Not only foreign supermarkets are facing challenges; domestic supermarket giants are also transforming. China Resources Vanguard, which closed 727 stores of various types last year, plans to close another 68 this year while shifting its development focus to convenience stores and community commerce. In fact, consumers are abandoning traditional hypermarkets. Many young people do not visit a hypermarket even once a year, and the customer base of large supermarkets is being eroded by rising community supermarkets, e-commerce, and niche supermarkets. The Shanghai Putuo store is Metro's first cash-and-carry outlet in the Chinese market, opened on October 31, 1996, and has been operating for 20 years. This German retailer, founded in 1964, was not the only foreign supermarket chain expanding in China at the time. From the mid-1990s, large hypermarkets began to proliferate, membership card holders grew thicker, and mailboxes were often stuffed with promotional brochures from various hypermarkets. Subsequently, many foreign supermarkets made their mark in China. In 1995, France's Carrefour was the first to enter the Chinese market, choosing Beijing as its first stop. In 1996, Walmart, the largest U.S. retailer, opened its first store in Shenzhen. In 1997, Thailand's CP Group established the first Lotus (predecessor of Tesco Lotus) supermarket in Shanghai. In 1998, RT-Mart from Taiwan also opened its first store in Shanghai. In 1999, French retail brand Auchan also chose Shanghai as its bridgehead into the Chinese market. At that time, China's retail market was dominated by traditional channels and large department stores, with standardized large supermarkets largely absent. This was highly attractive to foreign companies seeking new growth outside the competitive and slow-growing European and American markets. Additionally, the government had begun establishing special economic zones to attract foreign investment, offering tax incentives to foreign enterprises, which was also beneficial for the low-margin retail industry. Besides foreign companies, some savvy Chinese retail enterprises also began to lay out this emerging retail format. In 1994, Wanjia Department Store, later acquired by China Resources, piloted the country's largest warehouse-style "supermarket + department store" model in Huaqiangbei, Shenzhen. In 1997, Shanghai Nonggongshang Supermarket opened its first large hypermarket in Qingpu District on the outskirts, marking the transformation of this local supermarket chain, known for fresh produce, into a large-scale operation. First-tier Cities: Rapid Development At the turn of the century, a new commercial network with chain hypermarkets as nodes began to spread across major cities like Beijing, Shanghai, Guangzhou, and Shenzhen. Unlike European and American hypermarkets, which often located in suburbs, Carrefour, Walmart, and others entering China typically chose convenient downtown locations. This was partly due to local government support and partly because commercial real estate developers, seeking to attract quality tenants and enhance property value, often offered rent concessions to foreign supermarkets. Additionally, convenient locations suited the travel habits of Chinese consumers, who had low private car ownership at the time, and many hypermarkets provided free shuttle buses. From 2003, China's retail industry entered a new boom cycle, with steady growth in total retail sales of consumer goods, exceeding 15% by 2007. By then, the hypermarket sector, having completed its initial land grab, entered a wave of mergers and acquisitions. Chain hypermarkets rely on scale for survival, and mergers are often seen as a low-cost, high-efficiency expansion method—financially strong companies can quickly capture local markets, integrate resources, and enhance bargaining power with suppliers. In 2007, Walmart acquired a 35% stake in Bounteous Company Ltd. (BCL), the parent of Trust-Mart. In 2008, South Korea's Lotte Supermarket completed its acquisition of Zhongmao Lian Wan Kelong. In 2004, UK retail giant TESCO invested in Hymall (under Ting Hsin International Group) to enter China, and in 2009 acquired the remaining shares, achieving full control of its China operations. Market Conditions: Subtle Changes The hypermarkets, still expanding aggressively, did not anticipate the coming changes. Four years after fully acquiring Tesco China, at the end of 2013, TESCO announced it would sell its 131 Hymall stores to China Resources Group, the state-owned conglomerate that owns China Resources Vanguard, Ole, and Suguo. Compared to its ambitious entry a decade earlier, the British company's retreat was somewhat hasty. In its 2014 financial report, TESCO reported a pre-tax loss of £6.4 billion (approximately RMB 60.2 billion), a record low in its 96-year history, with China losses exceeding £1.2 billion (approximately RMB 11.3 billion). Under immense operational pressure, TESCO had to quickly divest its troubled China business. Although not as dire as TESCO, retailers felt the chill after the 2008 economic crisis. The macro environment saw China's economy enter a new normal of slowing growth. According to market research data, the growth rate of China's FMCG market declined from 11.8% in 2011-2012 to 7.4% in 2012-2013, and further to 5.4% in 2013-2014. During this period, hypermarket sales compound annual growth nearly halved, from 7.9% in 2012-2013 to 3.7% in 2013-2014. What troubled these retail giants was that consumers perceived hypermarkets as outdated and inefficient, requiring hours of shopping often without finding desired items. According to statistics, in 2014, Chinese households visited hypermarkets 5% less frequently year-on-year, and the number of items per trip also declined. The Siege of Convenience Stores and E-commerce In 2005, Japan's NHK produced a documentary titled "Capturing the Desires of 1.3 Billion: China's Supermarket War." This somewhat sensationalist documentary chronicled the early exploration of Japanese convenience store chain Lawson in Shanghai, covering site selection, marketing, product innovation, and store management. At the time, Lawson's main competitors were local convenience stores like Haode under Nonggongshang Group; now, they are taking business from other channels like hypermarkets. Rather than debating how much area or population a single hypermarket can cover, it is more practical to consider the overall development of all commercial channels in a region. If standard or small supermarkets are well-developed and meet consumer needs, the space for large supermarkets will inevitably be squeezed. By the end of 2015, Lawson had 461 stores in Shanghai, while FamilyMart, under Ting Hsin Group, had nearly 1,000 stores in the city. From 2013 to 2014, the convenience store channel grew at a compound rate of 7.1%, nearly double that of hypermarkets. These ubiquitous small convenience stores, like David with his sling, have caused significant trouble for the Goliath-like hypermarkets through their agility and speed. Another major force in the siege comes from the intangible e-commerce, which exists in the cloud and in every consumer's pocket. Taobao, Suning.com, JD.com, and more niche apps like Xiaohongshu frequently push the latest promotions. In Shanghai, the average spending via Alipay is nearly RMB 104,000. It is the rise of online shoppers that has gradually weakened the position of hypermarkets. By the fiscal year ending March 31, 2016, Alibaba's China retail transaction volume surpassed Walmart, which has been in traditional commerce for over half a century, making it the world's largest retailer. While traditional supermarkets face a new wave of store closures, e-commerce companies are queuing for IPOs. According to data, over 50 companies on Tmall have initiated IPO plans internally, and in late March, 10 e-commerce companies jointly suggested Alibaba establish an "office to assist merchants in listing" to pave the way for their IPOs. The extent to which e-commerce has changed Chinese consumer habits needs no further elaboration. A more alarming fact for hypermarkets is that, in addition to the pressure from online channels, they are losing not only in-store shoppers but also brand partners that once cooperated closely. In 2015, daily chemical companies Blue Moon and Walch announced they would withdraw from RT-Mart and China Resources Vanguard stores, respectively. Over the years, there has been constant game-playing between retailers and suppliers. Because hypermarkets held a key position in offline channels, suppliers were often at a disadvantage, but the rise of e-commerce gave them an opportunity to fight back, and powerful suppliers began to shift toward online channels. Although supermarkets remain the most important sales channel for most consumer goods in China, with the improvement of logistics systems, online channels have begun to cover so-called "supermarket categories"—items previously considered low-margin and high-logistics-cost online. There is now essentially no difference in category coverage between online and offline channels. Offline retailers, with already thin margins, often transfer the pressure from online erosion and cost burdens to suppliers, with channel fees such as entry fees, barcode fees, and display fees accounting for 20-30%. Brands also need to participate in frequent and irregular price cuts and promotions. If they use e-commerce channels or build their own, brands have more freedom in promotional choices. Additionally, brands have image promotion needs offline, such as new product launches and experiential marketing, which impose new requirements on cooperation between brands and retailers in terms of operations and profit distribution. Blue Moon laundry detergent, for example, wanted to change its fixed display model, leading to significant differences with RT-Mart and ultimately an unhappy split. Under Attack from Both Sides: Refusing to Wait for Death Closing stores, upgrading existing ones, and enhancing the shopping experience are among the limited measures available for offline retail inventory reform. Walmart alone invested nearly RMB 1 billion between 2014 and 2015 to renovate over 140 stores. The "2015 China Shopper Report" shows that since 2013, most retailers have reduced the number of new store openings and closed a batch of over-supplied, underperforming stores. In 2013-2014, Yonghui closed 15 stores, Carrefour closed about 25, and Walmart around 30. At the same time, hypermarkets have begun actively developing private label products and exclusive partnerships with imported brands to counter pressure from brand suppliers. For retailers, private labels offer low cost, high margins, and strong control. Sun Art Retail, which owns RT-Mart and Auchan, has established Oufa Consulting Management Company, specifically responsible for private label procurement and development, with different product lines to meet differentiated needs. Metro China President Xilong revealed that in Metro's cash-and-carry stores, private label sales account for about 25%, and imported goods contribute around 20%. Responding to the Pincer Attack China Resources Vanguard was an early entrant into convenience stores, with "VanGO" 24-hour convenience stores opening in Shenzhen and Hong Kong in 2007. After acquiring Tesco in 2014, China Resources further converted Tesco's community stores into "Tesco Express" branded convenience stores. Additionally, convenience store brands like Carrefour's "Easy Carrefour" and Metro's "Hemaijia" have opened in Shanghai, but their numbers are still too small to change the convenience store landscape. On the online front, major hypermarket brands including Walmart, Carrefour, RT-Mart, Metro, and China Resources Vanguard have all jumped in. In 2015, Walmart fully acquired e-commerce platform Yihaodian. In 2013, RT-Mart built its e-commerce platform Feiniu.com. Carrefour's online mall launched in June 2015, with its app also going live that year. Metro, in addition to its own online mall, has opened an official flagship store on Tmall, focusing on imported goods. Xilong describes the current "retail online" strategy as "defensive e-commerce." The larger ambition of hypermarkets is to leverage offline hypermarkets as distribution centers, use convenience stores in communities and commercial buildings as touchpoints, and build an O2O closed loop through their own e-commerce platforms. At the end of 2014, RT-Mart began installing electronic screens in its "Xishi Cloud Supermarket" stores, allowing consumers to scan codes to order from Feiniu.com, with delivery from nearby RT-Mart stores. Xilong also revealed that in the future, Metro's cash-and-carry stores, Hemaijia convenience stores, and Metro's online mall will jointly develop similar businesses. However, at this stage, the e-commerce platforms operated by these offline retailers have somewhat awkward performance. In fiscal 2015, Feiniu.com's e-commerce business lost RMB 175 million, and Walmart-controlled Yihaodian has never turned a profit. When asked how long this pain will last and when the "defensive e-commerce" strategy will launch a "strategic counterattack," Xilong himself has no timetable. "E-commerce always starts with burning money," he said, then asked rhetorically, "Do you know how much Amazon's e-commerce business profits?" Shifting Battlefields: What the Future Holds Metro currently has 82 stores in China, 35 of which opened after 2011. A review of Metro's 35 new store locations in recent years shows that they include 11 third-tier and below cities: Yinchuan (Ningxia), Putian (Fujian), Yichang (Hubei), Yancheng (Jiangsu), Zibo (Shandong), Xiangyang (Hubei), Wuhu (Anhui), Zhuzhou (Hunan), Jiujiang (Jiangxi), Deyang (Sichuan), and Taizhou (Zhejiang). Before 2011, Metro had zero stores outside first- and second-tier cities. Since 2011, retailers have deliberately begun to lay out in lower-tier cities. Rather than being passively forced by competition in first- and second-tier cities, it is more about being "attracted by the huge purchasing potential of lower-tier cities." Foreign retailers have gradually increased their market share in third-, fourth-, and fifth-tier cities, with 60% of new hypermarket stores in 2014 located in these lower-tier cities. Retailers have all recognized that although first- and second-tier cities remain important positions that cannot be lost, they are no longer the fastest-growing areas for consumption in China. According to the National Bureau of Statistics, in 2014, the compound annual growth rate of household retail market in first- and second-tier cities was 2%, while in third-, fourth-, and fifth-tier cities it reached 7.7%. With a similar sentiment to when they entered the Chinese market 20 years ago, the urbanization process in lower-tier cities, with their large size and growth potential, gives hope to struggling hypermarkets. Data shows that as of April 2016, ten major hypermarket brands—Lotus, RT-Mart, China Resources Vanguard, Carrefour, Metro, Auchan, Walmart, Wumart, Yonghui, and Aeon—had a total of 2,441 stores in China, with 479 in third-tier and below cities, accounting for 19.2%. The most active in entering lower-tier cities is RT-Mart, with 112 of its 268 stores in third-tier and below, accounting for 41.8%. Walmart and China Resources Vanguard are close behind, with 27.5% and 24.7% of their stores in third-tier and below, respectively. However, making a big impact in lower-tier cities is not easy. Different consumer needs and brand acceptance levels across regions impose higher requirements on product assortment and supplier management. Additionally, regional markets are already dominated by strong local players like Hongqi Chain, which have deep roots and often more flexible management. Even if they gain a foothold, recovering costs from new stores takes time. Yet, the pursuers seem to be closing in. E-commerce platforms have painted "Rural Taobao" slogans on farmers' walls. Convenience stores entrenched in big cities are cautiously expanding into surrounding towns. These retail giants, having weathered 20 years in the Chinese market, are sinking deeper into a huge encirclement. Appendix: 2015 Store Closure Statistics for Major Retail Enterprises (Department Stores, Supermarkets) 2015 has passed, and under the influence of multiple factors, the wave of store closures among major domestic retail enterprises has not ceased. Lianshang.com exclusively compiled the "2015 Store Closure Statistics for Major Retail Enterprises (Supermarkets, Department Stores)" to provide industry reference and basis for traditional retail. Overall, in 2015, China's retail industry entered a new era of rational store openings and proactive closures. Physical expansion steps become increasingly rational According to statistics, in 2015, 12 major domestic supermarket chains opened 580 new stores. From the data, affected by the "retail cold wave," the retail industry lacks high prosperity, but physical expansion has not stopped; it has merely slowed and become more rational. In terms of business format, new store openings are accompanied by continuous iteration and accumulation of internal adjustments, external combinations, and community commercial service elements, such as China Resources Vanguard's in-store dining in hypermarkets and Wumart's enhanced community service elements outside stores. Additionally, focusing on small formats, expanding into third- and fourth-tier markets, and laying out the Belt and Road have become development choices for many supermarket retail enterprises. Department store retail companies have various ways to develop omni-channel, open shopping centers, or transform into shopping centers. For specialty formats like pharmacies and electronics, optimizing network layout and focusing on online channels remain common choices! Whether supermarkets or department stores, the trend of channel sinking is very obvious, but many stores that have sunk down have also failed. In some prefecture-level cities, low-income people cannot enter, and high-income people flock to larger cities, resulting in sluggish real estate and commerce. Therefore, channel sinking must be cautious. Store closures hit a new high Following 201 stores closed in 2014, the number of closures hit a new high this year. Major supermarkets and department stores alone closed 138 stores (excluding China Resources Vanguard). According to statistics, 150 department store companies opened 135 stores; after excluding duplicates, the actual number of new openings was 122, including other single department stores, bringing the total for the year to about 150. Among them, 70 large department store groups opened 117 stores and closed 87. It is worth noting that supermarkets are the main body of closures: China Resources Vanguard's integration of Tesco has been "full of twists and turns," and this year, China Resources Enterprise was reported to have closed 727 stores, also a new high. Data shows that in 2015, China Resources Vanguard achieved sales of RMB 109.4 billion, with 3,400 stores nationwide, and opened nearly 300 new stores in 2015. According to the 2014 China Chain Store & Franchise Association's top 100 chain statistics, China Resources Vanguard ranked first in the supermarket category with sales of RMB 104 billion in 2014, a year-on-year increase of 12.6%, with a total of 4,127 stores. Comparing the two, China Resources Vanguard reduced its total stores by 727. However, a China Resources Vanguard spokesperson said the reduction was "due to business adjustments; last year, brands such as China Resources Hall, Pacific Coffee, and Zhongyi were divested from China Resources Vanguard." Additionally, Carrefour closed 18 stores, and Renrenle closed 11, ranking second and third. Yonghui closed 8, Wumart and Metro closed 2 each, and Walmart, Lotus, Auchan, and Aeon closed 1 each. RT-Mart maintained its record of zero closures. From the data, Carrefour closed 18 stores, exceeding its 17 openings, and Renrenle closed 11, exceeding its 7 openings, reflecting to some extent the difficulty of transformation for these two brands. The average operating cycle of closed large stores is less than 5 years Statistics on 43 large supermarkets and 31 department stores closed in 2015 show that the average survival time of these stores was less than 5 years, only 4.89 years, with department stores even shorter. Specifically, department stores averaged 4.81 years, and large supermarkets 4.95 years. This also illustrates a basic trend in store closures: shifting from passive to proactive. In previous years, the retail industry faced a "lease expiration crisis," where stores were forced to close due to significant rent increases after lease expiration. Now, closing within less than 5 years is basically due to poor performance and the need to stop losses. In the past, convenience stores would close after one bad year, but hypermarkets would not close even after five bad years; some stores sustained annual losses of over RMB 10 million for years, hoping to become profitable after ten years, but they still were not. Now, it is normal to close stores just two or three years after opening if performance is poor! Old chain companies transform through large-scale store closures For example, Lianhua Supermarket closed 612 stores throughout the year while opening 204, ending the year with 3,883 stores. In fact, whether opening or closing many stores affects net profit. For instance, Lianhua Supermarket closed over 600 stores, and the closures wiped out its profits! But hopefully, 2016 will improve after the closures. Opening many stores should increase sales, but some companies see both sales and net profit plummet after opening stores. For example, Daphne opened 827 stores in 2015, achieving revenue of RMB 7.02 billion, down 19.1% year-on-year, with a net loss of RMB 318 million, down 315.24%. Closing stores to stop losses is an important part of current strategic choices and, to some extent, a reflection of operational capability. In the long run, survival of the fittest and increased commercial concentration are inevitable trends! For most companies, how to strengthen themselves and become an integrator in this turbulent era may be more challenging! China's retail industry has room for joint restructuring, commercial volume will increase, network influence is just beginning, profit decline has not bottomed out, and it is time to practice basic skills. Retail should cultivate the "three qualities" of products: improving product "quality," enhancing service "taste," and boosting merchant "character." Let us walk out of the "childhood" era and enter a new "growth" era, even though growth also has troubles, loneliness, bitterness, and pain! This platform will soon organize several experience-sharing salons titled "How Distributors Should Operate B2B ." We will invite distributors who have actually operated for some time to share their experiences and discuss how they operate in their local markets. 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