In less than three months, from opening franchising to bankruptcy liquidation, the trendy flash sale discount store Boom Boom Mart (hereinafter referred to as 'Prosperity Market') suddenly collapsed. According to information on Qichacha, in March this year, the parent company of Prosperity Market, Shanghai Bengbeng Miao Technology Co., Ltd., claimed in a contract dispute over unpaid supplier loans that its business had stalled, had no cash flow, and was preparing to apply for bankruptcy. Recently, New Retail Business Review visited the Prosperity Market store on Shanghai University Road and found that, apart from employee uniforms and the cash register management system, HotMaxx had taken over the store unchanged. "Actually, as early as February or March, we had already taken over the management of the Prosperity Market team, and part of the original team was retained," a HotMaxx store clerk revealed. Prosperity Market had planned to develop more than 60 stores in 2022 and expected to open over 1,000 stores nationwide by 2023. Now, this plan to light up the country has passed like a meteor. Prosperity Market, photo by New Retail Business Review From the first stock of flash sale discount stores, Discount Cow's first-generation store failing in Beijing, to many entrants complaining about their failed experiences in operating flash sale discount stores on social media platforms, and then to Prosperity Market's exit. After wave after wave of failures, how much living space remains for flash sale discount stores, and where should they go?**** 01****Racing to Encircle Land Lily works in an office building with a HotMaxx store downstairs. According to her, she goes there once in the afternoon and once after work; HotMaxx has become a daily leisure and stress-relief spot. "HotMaxx is my second home; no one is allowed to speak ill of HotMaxx" "Dreamed of shopping all night at Hi-Tech Go"... On Weibo, many consumers are cheering wildly for flash sale discount stores. Looking back at 2020, flash sale discount stores were just emerging. While the media circle was still discussing how much consumers would accept near-expiry products, investors with keen 'smell' had already crowded into the flash sale discount store track. A retail industry practitioner revealed that at a discount store industry event in March 2021, a total of 11 projects participated, but there were over 1,000 investors sitting in the audience. Facts have proven that flash sale discount stores are not just hyped up; there are indeed opportunities. According to CCTV Finance, domestic consumers' acceptance of near-expiry products is not low; over 40% of surveyed consumers said they are willing to buy and recommend near-expiry products. Changes in the macro environment have also provided some assistance. Since the outbreak of the pandemic, the turnover of goods logistics and the operation of physical stores have been hindered, with a large number of goods piling up in warehouses and stores. The increase in unsalable goods has given more development space to the near-expiry business. According to a 2022 discount retail research report by Shanghai Securities, the market size of near-expiry products grew rapidly to 31.8 billion yuan in 2020, and is expected to exceed 40 billion yuan by 2025. Based on multiple dividends, flash sale discount stores began to accelerate rapidly. In less than two years, HotMaxx has expanded to more than 20 cities including Beijing, Shanghai, Guangzhou, and Shenzhen, with over 500 stores; Hi-Tech Go, another star enterprise in the flash sale discount store sector, also has over 200 physical stores nationwide; Little Elephant Life, a flash sale discount supermarket starting from Nanjing, has expanded to Yangzhou, Changzhou, Lianyungang, and other cities, with over 70 stores; Love Discount continues to promote in its home base of Tianjin; after entering Chengdu, discount chain supermarket Otto Le opened 10 stores in less than 3 months, and after entering the Chongqing market, it attracted many people to check in... HotMaxx, photo by New Retail Business Review 02****Fragile Supply Chain For a time, flash sale discount stores were burning hot. From 2020 to 2021, HotMaxx received over ten million yuan in investments from 6 investment institutions including Jinshajiang Venture Capital and Cloud9 Capital. Multiple flash sale discount store brands such as Hi-Tech Go and Love Discount also received multiple rounds of financing. However, the investment heat quickly passed. By observing the financing information of various companies, New Retail Business Review found that since September last year, well-known players such as HotMaxx, Hi-Tech Go, and Love Discount have basically not received financing, and Prosperity Market's IPO plan also became a bubble. In just two years, what happened to flash sale discount stores? Li Xing, a consumer investment at a certain PE institution, told the media that when the flash sale discount store model first became popular in 2020, he also studied this business format but ultimately did not enter. In his view, physical retail is not an easy business, and the supply chain for tail goods is unstable, so the development prospects are debatable. From the supply chain perspective, the business of selling near-expiry products is a 'business in the cracks' and appears very fragile. First, the integration of the upstream supply chain is difficult. Fan Zhifeng, founder of Prosperity Market, said in an interview in April that products with more than 2/3 of their shelf life remaining mainly enter the near-expiry wholesale market. Currently, the sources of goods for flash sale discount stores mainly come from local wholesale markets, distributors, brand manufacturers, and advertising/live streaming companies. Among them, goods purchased from wholesale markets account for about 30%, and food accounts for 60% of the purchased products. Taking the procurement of near-expiry food as an example, after checking the domestic near-expiry discount food wholesale platform 'Super Supply Warehouse', New Retail Business Review found that the distribution of near-expiry discount food wholesale warehouses in China is very uneven, with the most in Shanghai, Beijing, Tianjin, Shenyang, and other cities, mainly along the eastern coast. Tianjin alone has fifty or sixty wholesale warehouses, while some cities may have only a single digit. Overall, the upstream wholesale channels are relatively scattered. Second, the space for tail goods competition is shrinking. After the national epidemic improved, the turnover of goods gradually returned to normal. In addition, brands and manufacturers, having learned lessons from the large-scale unsalable goods, will inevitably focus on improving digital management capabilities, and the scale of tail goods may not be comparable to the early days of flash sale discount stores. Obviously, the near-expiry business is moving from occasional incremental opportunities to stock competition, with shrinking supply scale and cooling investment heat, but the number of players in the track is increasing inversely, making competition more intense. Since the second half of last year, chain supermarkets Renrenle and Jiayajie have launched discount store formats; Hema Fresh has laid out fresh food outlet stores to internally digest near-expiry and unsalable goods from formats like Hema Neighborhood; at the beginning of this year, Suning and Pinduoduo also ran into the offline near-expiry circle. This also means that, in addition to discount promotions, the goods that were previously returned to suppliers and might have flowed into the near-expiry market will be greatly reduced, thereby also dividing the goods in the near-expiry channel. For each flash sale discount store brand, the upstream procurement channels are shrinking, and their own scale advantages and bargaining power are being tested. Perhaps it was predicting the involution competition in the industry, or perhaps it wanted to consolidate its first-mover advantage, flash sale discount store brands started to make efforts in procurement early. In July last year, a Shanghai food supply chain practitioner publicly stated through a short video that HotMaxx's monthly procurement amount reached 150 million yuan. Although the official did not respond to the data, at that time, self-employed individuals in the near-expiry business had already begun to complain that 'it is not easy to get good goods'. Third, logistics costs increase. Not to mention that the domestic diesel price rose from less than 5,500 yuan per ton in June 2020 to over 8,000 yuan per ton in July this year, the cost of transporting from various upstream channels (some even cross-province) to stores has weakened a lot of profit margins. Fan Zhifeng revealed that during the Shanghai lockdown, Prosperity Market encountered cash settlement when purchasing from upstream suppliers. The lack of credit period led to a reduction in the brand's disposable working capital, affecting logistics and store operating expenses to a certain extent. 03****Accelerating Imbalance "Generally, consumers are quite clear about what they want; they only browse when they are not clear. The first time they go may be to understand or for novelty, but if they choose to repurchase, there must be a clear purpose," a consumer research professional said in an interview. Nowadays, consumers' purchasing actions have strong goals, and purchasing channels are convenient and diverse. If expectations are not met, they can easily switch to other channels. Since the supply chain competition became tense, consumers who go to flash sale discount stores for cost-effectiveness have clearly felt that the stores are not friendly. In the Douban group 'I Love Near-Expiry Food', complaint posts began to appear about the rising prices of products in flash sale discount stores and the increase in miscellaneous brands. Ask yourself, if you can't buy affordable and desirable goods at flash sale discount stores, and lose the joy of bargain hunting, how many consumers would choose to repurchase? Data shows that the target consumers of flash sale discount stores are young people aged 26 to 35. This type of consumer group usually only pays for familiar product brands, while ignoring those unfamiliar brands that focus on 'near-expiry' and 'discount'. The result is that this type of soft discount model, which mainly relies on communicating supply and demand to facilitate business conversion, is increasingly unable to adjust the balance between upstream and downstream and supply and demand in the real business competition environment. According to financial self-media Jinjibo Finance, a 50% gross margin for flash sale discount stores is a thing of the past in the industry. The Prosperity Market store on University Road, visited by New Retail Business Review, had accumulated multiple organic种草 notes on Xiaohongshu because it sold the popular product 'Little Bulb Lip Gloss' from the beauty brand FACEWING. However, during the evening visit at 8-9 pm, the big-name beauty area at the store entrance was always unattended. Operating physical stores is inherently a heavy asset operation. The current profit model of flash sale discount stores is to use big-name discounts to attract traffic and profit from small-brand products. When big-name discounts lose their appeal and small-brand products are not liked by consumers, the profit model of flash sale discount stores is breaking. 04****Future Speculation The flash sale discount store format is so fragile; how should it find a way out? Fan Zhifeng, founder of Prosperity Market, believes that if you only sell near-expiry products, you become the 'sewer' of the brand. Flash sale discount stores should find added value for themselves. Zhou Zhao, another founder of Prosperity Market, gave his own ideas in an interview. He said that the key to retail success is to make consumers develop brand awareness and dependence. Prosperity Market's positioning is as an offline traffic entrance, and in the future, it will combine with private domain and community e-commerce to strengthen consumer stickiness. At the end of last year, while opening franchising, Prosperity Market also changed its logo to better fit young people's preferences, renamed the store to 'Universe No.1 Discount Store', and updated the store scene to highlight a youthful brand image. From the two images used in the official public account push, it can be seen that Prosperity Market planned to add fresh food, cooked food, digital appliances categories, and develop its own peripheral products, planning to take an all-category, branded route. Image source: Prosperity Market public account In the view of New Retail Business Review, with only tens of millions of yuan in investment from Challenger Capital in March 2021, plus dozens of stores, Prosperity Market's bargaining and procurement advantages are indeed limited. Increasing procurement categories, competing for quality products, changing store formats, and making additional products undoubtedly all lead to the existing funds being unable to support front-end procurement and meet back-end sales. Wanting to build a brand before consolidating the business format, and moving too fast, may be the fundamental reason for Prosperity Market's cash flow rupture. Looking back at the track, in June this year, Little Elephant Life received tens of millions of yuan in Series A financing, and Zhang Qiang, founder of Hi-Tech Go, publicly stated plans to go public in the next few years. Flash sale discount stores may have other development opportunities. 1. Regional Operation Even for the same near-expiry products, the points that move consumers are different. Consumers in first- and second-tier cities have strong brand sensitivity and tend to choose big-brand discounted products. Consumers in lower-tier markets are more price-sensitive and value cost-effectiveness over brand. If we increase the supply of common brands in first- and second-tier cities and strengthen cooperation with brands, and strengthen product brand identification, it may continue to attract consumers to stores. In this regard, industry insiders said that HotMaxx's digital management information has verified that traffic and conversion rates can provide marketing value to brands. For lower-tier markets, flash sale discount stores can focus on high cost-effectiveness and goods management, playing the role of a sales warehouse for niche brands. By distinguishing the two waves of consumers, the problem of oversupply of big brands and unsalable small brands in stores can be alleviated. Currently, from HotMaxx's two models of brand empowerment and supply chain empowerment for different cities, the purpose is precisely to carry out regional refined operations based on existing procurement resources. 2. Moving Towards Hard Discount From a business model perspective, the underlying logic of flash sale discount stores lies in the communication of supply and demand under the soft discount model, seeking business in the cracks of market unsalability. But now the market competition is fierce, and upstream and downstream are involuting. Blindly seeking survival in the cracks is not a good method; actively optimizing the cost structure can gain more profit space. Image source: Zhongwei Capital In this regard, Otto Le's approach is to introduce digital solutions, sort out business processes, and plan to achieve 50% of its own brand share to increase profit margins. Discount Cow, the local pioneer of offline flash sale discount stores, and Little Elephant Life, a flash sale discount store brand focusing on community business, choose to continuously polish and optimize the supply chain and store operations. For example, Discount Cow adopts direct cash procurement from manufacturers for near-expiry products, 24-hour operation, and store decoration and configuration directly purchased from manufacturers, thereby compressing cost space; Little Elephant Life's new format, Huimai Miao Super Discount Warehouse, adopts a 'wide breadth, moderate depth' product selection strategy, and refines product selection based on the consumption frequency of target customers to improve turnover efficiency. 05 When talking about the development changes and future of the near-expiry business procurement, the entrepreneur in the near-expiry industry and Douyin blogger Dazui Babababa mentioned: 'The epidemic is just a catalyst; before the epidemic, the near-expiry industry was always a stable existence.' Shanghai Jinyuan Road is home to one of the earliest batches of near-expiry wholesale warehouses and physical near-expiry discount warehouses in China, which have been operating for more than 10 years. Their existence is the confidence for industry people to look to the future. Flash sale discount stores are not a new product; with resources and demand, there are opportunities. But at the same time, the crisis-ridden market environment catalyzed by capital cannot be ignored. In the waves of sand, who can run into the finals? Source: New Retail Business Review (ID: xinlingshou1001)