Click to read the original text for details The emerging discount store sector is experiencing its first major industry reshuffle.

01 Players Applying for Bankruptcy A lawsuit reveals that the discount store brand Boom Boom Mart (繁荣集市) is preparing to apply for bankruptcy. In a contract dispute lawsuit with a supplier this year, Boom Boom Mart stated that "because business has stalled and there is no cash flow, it is preparing to apply for bankruptcy." This once-viral internet-famous store during the pandemic took only two years from its founding to bankruptcy application. Early last year, Boom Boom Mart, founded in September 2020 and focusing on near-expiry products, disclosed a financing of tens of millions of yuan from Challenger Capital. It had received angel funding from Yimo Capital at its inception. Within one year of establishment, Boom Boom Mart had opened over 20 stores with revenue exceeding 150 million yuan. Its founder, Fan Zhifeng, planned to develop over 60 stores in 2022 and expected to exceed 1,000 stores nationwide by 2023. The rapid expansion was mainly due to Boom Boom Mart's franchise model. Its target consumers were women aged 15-35. The stores combined discounts with "national trend" (guochao) elements and featured trendy anime styles, making them popular check-in spots that quickly attracted a large number of customers. Fan Zhifeng once aspired to make Boom Boom Mart China's Don Quijote. In a November 2021 investment promotion announcement, Boom Boom Mart even revealed an IPO plan, stating that after listing, the company would repurchase the first 50 franchise stores at three times the franchise deposit and three times the one-time goods deposit. However, before franchisees could see the IPO, Boom Boom Mart was reported to be seeking a sale in the second half of 2021. Meanwhile, Qichacha shows that since 2022, the operating entity of Boom Boom Mart, Shanghai Bengbengmiao Technology Co., Ltd., has been involved in numerous legal disputes as a defendant. According to a review by Lingshou, as early as February this year, the parent company of Boom Boom Mart, Shanghai Bengbengmiao Technology Co., Ltd., added several warning messages, all related to contract disputes over sales. Additionally, after three or four stores in Shanghai closed, the same locations were replaced by HotMaxx. For example, Boom Boom Mart's early Daxue Road store, which was 580 square meters with daily sales of 50,000 yuan and monthly revenue of 1.5 million yuan, had just completed a renovation in December 2021, but a month later, the location was replaced with the HotMaxx logo. Starting in March this year, Boom Boom Mart was entangled in lawsuits from various suppliers. The company, Shanghai Bengbengmiao Technology Co., Ltd., was repeatedly listed as a person subject to enforcement, and legal representative Fan Zhifeng was also restricted from consumption. Currently, Boom Boom Mart has at least 15 public judicial disputes, mostly involving "sales contract disputes," with the company owing payments to multiple suppliers. In July 2022, in a first-instance judgment regarding a "sales contract," the defendant Shanghai Bengbengmiao Technology Co., Ltd. stated, "Because business has stalled and there is no cash flow, it is preparing to apply for bankruptcy." In less than two years, Boom Boom Mart had already begun preparations for closure. In fact, since the pandemic in 2020, while the "Wang Xiaoer" days were getting worse year by year, emerging discount retail began to rise abruptly. In 2021, there were at least a hundred emerging discount chain retail brands in China, widely distributed in first- and second-tier cities such as Beijing, Shanghai, Guangzhou, Nanjing, Chengdu, and Zhengzhou. During this process, emerging discount retail players represented by HotMaxx, Hi-Tech Go, and Aotle, by simultaneously meeting the needs of production, supply, and sales as well as users' pursuit of high cost-performance, received dual favor from capital and users, gradually becoming a force to be reckoned with in the retail industry. At the same time, some players began to decline rapidly after brief glory, and Boom Boom Mart is a typical example. Another near-expiry food discount store, "Bengong Snack Innovation Studio," whose operating entity is Beijing Bengong Food Co., Ltd., has become a dishonest company, listed as a high-consumption-restricted enterprise, and involved in numerous disputes including housing lease contracts, decoration, and labor disputes. For the industry, this may just be the beginning of the reshuffle.

02 Players in Crisis Under the normalization of the pandemic and the new global economic order, many companies are under unprecedented pressure. Especially in the past two years, many emerging business enterprises have fallen into crises and anxiety of varying degrees. Without capital infusion, they will find it difficult to survive. Apart from Boom Boom Mart's final closure, Discount MAMA, based in Beijing, according to its founder Xing Yunfei in a recent interview, had 20 stores in the Beijing area. However, after searching on Dianping and Baidu Maps, Lingshou found that only 4 stores are currently displayed, and founder Xing Yunfei is also dealing with some sales contract disputes. It is understood that Discount MAMA was founded in March 2020 and is a discount supermarket in Beijing, mainly operating directly-owned stores. Small stores are about 60-150 square meters, and large stores are about 700-2000 square meters. Discount MAMA is more positioned as a community small supermarket. Currently, the basic categories cover dairy products, snacks, beverages, daily chemicals, household cleaning, grain, oil, seasonings, alcohol, and frozen products. Founder Xing Yunfei stated that Discount MAMA's average unit price is 25 yuan, with an average purchase of 8 items per user per visit, and the stores follow a "cheap and large" route. Consumer goods brands inevitably produce a certain proportion of near-expiry, inventory, and slow-moving products each year. This is determined by China's fragmented retail market, layered retail channels, and complex distribution links, and cannot be avoided. Clearing inventory and reducing stock will always be a demand for brands. Xing Yunfei stated that Discount MAMA serves brand needs by providing another differentiated solution, using brand inventory that would otherwise be a loss to help brands develop new community markets and customer groups, bringing incremental markets and users to brands. Lingshou learned that Discount MAMA's assumed competitors are not discount stores. "Our assumed competitors are the most efficient mom-and-pop stores," Xing Yunfei said. In terms of stores, Discount MAMA benchmarks against Japan's Don Quijote, and in terms of backend supply chain, it benchmarks against TJMaxx's buyer model. "For China, new consumer companies are also needed because mom-and-pop stores and small supermarkets cannot supply today's communities," Xing Yunfei said. Because of these changes, future community convenience stores may be replaced by community chains. "If we open enough stores, we will definitely take share from convenience stores and comprehensive supermarkets because under the same brand, our products are cheaper," Xing Yunfei said in a previous media interview. But currently, this goal is not easy to achieve. In addition to Discount MAMA and Boom Boom Mart, according to Qichacha, the operating enterprise of the near-expiry food discount store "Bengong Snack Innovation Studio," Beijing Bengong Food Co., Ltd., has also become a dishonest person subject to enforcement, and the enterprise is involved in numerous disputes. Beijing-based "Bengong Snack Innovation Studio" is also a near-expiry food discount store, with several stores in Beijing at its peak. However, its store at Xidan Joy City closed as early as last year, and its store at Longde Plaza also closed recently. An industry insider once told Lingshou that although the discount format has developed rapidly in the past two or three years, with the impact of the pandemic and the collective slowdown in capital investment in new consumption, the pace of industry reshuffling will accelerate, and many small players will be quickly eliminated. "Fast birth and fast death" is common in this emerging format. Currently, the industry has formed a clear polarization: first, leading players tend to be stable, focusing on steady progress, improving the operational efficiency of existing stores, and gradually gaining consumer recognition; second, small players are beginning to fall into crisis and are gradually exiting.

03 Brands and Investors Collectively in Anxiety From the second half of last year to now, new consumer investor Wang Ming has not been able to invest in a single project. Seeing the busy colleagues in the biomedical and hard technology groups, but having no targets to invest in, he said he, like many peers around him, is in a very anxious "unemployed state." Since the middle of last year, the drastic change in the institution's attitude towards the consumer track has made him even more restless. The notice that "the time point does not focus on the consumer track" brought him to a sudden halt from the craze of new consumption. He said that as an investor, one also needs good psychological resilience. "And some emerging consumer brands that rely on capital infusion will fall in droves. Even those still persisting are under tremendous pressure or in crisis." Industry research data shows that in 2022, investment events in the new consumption field decreased by 32% both month-on-month and year-on-year, the largest decline, and investment enthusiasm is far less than before. Both investment amounts and numbers have suffered a Waterloo. Facing the current overall environment, investors cannot invest normally, and the prophecy that "90% of new consumer brands will accelerate their death" is being verified. This has also led to the first major reshuffle in the emerging discount retail track. Since the pandemic in 2020, the retail industry has been impacted, causing players in the industry to continuously "iterate." Entering 2022, due to the repeated outbreaks in first-tier cities such as Shanghai, Beijing, and Shenzhen, offline foot traffic has declined, putting high pressure on emerging discount retail players who mainly rely on offline stores as their primary customer acquisition channel. The rapid growth of the emerging discount market in the previous two years led to a rush of many brands, with a mix of good and bad in the track. However, under the repeated impact of the pandemic, due to blocked information flow, cash flow, and logistics, many brand discount stores faced difficulties. Some brands fell into a quagmire within a short one or two years, and some have already exited the track and no longer exist. According to relevant industry data, in the first half of 2022, except for a very few discount retail brands such as Aotle, Xiaoxiang Life, and Linshi Mofa, which successively announced new rounds of financing, other brands have not disclosed new financing. Although the leading brand Hi-Tech Go still received capital support this year, due to the huge impact of the pandemic, its operations are also under pressure. In addition, the leading brand HotMaxx plans to open more than 5,000 stores in the next three years according to its official website. However, according to Lingshou's observation, HotMaxx's store count growth in 2022 has been modest. This is partly due to the closure of many stores affected by the pandemic, and partly because the pace of new store openings has significantly slowed. Industry insiders believe that due to the abrupt halt of capital, the repeated pandemic, and the slow recovery of consumption, players in the emerging discount retail track have entered a differentiated stage of refined operations. Especially after losing the support of large-scale capital, players in the discount retail track have begun to compete on the core of retail operations, focusing on steady progress, improving the operational efficiency of existing stores, and thus achieving self-sustaining cash flow. In the long run, the discount store market is a trillion-yuan level market, but it will take time to grow. Therefore, whether it is discount retail players or related investors, they all need to have enough patience. The current anxiety may force companies to reflect and change. After the industry reshuffle and the exit of small players, facing the retail business, future challenges will be more varied and complex. Next, the time has come for major players in the track to compete with real skills.

Source: Lingshou (ID: lingshouke) Author: Qingshan

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