"Sorry, without a membership card, you cannot enter." On May 18, a security guard stood at the supermarket entrance, repeating this phrase expressionlessly to incoming customers. This was the opening scene of Sam's Club's new store in Putuo Zhenru, Shanghai, which is also the 43rd in China and the 5th in Shanghai. As a result, Shanghai surpassed Beijing and Shenzhen to become the Chinese city with the most Sam's Club locations. Just across the street, Hema Fresh's X Membership Store also opened a new location. Besides these two giants, retail giants such as Costco, Metro, and Hema are also continuously investing, releasing more consumption potential while making Shanghai the main battlefield for competition. Meanwhile, RT-Mart, under Gaoxin Retail, took a different approach by choosing to start from third-tier cities, opening its first membership store in Yangzhou, Jiangsu Province, which is also Yangzhou's first warehouse-style paid membership store brand. Differentiation is undoubtedly the winning strategy for membership stores. "The membership store model requires extremely low costs, including cheap property costs. Competitors build membership stores in suburbs to obtain low property costs. But our first store in Yangzhou is our own property," said Lin Xiaohai, Executive Director and CEO of Gaoxin Retail, in a recent interview with 21st Century Business Herald. As a long-term investment, M Membership Store does not plan to be profitable within three years. Leveraging RT-Mart's supply chain, in fiscal year 2024, Gaoxin Retail will open three M Membership Stores around the Yangtze River Delta region. As of December 2022, Hema X Membership Store had opened 9 stores in China, with locations in Shanghai, Beijing, Nanjing, and Suzhou. It is not difficult to see that the Yangtze River Delta has become the main battlefield for retail competition. Upgraded Differential Competition "M Membership Store is an expansion of Gaoxin Retail's new business format and a key layout for creating a second growth curve," Lin Xiaohai stated directly. On May 16, Gaoxin Retail released its fiscal year 2023 performance report for the period ending March 31, with annual revenue of 83.662 billion yuan, operating profit of 1.177 billion yuan, and net profit of 78 million yuan, achieving a turnaround from loss to profit. In fact, the development of traditional retail stores has shown a declining trend in recent years. More importantly, this model can no longer fully meet consumers' shopping habits, and players need to find new growth from the existing market. It is understood that RT-Mart's Yangzhou M Membership Store covers a total area of 35,000 square meters and is an independent commercial building complex, formerly the RT-Mart Jiangyang store. This is also the fifth retail format launched by Gaoxin Retail. Similar to other domestic retail companies entering the membership track, Gaoxin Retail's first membership store was also upgraded from an old store. From preparation and renovation to official opening, M Membership Store took only a little over half a year. Since opening, paid members have exceeded 30,000. "Membership stores are a current consumption hotspot. From the consumer's perspective, they increasingly hope that shopping malls can provide more differentiated products and are more willing to choose products with high cost performance," said Xie Xiaoying, Senior Director of Consumer and Retail Consulting at Simon-Kucher & Partners China, in an interview with 21st Century Business Herald. Membership stores precisely meet these two needs of consumers. In her view, whether it is Sam's Club or Hema, they are both innovating in categories. Whether from the perspective of food or fresh supply, they have their own preferred suppliers and can present products in the form of fewer SKUs with more bestsellers. "Whether RT-Mart or other hypermarkets can also have their own unique characteristics remains to be seen." In April this year, Carrefour China successively closed two membership stores, including Shanghai Chengshan Road store and Shanghai Zhongshan Park store, with the former being Carrefour's first membership store. Currently, only two of Carrefour China's four membership stores in Shanghai remain. Previously, the company had ambitiously stated that it would open 100 paid membership stores within three years. Now, this plan seems difficult to implement. Regarding the future prospects of the industry, Lin Xiaohai said, "As a newcomer to the membership store track, we first focus on learning, and we dare not claim to make any differentiation. Entering a new track with an investment mindset, the team's first-year goals focus on two aspects: membership numbers and renewal rate." When asked whether membership stores are an inevitable path for hypermarket transformation, Lin Xiaohai gave a negative answer. "I do not think the end of hypermarkets is membership stores. Membership stores have their own target customers and user value. Every business format must find its core target users and user value." Marching into Lower-Tier Markets From first-tier cities to second- and third-tier cities, the membership store format is beginning to move into lower-tier markets. Official data shows that Sam's Club has opened stores in Chongqing, Ningbo, Changsha, and other cities, and will further expand this year. "From the perspective of disposable income and consumption capacity, third- and fourth-tier cities are actually not bad now. In many aspects, they have money and leisure and are willing to visit offline supermarkets," Xie Xiaoying analyzed. Offline remains a major channel that provides consumer experience and product satisfaction. In her view, for the retail industry, it is necessary to consider how to capture the needs of consumers in third- and fourth-tier cities in terms of supply chain and product selection. "If we can well cater to basic consumption trends, I believe we can achieve very good performance." In terms of consumption trends, consumers increasingly care about retailers' product selection capabilities. For hypermarkets, their biggest challenge is product standardization. Therefore, when online squeezes offline, product differentiation is a more urgent issue to solve. On May 17, Hema signed strategic cooperation agreements with 13 globally renowned retail groups, international brands, global associations, and consulting companies to accelerate the introduction of high-quality overseas products. Many well-known companies, including Australia's Coles, NH Foods, O'connor, Switzerland's Migros, Canada Pork, Norway's MOWI, and Chile's Garces, reached cooperation with Hema. At the same time, Hema also announced that it will set up 8 global procurement centers. With this move, Hema hopes to comprehensively enhance product competitiveness from three dimensions: richness, uniqueness, and price competitiveness. "The systematic construction of the global business system brings efficiency improvements in product power and also forges the company's core capabilities," said Hema CEO Hou Yi. Through supply chain customization, increasing the share of private-label products is both a competitive need and a necessary path to profitability. It is understood that RT-Mart's M Membership Store has 3,000 SKUs, of which about 300 are private-label products, accounting for 10%. In addition, compared with RT-Mart hypermarkets, more than 90% of the products in membership stores are differentiated. However, for different markets, how to adapt to local conditions and differentiate remains a challenge. "We cannot simply copy the experience of first-tier cities, nor simply move products over. Instead, we need to be targeted and avoid head-on competition with giants like Sam's Club," Xie Xiaoying believes that retail companies should be prepared to make mistakes. Balancing Experience and Scale He Xiaoqing, President of Greater China and Global Partner at Kearney, an international management consulting firm, believes that China, as one of the world's largest consumer markets, has a huge population base and continuously growing economic strength. China's digital transformation and consumption upgrade are also driving profound changes in the retail industry, bringing unprecedented opportunities for enterprises. However, long-term healthy development still needs to be rooted in user experience. For the first M Membership Store in Yangzhou, Lin Xiaohai's core assessment indicators for the internal team include membership numbers and membership renewal rate. In fact, these two indicators are also the touchstone of the industry. In terms of gross margin, general membership stores have relatively low gross margins. In addition, both Sam's Club and Hema have differentiated the products sold through e-commerce channels from those in membership stores. Lin Xiaohai stated directly, "The difficulty of the membership store format is actually greater than any other format. Membership stores require a property foundation, a complete differentiated product system, and a concept and team for member services." This is a high-barrier industry. At the end of last year, Sam's Club invested 500 million yuan to reduce prices on ten products with the highest repurchase and penetration rates. Maintaining user stickiness is not easy. "In the past, some membership stores in the suburbs won with a relaxed shopping environment, ample parking, and thoughtful service. But now, whether you go to Sam's Club or Costco, it's crowded, especially with Sam's Club's large shopping carts, which are very inconvenient," Mr. Zhao, a Shanghai resident, told 21st Century Business Herald. He has been a membership store user for many years, but the experience is now not as good as before, and he will not renew his card next year. In the future, as more players enter the track, the business model and experience of membership stores will also face another upgrade. "Membership stores are indeed a format that online cannot replace. The gross margin is only half that of hypermarkets. Most e-commerce platforms would have logistics costs accounting for almost the entire gross margin, so they cannot do it," Lin Xiaohai believes. Consumption upgrade is also gradually moving from first-tier cities to second- and third-tier cities, and there is still huge space for consumption upgrade in the Chinese market.