chief honorary advisor. This means that since its founding in 2015, at the threshold of Hema's tenth year, Hou Yi has exited Hema's decision-making center. This inevitably evokes a sense of regret. Looking back at Hema's development over the past few years, as a sharp blade for Alibaba's 'new retail' layout to explore outward, it was once Alibaba's 'No. 1 project' in new retail. Alibaba poured considerable resources and energy into it, while granting Hou Yi a high degree of decision-making autonomy. Hema thus bore the strong personal style of founder Hou Yi: ambitious, daring to try, vigorous and resolute, quickly testing and iterating. According to a review by Yike Business, since its establishment, Hema has attempted at least 12 consumer business formats. In October last year, Hema also launched a sweeping 'discount' transformation, which Hou Yi called 'a matter of life and death for Hema,' believing that a short-term pain is better than a long-term one. At the same time, over the past period, news about Hema's 'store closures' and 'sale' has frequently surfaced. Now, with Hou Yi handing over the baton, it likely means that Alibaba has lost patience with the long-loss-making Hema. The future direction of Hema is now marked with a big question mark. On March 16, Lianshang.com reported that informed sources revealed that Alibaba had basically decided internally to sell RT-Mart and Hema to COFCO, with Hema estimated at 20 billion RMB. A framework agreement had been drafted, and it was Ma Yun who made the final decision within Alibaba. Both Hema and RT-Mart denied this news, and Alibaba Group did not comment. Against the backdrop of Alibaba's continuous promotion of group transformation and focusing on main business as a strategic priority, the persistently loss-making Hema has reached a crossroads of fate. Sudden Change of Leadership Is Hema's new task 'cost reduction' and 'loss prevention'? Compared to Hou Yi, who had a strong personal style and understood fresh e-commerce better, Hema's new CEO Yan Xiaolei is low-key, with strengths in a deep financial background. Yan Xiaolei previously worked at Siemens China and KPMG, with rich financial management experience. Since 2018, she has served as Hema's CFO, and can be said to be well-versed in Hema's business development in recent years. Alibaba's decision to have her concurrently serve as Hema's CEO has sparked much speculation outside. One view is that after Yan Xiaolei concurrently serves as CEO, Hema's performance in operational efficiency and profitability is worth expecting, which will help Hema reverse its loss situation. Another view is that Yan Xiaolei's succession is intended for financial due diligence, preparing for Hema's sale. But regardless of whether Hema's next fate is to be sold or to accelerate into a business contraction period, the challenges facing Yan Xiaolei are not small. LatePost once reported that Hema's GMV in 2021 and 2022 was 34 billion and 45 billion yuan respectively. In 2023, Hema set an aggressive target of 100 billion yuan, with a growth rate exceeding 100%. But according to Alibaba's financial reports, Hema's overall GMV only just exceeded 55 billion yuan at the end of last year. The financial report also showed that during the period, Hema significantly narrowed its losses year-on-year by enhancing its sales capabilities and improving operational efficiency—meaning Hema still has not turned a profit. Hou Yi also revealed in an internal letter that in 2022, the main business format Hema Fresh achieved profitability, but there was still a distance from overall profitability. In Alibaba's Q3 financial report for fiscal year 2024, quarterly revenue was 260.348 billion yuan, a year-on-year increase of 5%. Net profit was 10.717 billion yuan, a year-on-year decrease of 77%. Among them, the 'all other' segment, including Sun Art Retail, Hema, and Intime, has to some extent become a drag. These businesses' revenue was 47.023 billion yuan, a year-on-year decrease of 7%, with a net loss of 3.172 billion yuan, expanding by 87% year-on-year. It is worth noting that Alibaba's financial data also shows that after divesting the heavily loss-making 'physical retail' businesses such as Sun Art Retail, Hema, and Intime, Alibaba's financials would perform better—after exclusion, the group's total revenue growth would be about 8%, and the adjusted EBITA margin would be about 4 percentage points higher, to around 24%. The problem is that Hema is currently in a state of high uncertainty in its business format exploration, and the discount transformation that has been underway for half a year is not going smoothly, which will further exacerbate its financial uncertainty. On the other hand, Alibaba is clearly reluctant to invest too much capital and resources to support Hema. As early as February's Q3 earnings call, Alibaba Group Chairman Joe Tsai explicitly stated: 'There are a lot of traditional physical retail businesses on the company's balance sheet, which are not core businesses. We will gradually exit these businesses.' From this perspective, for Hema, one possibility for Yan Xiaolei's succession is that Alibaba hopes to use her past expertise as CFO to improve Hema's severe financial situation as much as possible. An industry insider told the media that Hema's retail fundamentals, including supply chain, brand management, and marketing, are commendable, but it has never been profitable, possibly due to problems in expense control. What Hou Yi Didn't Accomplish Will Alibaba Still Allow Hema to 'Trial and Error'? Looking back at Hema's development history, as early as 2019, Hema began to try the low-price market. Hema MINI is a typical example. Compared to Hema Fresh's large stores, which require an investment of at least 20 million yuan, Hema MINI's single-store cost is 2 million yuan, only one-tenth of the former, with locations more in suburbs and towns of first- and second-tier cities. Last year's main business format, 'Hema Outlets,' is an advanced version of Hema's pursuit of the low-price market—in October 2021, the first Hema Outlet fresh store opened in Shanghai. Its main mission is to handle surplus products from Hema Fresh stores. Surplus products from five or six large fresh stores are concentrated and transported to one Hema Outlet. Currently, Hema has about 60-plus Hema Outlets nationwide. Hema Outlets pursues minimal SKUs and ultimate cost-effectiveness, not environment or consumer experience. Its store area is mostly around 500 square meters, with investment at the million-yuan level. It also lacks iconic Hema features such as aquatic tanks and dining areas. Products are directly piled on the floor, and staff vigorously hawk items like '2-yuan bunches of leaf lettuce, 10-yuan portions of grapes,' etc. Soon, Hema Outlets became popular with retired elderly and single white-collar workers, and also became the fastest-growing business among all Hema businesses. Hema CMO Zhao Jiayu mentioned in a speech that in 2022, Hema Fresh's sales increased by over 25% year-on-year, Hema X Membership Store grew by over 247%, and Outlets and Neighborhood grew by as much as 555%. Behind this, in the face of anxiety over self-financing and listing, the 'low-price' strategy validated by Hema Outlets became Hema's main direction. In October last year, Hou Yi, who had always insisted on high quality, also said in an interview: 'One problem Hema hasn't solved yet is that prices are relatively high; at least in terms of price, we don't have a clear competitive advantage. In today's economic environment, we need to solve this problem well.' In the same month, Hema's 'discount' reform came into being, committed to the goal of 'Low price, low cost operation, but unique.' Hema's actions immediately unfolded. Hema comprehensively lowered prices on more than 5,000 products in Hema Fresh stores nationwide, with the largest reduction, 'offline exclusive prices,' generally dropping by 20%. Hema also streamlined SKUs. In the future, the number of SKUs in the finished products department will be reduced from the original 5,000-6,000 to about 3,000. Behind the SKU streamlining, Hema is, on one hand, screening brand suppliers that are easier to control quality, lower cost, and more likely to become bestsellers—taking the path of small profits but quick turnover. On the other hand, it is increasing its own private-label products, which is also one of the biggest feelings users have when shopping at Hema over the past six months. Private-label brands eliminate middlemen, reduce costs, and correspondingly make profits more considerable. These actions all indicate that Hema is moving toward the path of 'low price driving scale growth,' and this strategy is still being promoted. For example, in December last year, Hema suspended its paid membership business (members whose benefits have not yet expired can still use them normally). For a long time, Hema's membership discounts exceeded its membership fee income, meaning Hema stopped the money-losing membership business. This is a cost-reduction measure. More recently, Jiemian News reported that to further reduce store operating costs, Hema has also cut employee benefits. On one hand, Hema sorters in Wuhan, Guangdong, and other cities have seen salary cuts. In Wuhan, the back-end rate dropped from 0.26 yuan per item to 0.17 yuan. In addition to the pay cut, sorters also have to double as stock clerks when there is no sorting work. On the other hand, some Hema Fresh warehouse staff have been converted from regular employees to temporary workers. It can be seen that Hema is making every effort to cut expenses wherever possible, hoping to quickly turn losses into profits. However, Hema's discount actions have been too fast and too fierce, showing some backlash effects. In the supply chain, after streamlining SKUs last year, Hema's cooperation with many suppliers was suspended. Some suppliers withdrew from cooperation because they were forced to lower prices by Hema. At that time, Hou Yi also frankly said: 'Going away from the KA model is a matter of life and death for me; there is no retreat. Of course, the industry was shaken greatly, and many people blocked us. Let them block.' In addition, private-label brands are indeed an effective way to reduce costs and increase efficiency, but they are not easy to do. Their essence is to invest heavily in R&D and production, then amortize costs through large orders, and then sell at small profits but quick turnover—besides heavy investment, how private-label brands quickly gain consumer recognition in terms of brand and quality is a key issue, and it is also a project that needs to be calculated in 'years.' But the time left for Hema is clearly running out. Unsuccessful Listing Is Selling the Most Likely Outcome? Back in 2021, in Alibaba's reform to upgrade its 'diversified governance system,' Hema changed from a business group sub-business to a subsidiary of Alibaba. At this point, Hema could no longer rely on the group's resource support; it had to be self-financing. Hou Yi's pressure was also visibly increasing. In April 2019, when discussing losses, Hou Yi said, 'We never use the word loss; we consider this investment. Innovation requires investment. How can it work without investment?' But after 2021, Hou Yi stated that Hema must develop independently and must have profitability. Running a business without making money is always a shame. In early 2022, Hema explicitly proposed to tighten its belt, upgrading from single-store profitability to overall profitability. Cost reduction and efficiency improvement became the main theme, and it also began to seek new financing externally. In fact, Hema's financing has not gone smoothly. In early 2022, Hema was seeking financing at a valuation of $10 billion, but six months later, it had dropped to $6 billion. Then, since last year, Alibaba has undergone its largest organizational restructuring since its founding, making each business group self-financing and aiming for listings, allowing Taotian to travel light and consolidate its position. But six months later, the results were not ideal. Among the three sub-groups that first rushed to list, Hema postponed its listing plan due to its low valuation; in September last year, Cainiao applied for a public offering on the Hong Kong Stock Exchange and submitted a prospectus in October. On March 26, Alibaba withdrew Cainiao's listing application; in the Q2 financial report for fiscal year 2024, Alibaba also announced the abandonment of the full spin-off of Alibaba Cloud. Among these three sub-groups, Hema is undoubtedly the most awkward. A clear signal is that after Wu Yongming clarified that 'the group's highest priority is to reignite growth momentum in the two core businesses of e-commerce and cloud computing,' the strategic priority of businesses related to cloud computing and e-commerce within Alibaba will be elevated, while other businesses face the risk of being marginalized. For example, in November last year, Wu Yongming, in his first participation in the quarterly earnings analyst call as Alibaba Group CEO, pointed out that 1688, Xianyu, DingTalk, and Quark would be listed as Alibaba's first batch of strategic innovation-level businesses. Among them, 1688 and Xianyu are both old businesses of Taotian. That is to say, while Taotian's strategic level is elevated, related surrounding businesses also receive attention—especially since these two have captured a large number of young users in the era of low-price e-commerce. In this context, it is not surprising that the Cloud Intelligence Group abandoned the full spin-off. Looking at Cainiao Group, it has to some extent already become key infrastructure for Alibaba's core e-commerce business and is particularly crucial for Alibaba's fastest-growing overseas e-commerce business. The suspension of its listing is also understandable. Hema's situation is different. With Alibaba having almost strategically abandoned 'new retail,' Hema's value to Alibaba is at its lowest point. A senior retail practitioner analyzed to Caixin that Alibaba is selling Hema for two reasons: first, Hema has not yet achieved sustained profitability and requires significant investment, so continuing to hold it is of little value; second, Alibaba initially wanted to do Hema to find a business model for instant retail, but at present, the possibility of Alibaba capturing the instant retail market has basically disappeared, as there are already many strong players in the market such as Meituan, PPM, and Dingdong Maicai. From this perspective, Hema, which failed to list due to an unsatisfactory valuation, may have to move toward the outcome of 'being sold.' PS: Click Read Original to view more highlights of the 9th China FMCG Innovation Conference and the 2nd China FMCG Hard Discount Conference & the 2nd China FMCG Distributor Conference...