Click the image above for details At the end of May 2019, Luckin Coffee announced plans to build 10,000 stores in China by the end of 2021. Now, more than a year later, the dream of 10,000 stores has not been realized, and fraud scandals and delisting have followed one after another. The blueprint for 10,000 stores in that "story" has long been shelved. At the same time, another new retail giant has also announced a new 10,000-store plan. -01- Open stores, open stores, or open stores Recently, Suning Xiaodian officially announced the launch of the "Nanjing Strategy," proposing to complete the layout of 1,500 community outlets by the end of this year. Outside Nanjing, Suning Chairman Zhang Jindong also publicly stated at a relevant meeting that Suning Xiaodian's goal is to build 10,000 stores within three years. Under the wave of new retail, scale seems to have become an important indicator for many companies. In their eyes, only by making the scale bigger can they better seize the market. As for breaking even or even achieving profitability, that is not something to consider at the moment. In fact, in the past years, countless examples of companies falling at the forefront of trends remind us that scale is not a magic bullet for success; it can even become the last straw that breaks the back of "dream makers." Specifically in the community retail (delivery) market, it can be seen that the number of users in a residential area is basically fixed, and demand is also fixed. If 1,000 households in a residential area use a daily necessities and fresh food delivery platform in one day, such as Hema Fresh, Miss Fresh, Walmart (JD)到家, Super Species delivery, or Meituan delivery, Ele.me delivery, various chain supermarket delivery and other community delivery services, their needs are basically covered. The 1,000 households are divided among too many "apps" at the same time, and each app is actually participating in a zero-sum game. Facing so many competitors, what are Suning Xiaodian's chances? Obviously, Suning is betting its chances of winning on "coverage." Since Suning proposed the "Smart Retail Grand Development" strategy at the end of 2017 and officially launched the Suning Xiaodian model, its development can indeed be called "lightning-fast," at least from the perspective of store opening speed. According to the last public data before being stripped from Suning.com's financial report, as of the first half of 2019, the total number of Suning Xiaodian and Dia Tian Tian self-operated stores was 5,368. Looking at the number of more than 5,300 stores alone, you may not be able to appreciate Suning's store opening speed. Let's make a simple comparison with those traditional offline retail brands. FamilyMart convenience stores entered China in 2004, and after more than ten years, its number of stores in the domestic market is still around 2,500; Meiyijia, established in 1997, took 20 years to finally expand its store count to the current 10,000. In comparison, Suning's one-year achievement is equivalent to Meiyijia's 10-year results, or more than twice the number of stores FamilyMart opened in China in over a decade. Therefore, Suning's speed in expanding its small store business is extremely terrifying. There is nothing wrong with opening stores quickly; more offline stores will cover more users and increase market share. However, in the process of implementing Suning Xiaodian, it seems to be overly pursuing speed, even ignoring other key factors. Relevant sources pointed out that for offline retail stores, enterprises should conduct detailed investigations before opening stores, calculate the user range that each store can cover, and try to avoid overlapping coverage of users, resulting in waste of resources. But in the past year, Suning, which has rich offline retail experience, seems to have ignored the experience accumulated over many years in the implementation of small stores. After the Spring Festival last year, Dongdong Notes found that two Suning Xiaodian stores were opened in quick succession near the surrounding residential areas. The key point is that the straight-line distance between the two stores is less than 500 meters. From a business planning perspective, such a layout is obviously unreasonable; the users covered by the two stores are mostly residents of the same residential area. In the end, both stores "disappeared" after the Spring Festival this year. Behind such rapid opening and closing of stores is Suning's real money. In this regard, Zhang Heng (pseudonym), a former Suning employee, told Dongdong Notes: "Internally, Suning was indeed very aggressive in the early stage of the small store business, and there were requirements for the number of store openings (KPI). For example, if the store opening performance for this month is 10 stores, then these 10 stores become the KPI for employees in the relevant departments. To complete the task, achieving the store opening quantity as soon as possible became the primary goal." But regarding the operating conditions after the stores opened and the sales per square meter of each store, Zhang Heng spread his hands: "These are not their KPIs, so they naturally won't consider these." Does this seem familiar? Many people are not unfamiliar with this practice of opening stores for the sake of opening stores. During the period of blind sprinting, Luckin, in order to increase the number of stores, did not hesitate to pay a premium of 20% above market rent to acquire stores in popular business districts, and accelerated the opening of "deserted" stores in some remote business districts. Behind the two stores less than 500 meters apart, there seem to be similar reasons. "Scale is the most important factor for many enterprises in developing new businesses, and it is under this mindset that enterprises easily fall into the trap of scale. There are many cases in the Internet field where companies quickly grow by spending money to attract users, but in the domestic offline retail field, no enterprise has ever succeeded in rapid scaling in the short term, especially in the direct-operated model." A relevant retail industry expert told Dongdong Notes that online can directly reach all users, while offline retail is regional. "Managers also need to consider store services, personnel management, supply chain management, and other issues, and there is much more work to do." After the sprint, Suning Xiaodian naturally suffered the backlash of impulsiveness. Since the end of last year, the media has successively reported news of large-scale store closures by Suning Xiaodian. Zhang Heng also felt helpless about this: "Suning has always allowed employees to make mistakes, especially in new businesses. The overly aggressive expansion in the early stage of the small store business can also be considered the cost of trial and error, and the department itself is also reflecting on it." -02- The sequelae of the "sprint" suddenly appear Suning Xiaodian's store opening speed is terrifying, but this terror is not only aimed at Suning Xiaodian's competitors; it is also terrifying for its own development. Because more and more stores bring higher market share, but also bring higher costs. Especially in the early stage, all Suning Xiaodian stores adopted the self-operated model, which undoubtedly made Suning feel enormous cost pressure. According to Suning's financial report for the first half of 2019, in the first half of 2019, Suning Xiaodian brought a net loss of 2.213 billion yuan to the company. Of course, Suning internally also faces the loss of Suning Xiaodian calmly. In August last year, when talking about the loss of Suning Xiaodian, Zhang Jindong said to the outside world: "The outside world says Suning Xiaodian is subsidizing money. Suning Xiaodian is meant to subsidize money. It's not a problem of 1 billion or 2 billion, but a problem of 10 billion or 20 billion. That's just a drop in the bucket." But judging from the speed and scale of Suning Xiaodian's half-year loss of 2.2 billion yuan, the redundancy of the 20 billion yuan loss mentioned by Zhang Jindong seems a bit conservative. At the same time, Suning's own performance is also slightly awkward. Analyzing Suning's financial report data over the past years, since 2014, Suning's non-GAAP net profit has been continuously negative, which means that Suning's main business has long ceased to be profitable. The financial report shows that in 2019, Suning.com achieved operating revenue of 269.229 billion yuan, a year-on-year increase of 9.91%. Net profit was 9.843 billion yuan, a decrease of 26.15% compared with the same period last year. However, the non-GAAP net profit was a huge loss of 5.7 billion yuan. Under such difficult circumstances in the main business, the main reason it can still maintain profitability is the continuous "selling, selling, selling." Since 2014, including offline stores (sold and then leased back for operation), warehousing and supply chain, PPTV, Suning Financial Services equity, and most importantly, Alibaba shares, a series of asset sales have kept Suning.com profitable in its overall financial reports. Especially after selling a total of 13.16 million Alibaba shares in 2017 and May 2018, Suning also sold its equity in Suning Financial Services in 2019, finally laying the foundation for the company's net profit data in recent years. But many people know that this model is not sustainable; assets will eventually be sold out, which is also the biggest concern of the outside world about Suning.com. Regarding the loss of Suning Xiaodian, the above-mentioned retail industry expert told Dongdong Notes: "Loss is normal. This kind of offline retail store itself has a payback period, ranging from a few months to several years. Of course, this is for a single store. If all stores are considered together, this period will be longer, after all, each store's daily operating conditions are different." At the same time, the expert also emphasized that offline retail convenience stores are inherently in a state of meager profits. In addition, many of Suning's early stores were not well considered when opening, making it difficult to achieve profitability. "So this loss situation is likely to continue for a long time." In the view of industry experts, Suning Xiaodian is not only a business that needs to be profitable for Suning, but also shoulders the tasks of bringing users closer, promoting logistics, finance, and other business development. "But from the current point of view, the realization of these goals is not ideal." In order to avoid the huge losses brought by Suning Xiaodian every quarter affecting the financial report and stock price, Suning.com has chosen to strip the Suning Xiaodian business and remove it from the financial statements. After the financial data was no longer disclosed, Suning Xiaodian did not slow down its development pace, so the outside world can see Suning Xiaodian's "10,000-store plan." From another perspective, after learning the lesson of rapid opening and closing in the early stage, Suning also gave up the strategy of full self-operation. Now, like competitors Alibaba, JD.com, and other e-commerce platforms, it has chosen to open franchising. Compared with the previous heavy-asset state of the self-operated model, the franchising model, as a light-asset model, will obviously reduce Suning's direct investment. But currently, because online traffic growth has peaked and they are eyeing the offline retail market, Suning is not the only one. In this familiar yet unfamiliar offline new retail battlefield, Suning faces more competitors than online. -03- Grand dreams and cruel reality Reviewing the background of the launch of Suning Xiaodian, it must be said that it was the stage after Ma Yun proposed the concept of new retail, when e-commerce companies began to explore offline channels. Therefore, although Alibaba holds 19.99% of Suning.com's shares, Suning Xiaodian's most direct competitors still include Tmall Xiaodian, as well as the offline convenience stores launched by e-commerce giant JD.com. In fact, there are far more competitors than these. When traditional commercial retail chains began to attack online, from 7-11, Lawson, FamilyMart and other chain supermarkets, to Alibaba's Hema Fresh, JD's 7FRESH, and Yonghui's Super Species and other fresh new retail, to Meituan Maicai, Miss Fresh and other fresh e-commerce delivery platforms, all are strong competitors in this field. And their models actually belong to the larger business category of local life. Old convenience stores like 7-11 and Lawson have long been deeply cultivated in the offline retail market. The site selection, operation, personnel training, and supply chain management of each store are very mature. And the two e-commerce giants Alibaba and JD.com are obviously one level higher than Suning in terms of size and strength. After all, compared with Suning's profitability achieved through asset operations, these two can actually obtain profits of several billion or even tens of billions of yuan each quarter relying on their main business. Regarding the development status of the entire offline new retail market, a relevant retail expert told Dongdong Notes: "The current general trend is that traditional retailers or convenience stores, such as Japanese convenience stores like Lawson and 7-11, are actively embracing the Internet. It's not that they need to do online sales, but they need better big data management, intelligence, and other factors. In this regard, Bianlifeng has done very well. And giants like JD.com and Suning, which have transitioned from online to offline, need to further improve in terms of product structure, regional logistics and distribution, etc." The person also emphasized: "Although Suning started offline, hypermarkets and community convenience stores are completely different models, and it is difficult to copy experience. So we will see Suning's blind expansion in the early stage. In addition, Suning's previous logistics model for home appliance stores cannot be copied to Suning Xiaodian. Therefore, warehouse management, supply chain control, logistics and distribution are all things Suning needs to build from scratch." At the company management level, veteran employee Zhang Heng also said: "Suning is an enterprise with very heavy retail genes. Although the e-commerce business currently has a considerable scale, it also fights fiercely with JD.com every year, and the internal philosophy is still relatively traditional." Zhang Jindong's dream is "Walmart + Amazon," so in the past, in addition to handling a series of assets and rapidly expanding Suning Xiaodian, Suning has also been "buying, buying, buying" on a large scale. This includes more than 30 Wanda department stores, Carrefour China, and other heavy-asset projects. In Suning's plan, it hopes to fully connect online and offline, keeping users within the complete retail closed loop it has created. But from the current market situation, whether it is Suning Xiaodian, Wanda department stores (now renamed Suning.com Plaza), or Carrefour China and other huge offline retail systems, although they can cover more users, at present these huge heavy-asset businesses are not money-making deals. Under the background that the main business cannot achieve profitability, Suning's model of continuously transfusing blood through "buying and selling actions" is by no means a long-term solution. After all, Alibaba's shares have been sold off. How long can Suning's own assets be transferred and maneuvered? Source: Dongdong Notes (ID: dongdong_note) Author: Zuo An