As the new consumption wave recedes, the pioneer of new retail finds itself trapped in its own 'algorithm'. Hema has once again seen a wave of store closures. The first practitioner of Jack Ma's 'new retail' concept is still struggling to 'change its fate against the heavens'. Recently, Hema Neighborhood (Hema Linli) closed in two more cities. In Hangzhou and Nanjing, the last day for placing orders was October 9, and the last day for pickup was October 10. From then on, Hema's community group buying business will only remain operational in its Shanghai stronghold. As early as April this year, Hema Neighborhood withdrew from four cities: Beijing, Xi'an, Chengdu, and Wuhan. At that time, only Hangzhou, Shanghai, and Nanjing still retained this business format. Now, after the latest closures, only Shanghai remains. Compared to the boom of community group buying in previous years, with the fall of brands like Miss Fresh and Shihui Tuan, the remaining players are drawing more attention. Finding a viable development path to achieve profitability has become a major challenge for brands like Hema. Hema was the first to attempt to use 'algorithms' in site selection, operations, marketing, and supply chain management to integrate online and offline channels, thereby improving sales per square meter, average order value, and business hours, and restructuring the 'new retail' model of 'people, goods, and scenes'. This once sparked a wave of imitation. However, with the repeated impact of the pandemic, weak consumption growth, and a cooling capital market, the past internet approach of 'burning money' to scale up is clearly unsustainable. Hema, as a pioneer of 'new retail', has led retail players like Wumart, Yonghui, and JD (offline) into the 'deep water zone' , where each has encountered different problems. Traditional retailers are also mired in difficulties, and how to break through is a common challenge. 01 From 'All Flowers Blooming' to 'Cutting Off the Wrist' Looking back to January 2016, Hema Fresh was officially born as China's first new retail supermarket brand. In the first year, Hema opened six stores nationwide. From 2017 to 2019, it opened 18, 88, and 85 stores respectively. By the end of 2020, Hema had 246 stores, and by the end of 2021, over 300. But Hema's store closures have always been more newsworthy than its openings. The turning point came in April 2019 when 'Hema Xiaoma', a new brand jointly launched by RT-Mart and Hema, announced that its first store in Suzhou Wenti would cease operations on the 1st. In June of the same year, Hema Fresh's Kunshan store closed, marking Hema's first store closure. This immediately drew attention from the new retail sector, but Hema did not stop exploring business models. Soon, Hema Fresh and Yonghui Superstores almost simultaneously launched mini-store models. At Hema's external press conference in March 2020, Hema CEO Hou Yi revealed that Hema mini would accelerate store openings that year, and the front-warehouse business (i.e., over 70 Hema Xiaozhan) would be fully upgraded to Hema mini. The plan was to complete at least 100 mini stores and open 100 new Hema Fresh stores in the year, a 'double hundred' plan. For a time, outsiders believed Hema mini would become a new business format. Subsequently, Hema accelerated its layout in Beijing, Shanghai, Wuhan, Changsha, Hangzhou, and other places, opening nearly 10 stores in succession, and the national store count continued to rise. But at the same time, Hema Fresh closed three stores in Fuzhou. According to Hema, the reason for closing the Fuzhou stores was: 'Currently, the Fuzhou Hema stores are too far from supply chain nodes, temporarily unable to gain product advantages, so we chose a strategic exit, and will re-enter once improvements are made.' In fact, Hema mini's attempts also had Hema's usual characteristic—opening and closing simultaneously. By the end of 2020, Hema mini had only opened 14 stores. By March 2022, the first Hema mini store in Shanghai's Malu Park also closed. Hou Yi later reflected that his previous belief that Hema Mini was the best business model was a misjudgment. Currently, only 22 Hema mini stores are still operating, 18 in Shanghai and 4 in Beijing, far from the goal of full coverage. Moreover, many Hema mini stores have been transformed into this year's new format, 'Hema Outlet'. In 2020, in addition to trying Hema mini, Hema also began its X Membership Store. The membership store is like an enlarged Hema Fresh, while the mini store is a condensed version. By 2021, Hema's main focus shifted to Hema Neighborhood. Hema Neighborhood expanded rapidly in 2021, but starting at the end of 2021, it began to contract. From the end of 2021, Hema Neighborhood withdrew from Guangzhou, Shenzhen, and Suzhou, reducing its coverage from ten cities to seven. In April this year, it announced withdrawal from Beijing, Xi'an, Chengdu, and Wuhan, retaining only Shanghai, Hangzhou, and Nanjing. Now, the closure of Hangzhou and Nanjing means Hema Neighborhood's coverage is limited to Shanghai alone. 2022 is the year of Hema Outlet. In March this year, Hema opened fresh food outlet stores in many cities, mainly selling near-expiry products. In large and medium-sized cities including Wuhan, it plans to open 3-5 stores, while also closing many underperforming stores, entering an adjustment period. Since the beginning of this year, Hema Fresh, Hema mini, and Hema Neighborhood have all seen varying degrees of store closures. It can be seen that Hema, which targets mid-to-high-end consumers, is still in an exploratory phase. It has closed stores that are not suitable for the current market and turned to explore lower-tier markets by opening Hema Fresh Outlet and Hema Neighborhood, which is a normal business format iteration. But after years of 'tinkering', whether it can achieve profitability remains unknown. 02 Collective Struggles in the 'Deep Water' of New Retail New retail has entered the 'deep water zone'. Yonghui's Super Species, Yonghui mini stores, and membership stores, which are similar to Hema's model, have also been closing and opening stores frequently in recent years. Super Species was born in 2017, following Hema. But the next year, Super Species lost over 600 million yuan. In less than four years, it closed many stores due to high costs and difficulty in achieving profitability. Currently, Super Species has 24 stores in six cities. This is mainly due to its slow transformation and the impact of community group buying. Not only Super Species, but also Suning's Su Xiansheng, Meituan's Xiaoxiang Fresh, JD's 7 Fresh, and T11 were all imitators of Hema's new retail model. Among them, JD's 7 Fresh stores are positioned similarly to Hema, targeting white-collar and refined middle-class consumers. In 2021 alone, 7 Fresh opened over 20 new stores. But on October 10 this year, JD 7 Fresh's Changsha Joy City store officially closed. Currently, 7 Fresh is still exploring new retail models. As for the reasons behind Hema's repeated closures, internally there are concerns about supply chain management and operations, and externally there is the reality of a deteriorating consumption environment and intensified competition. Hema itself, as Alibaba's 'biological son' and the initial benchmark of new retail, received substantial funding, traffic, and policy support during Alibaba's peak. Later, due to the pandemic and a worsening capital environment, a series of new retail brands, including Hema, were impacted. In terms of external factors, Hema's initial positioning was more towards middle-class and petty-bourgeois consumers, not close enough to ordinary consumers. Now the entire consumer market is shrinking, and the grocery business is essentially high-frequency, essential, and mass-market consumption. In terms of user base, subsidies, and product pricing , Hema is actually inferior to community group buying players with large subsidies like Meituan Select and Duoduo Maicai, and not as down-to-earth as 'mom-and-pop stores'. This has greatly hindered Hema in traffic and products. Apart from groceries, users may choose online shopping for other daily consumer goods. In offline supermarkets, Hema also needs to compete with brands like Yonghui, RT-Mart, and Sam's Club. To solve the traffic and store visit problems , expand user coverage, and increase user activity, Hema has tried many actions. Formats like Hema Xiaozhan, Hema Li, Hema Caishi, Hema mini, Hema Neighborhood, and Hema Outlet have not gone smoothly. On the product front , Hema's supply chain combines functions like fresh food processing and central kitchens with product circulation. It believes that a centrally integrated supply chain is far more efficient than distributed operations, ensuring product supply and quality. However, the drawback is that Hema's products still mainly target the petty-bourgeois group, and its advantages are not obvious in lower-tier markets. On the fulfillment front , unlike Meituan and JD Daojia, Hema does not have a market-based delivery system that facilitates the integration of online and offline, allowing riders to have saturated orders and using third-party orders to support delivery staff. Hema uses a third-party same-city retail model to integrate online and offline. Therefore, from traffic entry points, transaction processes, and fulfillment and delivery, Hema seems to lack cost advantages, forcing it to 'cut off its wrist' and close stores and lay off staff. In terms of unfavorable factors, while Hema Neighborhood withdrew from Hangzhou and Nanjing, Hema also underwent internal personnel adjustments and organizational structure optimization. Hema established a 'three horizontal and three vertical' business structure with three business divisions and three middle platforms. Vertically, the Hema Fresh Business Division is responsible for Hema Fresh and Hema mini operations; the Hema MAX Business Division is responsible for Hema X Membership Store operations; and the Hema NB Business Division is responsible for Hema Neighborhood and Hema Outlet operations. The CEO of Hema NB Business Division is concurrently held by Hema CEO Hou Yi, and Li Weiping (Wei Ping), former General Manager of Hema Fresh Beijing, was appointed CEO of the Hema Fresh Business Division, reporting directly to Hema CEO Hou Yi. In fact, since Hema became an independent business group in 2019, there have been frequent personnel changes internally. Because Alibaba has invested too much 'effort' in Hema, yet overall profitability remains elusive. At the end of 2019, Hema CEO Hou Yi changed his reporting line, no longer reporting directly to Alibaba CEO Daniel Zhang, but to Dai Shan, then president of the B2B business group. This meant Hema's status in Alibaba dropped from an independent segment to a sub-business of the business group. In 2021, Dai Shan, Alibaba partner and president of the B2B and MMC business groups, no longer oversaw the Hema business group on behalf of the group, and Hema business group president Hou Yi reported directly to Daniel Zhang. This was another change in reporting hierarchy for Hou Yi after he switched to reporting to Dai Shan at the end of 2019. It can be seen that Alibaba has high hopes for Hema but appears somewhat embarrassed, and Hema is eager to achieve profitability. 03 Lower-Tier Markets: 'Fragrant' but Hard to Conquer Fresh food e-commerce has always been a coexistence of multiple formats. Recently, Dingdong Maicai has also been closing stores frequently, similar to Hema. According to Ran Finance, during the National Day holiday, news spread that Dingdong Maicai was about to withdraw from Xiamen. A notice posted by Dingdong Maicai in Xiamen stated, 'This site will stop delivery services, with the last delivery time until 18:00 on October 8... The site's community group will also be disbanded...' On October 9, a Xiamen user nicknamed Xiaobai posted a 'refund successful' bill and a screenshot of uninstalling the Dingdong Maicai app, saying, 'The membership fee refund for Xiamen Dingdong Maicai has arrived. Uninstalling the app. See you if fate allows.' Dingdong Maicai entered the Xiamen market in May 2021 and opened nearly 30 front warehouses. With this retreat, many users lamented on social media: 'Dingdong Maicai entered Xiamen too late; if it had been earlier, there might have been a chance.' This is mainly because Xiamen already had fresh food e-commerce platforms like Xiashang Fresh Supermarket, Pupu Supermarket, and Yonghui Life. Fresh food e-commerce is struggling in the current environment. Returning to Hema's layout, Hema Fresh and Hema mini target first- and second-tier cities. Hema had hoped to break into lower-tier markets with the Neighborhood format. When promoting the Neighborhood layout, Hema always emphasized that the Neighborhood business was not community group buying, because Hema Neighborhood initially adhered to a self-operated model. It kept pickup points and group leaders under its control, ensuring quality control. But as is well known, self-operation means high costs for rent, labor, and delivery. Now Hema cannot bear the high store-opening costs, so it began opening franchises this year. The franchise threshold for Hema Neighborhood is low, and the investment cost is 'friendly' to franchisees, but to make a profit, franchisees need to achieve daily performance that meets profitability standards. The core reason for Hema Neighborhood's withdrawal from Hangzhou and Nanjing is its inability to be profitable. In essence, it is a mismatch of Hema Neighborhood's positioning, pricing, and target audience. Even though its pricing is cheaper than Hema Fresh, it is still higher than products on platforms like Duoduo Maicai and Meituan Select. It fails to attract a broader base of ordinary consumers. Facing the lower-tier market that it has been unable to conquer, Hema decided to launch Hema Outlet. But Hema Neighborhood and Hema Outlet only address the 'itch points' of consumption, providing little improvement on the price pain points for groceries and daily necessities. While Hema is 'headache', community group buying platforms like Duoduo Maicai and Meituan Maicai are also encircling it, along with same-city retail models like JD Daojia and Meituan Waimai. As of April 2022, Meituan Select's market share reached 38%. By August, Meituan Select's monthly active users reached 8.1033 million. This data was achieved through Meituan's early 'burning money' and business accumulation. The 'volume king' Duoduo Maicai is similar. In the second quarter of this year, Pinduoduo's transaction services revenue (including payment fees, Duoduo Maicai, and e-commerce commission income) was 6.21 billion yuan, a year-on-year increase of 107%. Competitors have smoother online and offline sales paths, which is a dimensionality reduction attack on Hema's 'new retail'. Recall that at the beginning of this year, Hou Yi announced a dual-wheel strategy of 'developing both online and offline', aiming to increase the proportion of offline orders from 30% to 50%, and to move from single-store profitability to overall profitability. Currently, Hema is still far from this goal. However, whether it is Hema exploring new retail or fresh food e-commerce Dingdong Maicai, both can provide reference value for 'latecomers'. If the external economic environment improves and Hema's business model becomes more 'down-to-earth', the results might be more promising. But for now, it is still difficult to emerge from the 'deep water' of new retail exploration. -END-