RT-Mart, the tear of the hypermarket era, recently surprised with a turnaround to profitability. In the latest fiscal year 2023 results, RT-Mart's parent company Sun Art Retail achieved a profit of 78 million yuan. This came after its first net loss of 826 million yuan in 2022, through a series of self-rescue measures. The "resurrection" measures included closing some RT-Mart stores and optimizing new formats. From the performance results, with a net reduction of 20 stores year-on-year, revenue only declined 5.1% year-on-year. Closing more RT-Mart stores to stop losses and achieving better performance has become Sun Art Retail's current operational tone. Similar good news also occurred at another traditional hypermarket, Walmart. According to the Q1 FY2024 report released on May 18, Walmart China's revenue was 37.339 billion yuan, a year-on-year increase of 28.3%, exceeding expectations. Among them, Sam's Club performed outstandingly, achieving strong sales growth of 46%. However, according to incomplete market statistics, from 2016 to 2022, Walmart closed over 130 stores in mainland China. Walmart stated in its financial report that the outstanding performance in the Chinese market was largely driven by the overall consumption recovery during the Spring Festival and the strong growth of Sam's Club members. Retail giants that started with hypermarkets are revitalizing, but it has little to do with hypermarkets anymore is becoming a retail trend. Looking at the development history of retail formats, an interesting fact is that the "e-commerce transformation" under the once-promising new retail concept did not save hypermarkets, but the warehouse membership stores derived from within the retail industry have become an effective new antidote.
E-commerce Transformation: Filling Shortcomings but Not Saving Lives
Since 2010, China's retail e-commerce has entered a period of rapid development. When consumers began to have new channel choices, the transformation of the hypermarket model began. Starting with the Double 11 shopping carnival initiated by e-commerce companies, Carrefour China's turnover continued to decline, and the impact of e-commerce on offline physical retail became increasingly apparent. Facing the impact, digital transformation led by e-commerce models became the first choice for hypermarkets to save themselves. If you can't beat them, join them. RT-Mart launched Feiniu.com in 2014, but the transformation was ineffective and eventually "sold" to Alibaba in 2017; later launched the "RT-Mart Youxian" app, and after 5 months, all RT-Mart stores nationwide had online business. In the following years, Sun Art Retail continued to promote RT-Mart's online channels, adding various fulfillment models such as hourly delivery, half-day delivery, next-day delivery, and pre-sale projects. However, these actions did not stop the tears of the era from falling. The financial report showed that in the 12 months ending March 31, 2023, Sun Art Retail's hypermarkets decreased by 4 stores. Similarly, Carrefour explored e-commerce transformation without success and eventually closed about 80 stores; Bubugao changed hands to state-owned capital and continued to explore the new retail path. The so-called e-commerce transformation did not revitalize supermarket hypermarkets; store closures continued. According to data from the "2022 Supermarket Format Survey Report", in 2022, sample enterprises opened 621 new supermarket stores, closed 873 stores, and net decreased 252 stores. Although e-commerce transformation did not stop the wave of closures, it does not mean past attempts were entirely useless. According to the "2022 Supermarket Format Survey Report" released by the China Chain Store & Franchise Association in January, in 2022, 82.9% of supermarket enterprises saw positive year-on-year growth in online sales, and 45.7% saw online sales growth exceeding 20%. Focusing on individual enterprises, as of September 30, 2022, Sun Art Retail's revenue was 40.611 billion yuan, with online business achieving double-digit growth of 14.3% driven by higher online order values, and online sales accounting for nearly 35%. Online sales dominated by e-commerce have become the core force driving performance growth. But the better the online performance, the more awkward the physical stores become. As the core format of social consumption, from more macro social retail data, we can glimpse why e-commerce transformation is difficult to save hypermarkets. In the first quarter, online social retail accounted for about 24.8% of total, down 2.4% from the high point. With the overall market stable, in the first four months of this year, the cumulative growth rate of national online social retail was higher than the national social retail growth excluding automobiles. This means the increase in online retail share actually comes from substitution of offline retail. With overall retail consumption stabilizing, the more successful the e-commerce transformation of traditional retail supermarkets, the more obvious the substitution effect on hypermarkets. In the final analysis, the original intention of traditional supermarket e-commerce transformation was to fill shortcomings. But when entering the online process dominated by e-commerce models, the store, which was an independent economy with traffic acquisition capability and performance growth, is simplified into a functional component similar to a front warehouse. The so-called location and scenario advantages inevitably become negative burdens under high rents. In this role, adapting to e-commerce operational logic according to delivery radius and efficiency, closing more stores to reduce costs and increase efficiency becomes the most economical choice.
Membership Stores: Leveraging Strengths to Break the Siege
Since e-commerce transformation is like drinking poison to quench thirst, the reshaping of hypermarkets needs another approach. Currently, warehouse membership stores have become one of the core forces in reconstructing the hypermarket model. In recent years, the membership store track has become increasingly hot. After foreign membership store brand Costco entered the Chinese market with great success, Walmart's Sam's Club also accelerated its store opening pace. 2022 became the year with the most new Sam's Club stores opened in China in 25 years. In financial data, the strong performance of Sam's Club drove the recovery of Walmart China's performance. Warehouse membership stores have opened a new profit situation for hypermarkets, and new and old players such as Yonghui Superstores, RT-Mart, and Hema have also entered. On April 28, Sun Art Retail opened its first M Membership Store in Yangzhou, marking the birth of RT-Mart's sibling. Unlike e-commerce transformation, warehouse membership stores are based on physical retail, emphasizing location advantages and scenario experience as always, and can achieve upgrades based on hypermarket stores. Take Hema's takeover of Walmart's Beijing store in March as an example. The Walmart Jianguo Road store, which had been operating for 16 years, after closure, only needed renovation to become Beijing's second Hema X Membership Store (Dawang Road store). In 2021, the first year of the membership store explosion, Carrefour CEO Tian Rui said: Carrefour plans to upgrade 100 of its 200 hypermarkets into paid membership stores within three years. Both are physical retail, determining a reshaping relationship of mutual replacement, upgrade, and iteration. However, traditional hypermarkets mainly rely on selling goods to earn the price difference, while warehouse membership stores make money through membership card issuance, renewal, and upgrades. This also means the latter needs to continuously curate products for members, and through differentiated products of private labels, maintain continuous attraction to users, thereby achieving sustained growth in business scale. For domestic retail enterprises, membership stores are a brand-new format, requiring long-term building and investment in product strength, operational systems, etc. Under two different business models, taking over hypermarket stores and converting to membership stores is tantamount to a retail track change. The core capability of the track change is mainly concentrated in providing differentiated product strength. Therefore, for retail formats in the hypermarket transformation period, product strength has become the core vocabulary in the past two years. Only with differentiated product strength, and then through the membership system to achieve stable repurchase and consumer relationships, can physical retail formats break through under the e-commerce involution situation. In the early years, the core of the hypermarket model was a one-stop shopping large scene, mainly solving the era of low product richness, focusing on being able to buy everything. Subsequently, e-commerce reshaped the retail industry with logistics + mobile network infrastructure, breaking through spatial and geographical limitations, and achieving the needs solved by hypermarkets at lower cost and higher efficiency. The overlap of needs met by the two determines that even if hypermarkets undergo online transformation, it is only to fill shortcomings, competing with native e-commerce in traffic and shelf depth, and the result is obvious. The warehouse membership store model emphasizes continuing to upgrade around the strengths of physical retail, leveraging strengths rather than filling shortcomings. E-commerce's genes are digitalization, asset-light, and online-offline integration; the soul of warehouse membership stores is membership economy, product exclusivity, and online-offline integration. More differentiated product strength, in more warehouse membership stores, meets more differentiated needs; and the differentiation around goods can build a logic of fresh shopping experience. Previously, RT-Mart founder Huang Mingrui, in an interview, quoted Taiwan retail godfather Xu Zhongren on the key to retail success: 20 years ago, retail emphasized location, location, location (i.e., physical retail highly values store location); 10 years ago, retail emphasized differentiation, differentiation, differentiation (i.e., retail enterprises' value stratification for customers); 10 years later, today's retail emphasizes innovation, innovation, innovation (i.e., retail enterprises should build retail capabilities to the forefront of business). At that time, Huang Mingrui also elaborated: "This question has different answers at different times. Location is of course very important; if the location is wrong, even gods can't do it; differentiation is whether you can pull enough difference from competitors; innovation is finding more differentiation. We must keep pace with the times and understand how customer needs change." In the current context, building membership stores around differentiated product strength has become a panacea that can seamlessly replace the natural traffic brought by hypermarket offline locations, while also retaining consumers through differentiated product innovation and achieving growth through continuous repurchase.