---
title: "\"Arbitrageurs\" Stumble in Shanghai's Clearance Market"
description: "In a warehouse on Shanghai's Jialing Road, a box of Genki Forest milk tea has been sitting for over a month at 20 yuan, a fifth of its original 109 yuan price, yet few are buying. Zhang Wei, who entered the \"clearance market\" four months ago, is one of many newcomers facing unsold stock and logistical hurdles, while veterans warn that the industry is evolving beyond just low prices."
author: "周月明"
publisher: "New Distribution"
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published: "2022-06-24"
language: "en"
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---

# "Arbitrageurs" Stumble in Shanghai's Clearance Market

> In a warehouse on Shanghai's Jialing Road, a box of Genki Forest milk tea has been sitting for over a month at 20 yuan, a fifth of its original 109 yuan price, yet few are buying. Zhang Wei, who entered the "clearance market" four months ago, is one of many newcomers facing unsold stock and logistical hurdles, while veterans warn that the industry is evolving beyond just low prices.

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In a warehouse on Shanghai's Jialing Road, a box of Genki Forest milk tea has been sitting for over a month at 20 yuan, even though the price has dropped to a fifth of its original 109 yuan, yet few are buying.
The owner of this batch is Zhang Wei, who entered the "clearance market" just four months ago. Clearance, as the name suggests, refers to products nearing their expiration date. **In this market, a box of branded sparkling water at 20 yuan** (original price 75, clearance terminal price 50), **a box of milk at 20 yuan** (original price 70-80, clearance terminal price 50-60) **is common, and on lucky occasions, you can even find a box of milk for 5 yuan or a bottle of cola for 1 yuan.** Zhang Wei had hoped that these cheap goods dumped after the pandemic would make him a fortune, but now he can only chain-smoke Huanghelou cigarettes in a warehouse with sparse foot traffic.
Compared to the worried Zhang Wei, most veteran players had already anticipated the situation after Shanghai's复工. These people call themselves "arbitrageurs" (daoye), constantly traveling between food and beverage wholesale markets and warehouses across the country, seeking products about to leave the market and digging for gold in price gaps.
△Cover image | VCG
Linqi Yegou (a self-media KOL), who has been in the industry for three years, told Huxiu, **"Although the prices are cheap, regional restrictions are severe and logistics costs have doubled, making it hard to sell even if you want to."** According to him, normally transporting a 13-meter high-sided truck from Guangdong to Shanghai cost about 6,000-7,000 yuan, but now it has risen to 10,000-20,000 yuan and still hard to get in. Additionally, goods are hard to circulate due to regional restrictions; previously some food could be shipped nationwide, but now they can only be discounted locally.
However, for newcomers like Zhang Wei, hoarding this batch of clearance goods in Shanghai is already the third pitfall he has "precisely jumped into" in just four months in the industry. Despite frequent losses, Zhang Wei's enthusiasm for digging gold in the clearance market has not been extinguished.
Before entering this trade, Zhang Wei ran a community supermarket for two years, but as online community group buying fiercely competed with extremely low prices, his store became increasingly deserted and was forced to close. But when he saw the "plummeting" prices of clearance food and beverages, he felt he had grabbed a lifeline.
Many share Zhang Wei's thoughts. **These bargain-priced goods fuel their fantasies of creating "panic buying" and getting rich easily. Moreover, capital and big players are also gathering in this track.**
It is said that 2021 was the first year of the explosion of discount supermarkets in China. Incomplete statistics show that in 2021 alone, six discount supermarket brands secured financing, with the highest amount reaching hundreds of millions of yuan. In addition, traditional supermarket chains like Yonghui, Jiajiayue, and Renrenle have also entered the discount store format, seemingly treating discount supermarkets as a new way out after declining performance.
However, in the eyes of some "old arbitrageurs," the recent performance of the clearance market before and after the Shanghai pandemic indicates that the industry has entered version 2.0. **Everyone in the clearance circle realizes that having good prices alone is far from enough.** Even though the Shanghai pandemic dumped so many cheap goods, newcomers like Zhang Wei still stumbled due to lack of sales channels.
"Offline discount supermarkets are becoming increasingly difficult. I think the best way now is **Kuaishou live streaming** and **self-media**, because only then can you filter more precise traffic," Linqi Yegou told Huxiu. What lies ahead for those in the clearance circle are more challenges in breaking out of their niche.
**1**
**Falling into the Pitfalls of the Clearance Circle**
Compared to the ordinary FMCG market, the clearance market is more sensitive and harder to grasp. Product prices fluctuate like stock prices, and every second of delay can translate into concrete losses.
"Selling clearance food requires explosive power," Linqi Yegou said. If the milk bought this month doesn't sell by the end of the month, next month it enters the break-even stage, and the month after that it starts losing money. **Clearance food is valued based on the remaining shelf life in months.**
In this situation, **speed becomes a matter of life and death**, but the pandemic over the past two years has often suddenly slowed things down. Even if clearance food and beverage prices drop further at such times, the logistics stagnation often "wastes the price," and when logistics improves, prices have already started to rebound. Many clearance merchants have had products expire due to the pandemic, and their cash flow has been cut off.
Besides mastering speed, finding "hard currency" (products that sell well even when nearing expiration) is also key in this trade.
There are generally three channels for sourcing goods: discount warehouses, e-commerce warehouses, and distributors. Products that were originally bestsellers are still "hot commodities" in the clearance circle. But goods from big brands and internet-famous products are hard to get, as their circulation is within relatively closed circles. **"Generally, surplus stock from big companies and brands is handled by dedicated personnel and rarely flows to the public market; it only comes out through personal connections,"** Linqi Yegou said.
Finding "hard currency" is the first pitfall many newcomers fall into. Some clearance warehouses and supermarkets that recruit franchisees often use brand-name and internet-famous products as selling points, frequently showing certain brands' soda, chips, milk, etc., in promotional videos. But when newcomers pay the franchise fee or visit the warehouse, they often don't see these "hard currency" items; instead, they find unknown generic brands.
However, customers usually don't buy generic products nearing expiration. Zhang Wei was initially attracted to the industry because he saw sources of milk and cola several times cheaper than usual, but when he actually inspected, they were nowhere to be found.
"Clearance warehouses generally don't have too many categories," Linqi Yegou told Huxiu. Sellers often offload single and large quantities, such as products removed from a large supermarket, with a single SKU possibly reaching 70,000-80,000 boxes. To control the brand, they won't sell piecemeal to countless buyers; it must be disposed of in one go.
This places high demands on the buyer's capital chain. Additionally, since these goods are short-shelf-life products, without extensive sales channels, one dares not take them on rashly. So most bosses, if they have 1,600 SKUs in their warehouse, clearance food might only account for 100, a very small proportion. Newcomers without connections naturally find it hard to get "good goods."
Of course, even if you find brand surplus, the category is crucial. Multiple industry insiders told Huxiu that **milk and bread are often the best products for attracting traffic, while discounted snacks don't sell as well as imagined; many people don't care about saving a few cents on snacks.**
**But the "most fragrant" milk products often face stricter regional management.** Lei Hong, a former executive at a dairy company, told Huxiu that due to market saturation, the share each regional distributor gets is basically fixed. Arbitrary cross-regional selling (窜货) quickly reflects in the regional distributor's sales numbers, and conflicts of interest among dairy distributors are often more pronounced. To ensure the stability of their distributor network, brands often enforce stricter controls, such as tracking codes inside each can of domestic milk powder, which both trace origins and prevent "code erasure."
Many clearance players have "fallen" in milk control. Linqi Yegou shared an experience with Huxiu: when selling clearance milk in 2021, a Shanghai company withheld 300,000 yuan in payment. The cause was that one of his salespeople had previously sold milk across regions against regulations.
At that time, the salesperson sold a batch of milk from the Shanghai company to Yinchuan, but this batch was only allowed to be sold locally in Anhui. Due to the strict control system in the dairy industry, the milk was discovered by local distributors as soon as it arrived in Yinchuan. The Shanghai company didn't make a fuss at first, again using cheap prices to lure Linqi Yegou's salesperson into a trap, but when the goods were picked up, both money and goods were withheld as punishment for the previous cross-regional selling.
Moreover, another clearance player, Dong Lin, also described a "fishing" experience to Huxiu. He said there are dedicated "fishermen" in the clearance industry who help distributors investigate cross-regional selling; once reported, they often receive rewards of several thousand yuan.
But multiple insiders told Huxiu that some mechanisms of milk manufacturers actually indirectly encourage cross-regional selling. To stimulate distributors to take goods, there are often various subsidies (such as a certain percentage of marketing subsidies). The more goods taken, the more subsidies, which means the overall cost of the milk batch decreases. But the regional demand often can't absorb the extra milk, so the only way is to sell to other regions, often at a lower cost.
Thus, for clearance players, even if they dig up a potential hit product, there may be deeper waters ahead. Ultimately, these conflicts stem from the attitudes of brands and distributors toward near-expiry products. Besides strict control over cross-regional selling, some brands are also unwilling to have large quantities of low-priced products circulating in the market, as it affects their image. Veteran arbitrageurs often tread a few steps into the gray area.
**2**
**Encountering Breakout Challenges**
For newcomers, they often have to wade through these pitfalls when entering the industry. But once they pass the "newbie village" stage, they truly enter the test of daily operations. At this point, how to break out of their niche and expand customer sources becomes the biggest challenge.
In the eyes of some veteran players, traditional offline discount supermarkets and community group buying are becoming increasingly difficult, mainly due to traffic challenges.
Many discount supermarkets can only serve customers within a few kilometers, and once there are no attractive discounted products, traffic quickly declines. This requires high capability in category management: the ratio of discounted to regular products, branded to generic, traffic-driving to profit-making items all need careful planning. Without the ability to attract customers through word-of-mouth and encourage repeat purchases, offline discount supermarkets are easily overshadowed by online shopping and can quickly become deserted.
Some veteran community group buying leaders also face traffic challenges.
Zhang Feng, a stay-at-home mom with two years of experience as a group leader, has noticed that the number of group buyers is declining, and it's still the same neighborhood customers. To break out, she tried setting up stalls at other community entrances to drive traffic, but it was fraught with difficulties. First, few communities allow such behavior at their entrances. Second, after attracting customers with clearance milk, she faced the challenge of getting them to make repeat purchases.
"Compared to those cash-burning community group buying platforms, we have no advantage," Zhang Feng said. Linqi Yegou also told Huxiu that community group buying is essentially a massive cross-regional selling model.
For example, a box of Jindian milk that costs 60 yuan in supermarkets can be bought for 45 yuan on some platforms, and it's fresh. This cost is subsidized by the buyer, and the supplying distributor also bears significant risk.
**Although many community group buying platforms have suffered heavy losses in the fierce competition over the past two years, their rise has still squeezed many physical discount stores.** Nowadays, many discount merchants dare not stock up, because even discount wholesalers' prices are not competitive compared to community group buying.
Many veteran players are seeking new ways out. A group of people like Linqi Yegou have turned to self-media blogging and online live streaming.
"Compared to offline models, self-media and live streaming can filter more precise traffic," Linqi Yegou said. He told Huxiu that this market is inherently niche, and many supermarket owners naturally resist discounted products, so their customer base previously faced the risk of stagnation. But now, short videos and online live streaming have helped them break out and build their own private domain traffic.
Of course, in exploring online live streaming, they also took many detours. For example, Douyin live streaming couldn't work due to platform restrictions, and after finding suitable platforms, logistics uncontrollability during the pandemic caused frequent mishaps.
"Douyin has invited many big brands to join. **Without brand authorization, we don't have the right to sell online.** Moreover, Douyin has strict price protection; if a distributor sets a price of 3 yuan, **even with brand authorization, we cannot sell below that price.** " Linqi Yegou said.
After failing on Douyin, since Kuaishou has fewer restrictions, they gradually carved out a path on Kuaishou live streaming. A typical Kuaishou live stream for Linqi Yegou can sell 50,000 to 100,000 yuan, and Kuaishou live streaming and short video traffic have become his main income source.
However, for the clearance market, this approach is not yet widespread. Linqi Yegou told Huxiu that less than one-tenth of "arbitrageurs" have taken this path. But with capital entering and consumption power declining, the clearance market is gaining more attention and showing signs of speculation. However, as the market rapidly saturates, clearance food prices will also soar, eroding the original profit margins.
For this niche market with a ceiling, that may not be a good thing.
Source: Huxiu APP (ID: huxiu_com)


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