1. Physical retail has had it too easy along the way, losing its basic skills. Since I founded Shanghai Shangyi Consulting in March 2010, over five years I have come into contact with hundreds of owners of small and medium-sized retail enterprises. In exchanges with them, a common feeling is that retail used to be too easy to make money. Fifteen years ago, opening a supermarket in central and western China could basically fill sacks with cash; after closing at night, couples would count money while laughing, their hands numb or sore from counting. Ten years ago, basically as long as you opened a store, you just waited for year-end to calculate how much profit you made, without any thought of losses. Five years ago, although people felt business was getting a bit harder, newly opened stores were still mostly profitable with very few losses. But in the last three to four years, business suddenly became difficult, especially since 2013, where basically opening new stores resulted in more losses than gains, and even previously very profitable stores now earn very little or even nothing. As is well known, in the era when just opening a store meant making money, your first focus was to grab locations as quickly as possible and hire people to open stores as soon as possible. Who cared whether internal management was standardized? Who considered basic skills? It was an era where the fast dominated, and all slow fish emphasizing basic skills were eliminated by fast fish. But in the last three to four years, with rapid rent increases and labor costs growing at double-digit rates annually, large domestic and foreign retail enterprises have continuously invaded and penetrated various regions. Original sales not only fail to grow but also show a declining trend. Costs increase while sales and gross profit decline. This scissors gap of one increase and one decrease basically brings back to reality those bosses who still dream of making money through extensive management. In today's market situation, if you still cannot practice basic skills, deeply understand the internal connections and causal relationships among all operational data, and find the balance point to organize all business activities, then the more actions you take, the faster you die; the more aggressive you are, the faster you die; the more impulsive and head-scratching you are, the faster you die. This is already an era of big data, and this big data is not exclusive to e-commerce; all operators must deeply and meticulously control all data in their entire business process, deeply understand its internal logical relationships and causal relationships, making every management action like a tightrope walker's performance—both thrilling and calm. Only retail enterprises that achieve this state can survive.
  2. In China, how big is the impact of e-commerce on physical retail? Compared with developed countries like Europe, America, and Japan, the impact of e-commerce on physical stores is much greater in China. Why is this? Is it because domestic e-commerce entrepreneurs led by Ma Yun and Liu Qiangdong are particularly capable? Particularly creative? No! Although these e-commerce entrepreneurs are indeed more creative than other physical retail entrepreneurs, it is not to the extent that one can defeat a hundred. In 2014, the total sales of China's top 100 retailers were 2.1 trillion yuan, while the scale of online shopping transactions had reached 2.8 trillion yuan, accounting for more than 10% of total retail sales of consumer goods. The 100 largest physical retail enterprises actually lost to just three or five e-commerce companies. This is indeed a shame for physical retailers. In the United States, online shopping transactions in 2014 were expected to be only around 300 billion US dollars, accounting for less than 7% of total retail sales of consumer goods, and the transaction volume was much smaller than Walmart's retail sales alone. Moreover, the growth rate of online shopping transactions was only around 15%. The situation in Europe and Japan is roughly similar. Why is it that in more developed countries like Europe, America, and Japan, online shopping, which is more advanced, is far less prevalent than in China, a relatively backward country? This is indeed puzzling. More importantly, in the next 3-5 years, the compound growth rate of China's online shopping transaction scale will be about 25%, far higher than the 10-15% growth rate in Western developed countries.
  3. Physical retail has not built high enough competitive barriers, making it possible for e-commerce to quickly counterattack. Because physical retailers have only truly felt competitive pressure in the last three to five years, felt the huge pressure of operating costs, and felt that the previous extensive management of being a second landlord and squeezing profits from suppliers is unsustainable, they have woken up to the need to build their own competitive barriers. But by then, the enemy was already at the gates. It is precisely because physical retailers rarely study products, category structures, how to form stable win-win mechanisms with suppliers, how to achieve excellence in store on-site management, and how to excel in key categories like fresh produce, while those upstart e-commerce companies study these things every day, studying which products can become hot sellers to attract customers' attention. Therefore, physical retailers could have built strong competitive barriers like their counterparts in the US, Europe, and Japan, making it difficult for e-commerce to break through. For example, by relying on close strategic partnerships with suppliers to block e-commerce from forming stronger cooperative relationships with suppliers. So in Europe, America, and Japan, it is very difficult for e-commerce to dig out more powerful supplier resources outside the supplier networks controlled by physical retailers, because whatever e-commerce can satisfy suppliers with, physical retailers have already satisfied them, and physical retailers do it better. This is the fundamental reason why e-commerce in Europe, America, and Japan has always struggled to surpass physical retailers. In contrast, domestic physical retailers often make suppliers gnash their teeth in hatred, so when e-commerce comes to seduce them, they immediately defect, providing e-commerce with more favorable and cost-effective products. Physical retailers, apart from squeezing suppliers and providing the formal channels they rely on for survival, have never provided suppliers with more value-added benefits. It's like a couple who have no feelings other than sex; they will inevitably be replaced by mistresses who provide better sexual services. Compared with physical retailers in Europe, America, and Japan, it can be said that domestic physical retailers gave up their very strong advantages to take shortcuts and make quick money, losing their inherent fortresses, allowing e-commerce, these mistresses, to take advantage of the gap and form closer cooperative relationships with suppliers. As a result, their role as a bridge between producers and consumers has been completely marginalized, making physical retailers the mistresses in the eyes of producers, while e-commerce has been promoted to the position of the legitimate wife, with real feelings.
  4. The barbaric growth of e-commerce makes the comparative disadvantages of physical stores more prominent. Through comparative research, we can find that the rapid development of domestic e-commerce indeed benefits from several very favorable objective conditions: First, the development history of physical retailers is very short. Since the introduction of modern retail formats in 1992, it has only been over 20 years. In 1998, China's e-commerce also started, with only a 6-year difference. After e-commerce appeared, it did not make quick money like physical retailers did, but firmly grasped the core role of the link between producers and consumers, digging deep. They did not act as second landlords, nor did they constantly think about relying on squeezing supplier channel fees to maintain considerable profits. They even preferred to lose money themselves (like early Taobao and early JD.com) to give consumers and producers the greatest benefits. This is quite similar to how the Communist Party counterattacked the Kuomintang. As a result, e-commerce gained praise from both producers and consumers, and although they were latecomers, they overtook the early starters. Second, compared with Europe, America, and Japan, China's developed coastal areas and developed cities, especially the first- and second-tier cities in the east, have much higher population densities. In recent years, the explosive growth of housing and property prices has led to rapid increases in rent costs for physical retailers, while e-commerce's last-mile delivery costs have increasingly gained comparative advantage due to high residential density. The most critical competition between e-commerce and physical retailers is cost competition, and among costs, e-commerce's logistics costs and physical retailers' rent costs are the two key core variables determining victory or defeat. When changes in the social environment tilt the cost balance toward e-commerce, e-commerce gains a very favorable opportunity for explosive growth. In addition to these two major objective factors favoring e-commerce, the barbaric growth of e-commerce itself is also a key factor that cannot be ignored. First, by kidnapping investors and burning cash crazily. JD.com's net loss for the full year 2014 was 4.941 billion yuan, with an operating loss of 5.8 billion yuan. The main reason was that before the IPO, JD.com's board gave Chairman Liu Qiangdong stock option rewards accounting for 4% of JD.com's shares, amortizing 3.6 billion yuan. Excluding this factor, JD.com still lost a surprising 2.2 billion yuan, about 2% of its annual revenue of 115 billion yuan. Moreover, JD.com has been losing money since its establishment in 2004, and the losses are getting bigger. If physical retailers could also kidnap investors and burn cash like this, how much worse would they be than e-commerce? Second, inequality in taxation. In fiscal year 2014, Alibaba's total revenue was 52.504 billion yuan, with a profit of 23.403 billion yuan, a year-on-year increase of 170.6%. The total gross merchandise volume (GMV) completed on the platform reached 1.68 trillion yuan, of which Taobao's GMV was 1.172 trillion yuan and Tmall's GMV was 505 billion yuan. Taobao merchants basically do not pay taxes; of course, they also pay "taxes," but in the form of various service fees that go into Alibaba's profit pockets. This is why Alibaba's financial statements look so good. If we calculate based on the average tax burden of physical retailers (about 2%), it is not difficult to calculate how much profit Alibaba would have (if those online merchants paid taxes like physical retailers, how much platform fees, service fees, and promotion fees could they still contribute to Alibaba?). Third, the prevalence of counterfeit and shoddy goods online. In fact, counterfeit and shoddy goods online are not difficult to eliminate, even easier than in physical stores, because you just need to review each online merchant at the entry point. If counterfeit or shoddy goods are found, they can be expelled or even prosecuted. What is so difficult? You should know why e-commerce in Europe, America, and Japan cannot grow crazily: because their e-commerce review is the same as physical stores. But due to Taobao's inherent loophole, Taobao can openly sell counterfeit and shoddy goods in large quantities. Then Ma Yun can spread his hands and say that the social environment is like this, and we can't do anything. In fact, clear-eyed people know that Taobao itself is the ultimate beneficiary behind these counterfeit sellers, because among the various promotion and service fees on Taobao, the most willing to bid competitively are these counterfeit sellers, as their operating costs are lowest, much lower than those merchants with genuine intellectual property rights. It is truly bad money driving out good money. China's two most powerful e-commerce companies have grown so barbarically. It is this disregard for rules, coupled with the two objective favorable factors mentioned above, that makes e-commerce's competitive advantage over physical retailers increasingly obvious. They can defeat a hundred with one; just three or five e-commerce companies can go from being far behind to greatly surpassing the total sales of China's top 100 retailers in just a few years. Without barbaric growth, how could such a miracle or strange thing happen? Where is the future path for physical retail?
  5. Can e-commerce continue to grow so barbarically? Can e-commerce continue to grow so barbarically? The answer is naturally no! First, let's look at iResearch's statistics and forecasts for China's online shopping transaction scale. By 2018, the scale of online shopping, which we call e-commerce retail, will be about 7.3 trillion yuan, accounting for about 18% of total retail sales of consumer goods in the same period. At that time, the growth rate will have dropped to 16%, and then it may fall to single digits. When e-commerce sales growth falls to single digits, its competition with physical retailers will truly enter a stalemate. And when e-commerce no longer has a growth rate above 50%, how many capital investors will still chase e-commerce with dreams of getting rich? When the craze of capital chasing recedes, how long can the naked swimmers among e-commerce shine? Second, since last year, the taxation of e-commerce, especially for non-B merchants, has entered the public and government's field of vision. If before, when it was hundreds of billions or trillions, the state could not attend to it and needed to keep feeding the goose to lay golden eggs, now it is over one trillion, becoming a super elephant among elephants. With the cooling of real estate, government tax sources are becoming increasingly tight. Governments at all levels will definitely not ignore such a large tax cake. In fact, local governments at all levels have been eager to act this year. When taxation normalizes, the ammunition in the arsenal of e-commerce, especially platform-based e-commerce like Taobao, will suddenly decrease a lot. Third, the governance of counterfeit and shoddy goods will not lag too long. After all, if China wants to upgrade from a manufacturing power to a creative power and a brand power in the future, it is impossible without cracking down hard on counterfeit and shoddy goods. Moreover, as Ma Yun himself recognizes, this counterfeit and shoddy goods also harm e-commerce's own brand. At the beginning of reform and opening up, Zhejiang and Fujian merchants were the most active in producing and selling counterfeit goods, but later they became the most active business groups in domestic anti-counterfeiting. Perhaps in the future, e-commerce may become the most powerful force in domestic anti-counterfeiting. But when this quick and easy money cannot be made, e-commerce's lethality against physical retailers will weaken greatly. In addition, the market environment is also undergoing changes unfavorable to pure e-commerce: First, e-commerce, which once had a comparative advantage in eastern first- and second-tier cities with high population density and strong consumption capacity, is now expanding to the sparsely populated central and western regions and third-, fourth-, and fifth-tier cities. The last-mile delivery cost for e-commerce suddenly skyrockets, while the rent cost for physical retailers drops rapidly compared with first- and second-tier cities. At this time, the cost advantage balance is quietly shifting toward physical retailers. Second, the penetration of e-commerce categories is also experiencing a trend unfavorable to e-commerce expansion. The categories where e-commerce once killed physical retailers were mainly clothing, textiles, home appliances, digital products, food, and high-unit-price items in household goods (such as high-end liquor, milk powder), and high-unit-price items in fresh produce. These categories are gradually becoming saturated. When e-commerce penetrates into the FMCG field with low unit prices but high delivery costs (mainly because the unit price per kilogram of goods is getting lower, while delivery costs are mainly constrained by the weight of goods; an electric bike can easily deliver clothing and digital products worth thousands or tens of thousands of yuan, but it may not be able to carry beverages, grain and oil, and condiments worth a few hundred yuan), after all, fast-moving consumer goods still account for a considerable proportion of consumers' daily consumption. E-commerce cannot ignore these territories if it wants to further seize market space. But when e-commerce reaches these territories, it is like the Japanese soldiers with mechanized troops arriving in the vast and sparsely populated southwest and northwest with mountains and ridges; they no longer have comparative advantages. At this time, physical retailers have more comparative advantages. The increasing difficulty in regional and category expansion will gradually bring this wild horse of e-commerce back to normal, returning to its original form: "You are at best an air force flying planes; you are not an omnipotent god." When the army also has an air force, it will be even more powerful than you, because cultivating a large army is very difficult, while having a seemingly powerful air force is not difficult, as it only adds a few mice and screens.
  6. Is physical retail just waiting to die? Besides the objective factors quietly changing in favor of physical retailers, the explosive growth of physical retailers' own innovation capability is also a key factor. The once "pig-like" physical retailers are also quietly undergoing a revolution. They are no longer moving forward with the past extensive management model but are rapidly transforming and upgrading. When physical retailers begin to shift their work focus to the basic skills of retail, start studying big data, and begin to understand the internal logic and causal relationships in all management data, the innovation of physical retailers is enough to give those proud e-commerce companies a run for their money. Our Shangyi Consulting has been closely coaching a very influential physical retailer in China—Anhui Lecheng Supermarket—for several years. From the company's executives to store managers and procurement teams, we have invested a lot of effort. Lecheng Supermarket's innovation in store image and environment layout design, the development of small formats like Ledazui Snacks, Leyuanyi, and Mr. Le's Stationery Store, the refreshing and rapidly improving competitiveness of its boutique supermarket, and the newly launched Fresh Legend micro-supermarket format with strong market competitiveness, etc., have shown me the future of physical retail enterprises. When physical retailers no longer rely on being second landlords and squeezing suppliers to make quick money, their innovation is by no means inferior to those high-end e-commerce companies.
  7. The comparative advantages of physical retail are coming soon. Currently, the most vigorous thing e-commerce companies are doing is desperately penetrating offline, because with the increasing difficulty of regional and category penetration, the cost of last-mile delivery is getting higher and higher. If they cannot cooperate with offline physical stores to complete this last-mile delivery, e-commerce will not be able to penetrate further. RT-Mart's Feiniu.com is currently vigorously promoting its "Thousand Townships, Ten Thousand Stores" plan, which is to promote Feiniu.com in those fourth- and fifth-tier cities and rural areas, connecting Feiniu.com with supermarkets in these small cities and towns. By installing a store APP on a mobile phone or a touch screen in the store, and automatically blocking all products that the supermarket is currently selling, a small supermarket can thus have access to tens of thousands or even hundreds of thousands of SKUs that consumers can purchase. Many people may think that e-commerce is really powerful and that these stores will be controlled by them in the future. But I do not think so. Just like the beverage coolers we see in convenience stores, when manufacturers like Coca-Cola, Pepsi, Master Kong, Uni-President, and Wahaha all compete to invest in beverage coolers in your store, who holds the initiative? The manufacturers or those small convenience stores? Of course, it is those small convenience stores! Similarly, when those so-called big e-commerce companies all compete to have you install their APP so that consumers in your store can purchase their online products, who has more initiative? Especially when they have to block the regular products you are currently selling (because they have no competitive advantage over your store in these products), your autonomy becomes even greater. The air force is at your disposal at any time; you just need to hold your ground with your army. At that time, who has more initiative? Of course, it is the physical retailers who possess scarce resources! How to turn the bright future of physical retail into reality?
  8. Practice the basic skills of retail. The basic skill of the retail industry is to serve as a bridge between producers and consumers, creating value-added benefits for both producers and consumers simultaneously. The greater this benefit, the greater the value of the retailer, whether you are an e-commerce company, a physical retailer, or a future comprehensive business. Specifically, the basic skills of retailers include: First, selecting and developing good products for consumers. Everyone thinks that e-commerce survives on the long tail, which is actually a big misconception. Although every e-commerce company does have a very, very long tail, so long that these products may sell only one or two units a year, they are always kept on the webpage because the marginal cost of adding a webpage is almost zero. But what truly reflects e-commerce competitiveness is not these long-tail products, and e-commerce indeed rarely puts effort into these long-tail products. All e-commerce companies put the most effort into relatively best-selling products, which they call "hot products." As long as physical retailers also ponder their best-selling products like e-commerce does, truly select every best-selling product for consumers, and develop and research hot products in physical stores like Walmart's Sam's Club, Germany's Aldi, and Japan's 7-Eleven, then physical stores will have no worries about competitiveness. Second, provide excellent on-site service. Even if e-commerce service is good, it is virtual. How can it compare with the rich on-site experience and shopping experience of physical retailers? When you come to a beautiful shopping environment like Lecheng's Fresh Legend, receive very cost-effective products from enthusiastic staff, and pick your favorite items from the fresh, shiny produce on site, where else can you find such a shopping experience? Wang Wei's most basic starting point for creating Fresh Legend is: unless TA is a fool, there is no reason for TA not to visit our Fresh Legend store. Because the shopping environment is first-class, product quality is first-class, product cost-performance is first-class, and it is the closest shopping place to your home. What reason do you have to refuse? Third, truly control your core competitive category, which is the fresh produce category. Because fresh produce is extremely difficult to standardize, and quality changes at any time, the difficulty of operation and management is enormous. It is much harder for e-commerce to manage this category well than for physical retailers. For e-commerce to manage this category well is like running on flat ground in a spacesuit against ordinary people; except for winning attention, there is no possibility of winning. As long as physical retailers truly manage this category well and control the "food" in clothing, food, housing, and transportation, they will have an invincible base.
  9. Turn yourself into a big data company. Only when an enterprise controls data and lets data speak can it achieve continuous optimization and continuous innovation. In October 2012, because my book "The Way and Art of Retail: The Road to Transcendence and Transformation of China's Future Retail Industry" needed a foreword from RT-Mart Chairman Huang Mingduan, Chairman Huang wrote the foreword and then took more than 2 hours of precious time to discuss retail management with me alone. One sentence that impressed me most was: "When I first entered the retail industry, I couldn't understand it. In industrial enterprises, good is good, bad is bad, clear. But in retail enterprises, it becomes ambiguous, as if this way or that way is okay. RT-Mart seeks a path of continuous optimization of management processes by digitizing as much of the entire management process as possible, because without quantified data, continuous optimization is impossible." A simple example: RT-Mart turns the shelf into a three-dimensional space, and by measuring each SKU's display area * display layers * display depth, it calculates the display space for each SKU. This makes it possible to maximize the value of the entire store's display space. It can be said that digitizing as much of the entire management process as possible is the core reason why RT-Mart, once an outsider, was able to surpass the world's number one Walmart and number two Carrefour in the Chinese market after 12 years. As long as every day is 1% better than yesterday, in a year it can improve 36.41 times. But if you act by feeling, you will definitely improve 10% today, accidentally decline 9% tomorrow, improve 5% the day after, decline 8% the day after that... With such tossing, if you can improve 50% in a year, you can thank God. One is 50%, the other is 36.41 times. With such a big gap, after a few years, who wins and who loses is clear. As a retail enterprise, to achieve data-based management, you must reflect every management process with data. For example, Hunan Hengyang Xiangjiang Department Store, which is the only one in China that can match Pangdonglai Supermarket in on-site management and achieves this at low cost, uses 350 items to quantify all aspects of its on-site management, and each item is quantified with data. For example, whether the floor is dirty is not described with vague words like "relatively dirty" or "very dirty," but by deducting one point for each water stain or stain. This is data quantification. Another example: In product management, we must have concepts like category planning and product staffing. How many SKUs and brands should be configured in each major, medium, and minor category? Why configure this many? The product sell-through rate, penetration rate, the match between product grade and customer high, middle, and low customer tiers, the rationality and efficiency of shelf allocation, the distribution and rationality of product brands, the four-dimensional CT scan analysis of product function, brand, price band, and specification band, the analysis of product introduction, elimination, and promotion effects, the analysis of store time-period sales, supplier analysis... When we establish this series of analysis tools and control methods, miracles will happen. This year, we helped a very influential private enterprise in Hefei, Anhui, create a miracle through all this. We entered in early March, and from March to June, the company's same-store same-caliber growth rates were 11%, 4.8%, 10%, and over 25%, respectively. During this period, the front-end gross margin miraculously increased by an average of 1 percentage point, and the back-end also simultaneously increased the channel fee rate. In the six months before we entered, the company's same-store same-caliber growth was basically flat compared with the previous year. This is the charm of using big data to manage an enterprise. We deeply feel that as long as physical retail enterprises learn to use big data to manage an enterprise like e-commerce does, any miracle can happen! To use a slang phrase: It's not that the Communist troops are too strong, but that the Nationalist troops are too incompetent! Similarly, it's not that e-commerce is too strong, but that physical retailers are as incompetent as pigs! This is only to inspire the physical retailers that are about to become strong! ----Reprinted from "Lianshang.com", author is Hu Chuncai, General Manager of Shanghai Shangyi Enterprise Management Consulting Co., Ltd. Editor's PS: The editor has selected 1067 excellent articles from nearly 1900 articles published on this official account, divided them into 14 categories and 57 knowledge points, systematically making frontline marketing management content into a library for everyone to learn. From market to customers, focusing on actual combat and management, all are dry goods. After following the official account, reply with the number "1" to browse and view related content.