Online orders grew rapidly. On January 31, 2021, Sun Art Retail disclosed its full-year 2020 financial report (as of December 31). In 2020, Sun Art Retail's sales revenue was 95.486 billion yuan, a year-on-year increase of 0.1%. Among this, revenue from goods sold was 91.984 billion yuan, an increase of 705 million yuan from 91.279 billion yuan in the same period last year, an increase of 0.8%. Same-store sales growth (calculated on goods sales excluding home appliances) was 1.0%. On February 20, 2020, Sun Art Retail released its 2019 annual report showing total sales revenue of 101.868 billion yuan, a year-on-year increase of 0.5%. This 2020 report shows that apart from a slight revenue increase of 0.1%, Sun Art Retail's gross profit, gross margin, operating profit, and other metrics all saw slight declines. However, it is worth noting that this is the first time since 2018 that Sun Art Retail has stopped revenue decline and achieved positive growth. However, it is also the first time in five years that RT-Mart has seen a decline in gross profit and gross margin. From a business perspective, in 2020, the group focused on developing new formats beyond large stores. In addition to opening 4 new hypermarkets, bringing the total to 484, it also opened 6 new medium-sized supermarkets "Zhongrunfa" (RT-Mart Super), and the number of "Xiaorunfa" stores increased to 24. Both will enter a rapid expansion phase in 2021. In community group buying, the number of active stations cooperating with Cainiao was nearly 8,000, and Feiniu Group Buying stations landed in 220 stores. Affected by the pandemic, online orders grew rapidly. After May 2020, despite the pandemic being relatively stable, the average daily order volume per online store exceeded 1,000 orders, and in first-tier cities, the average daily order volume exceeded 2,000 orders. At the Sun Art Retail annual report conference call on the afternoon of February 1, Lin Xiaohai, Executive Director of Sun Art Retail and CEO of RT-Mart China, stated that the group will accelerate the development of multi-format and omni-channel strategies and restructure its own hypermarkets. It is hoped that through new strategies, RT-Mart will return to high single-digit growth in the next fiscal year and achieve double-digit growth two years later. -01- Online Order Growth In 2020, Sun Art Retail's revenue was 95.486 billion yuan, a year-on-year increase of 0.1%. Among this, revenue from goods sales was 91.984 billion yuan, a year-on-year increase of 0.8%. This growth mainly came from online order volume. The annual report stated that although offline business sales, mainly hypermarkets, faced challenges, the online B2C business on Taoxianda and Tmall platforms achieved significant growth. Over the past year, RT-Mart's online order volume continued to grow. Starting from May 2020, the average daily order volume per online store exceeded 1,000 orders. Relying on the explosion of online orders, RT-Mart's full-year B2C performance increased by 80% compared to the same period last year, with order volume increasing by 60%. In the second half of 2020, even as the pandemic stabilized, the average daily order volume in first-tier cities still exceeded 2,000, and in lower-tier cities, it was close to 2,000 orders. On Double 11, the average daily order volume per store exceeded 2,900 orders for the first time. Although the B2C average order value in the second half of the year showed a significant decline compared to the first half, it still increased by 5.7% compared to the same period last year, with a net amount of 66 yuan after tax. Among this, fresh food and daily distribution accounted for over 53%, FMCG for over 45%, and non-food for nearly 2%. Sun Art Retail's gross profit in 2020 was 24.343 billion yuan, a year-on-year decrease of 5.4%, and the gross margin was 25.5%, a year-on-year decrease of 1.5%. The reasons were reduced rental income and changes in product channel mix due to the pandemic. The proportion of FMCG sales with relatively lower gross margins increased, while sales of textiles and general merchandise with higher gross margins declined. Full-year operating profit decreased by 4.6% to 4.664 billion yuan. As of the date of the annual report, the number of corporate B2C users exceeded 69 million, and active users exceeded 16.5 million.

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New Formats and Channel Expansion In terms of traditional hypermarkets, in 2020, three stores in East China were closed, and four new stores were opened, bringing the total to 484. It can be seen that the hypermarket format is currently affected by multiple dimensions such as population density and economic level, and there are not many high-quality locations available for new stores. Although revenue per store increased slightly, the single hypermarket format has no further room for growth. RT-Mart is breaking through the revenue bottleneck of hypermarkets by vigorously developing new formats. Here, new formats mainly refer to medium-sized supermarkets, small supermarkets, and community group buying. Currently, RT-Mart's medium-sized supermarket model has basically taken shape, the small store model is in the optimization and improvement stage, and the community group buying business is still in the early exploration stage. Specifically, first is the medium-sized supermarket "Zhongrunfa". In 2020, the group opened 6 Zhongrunfa stores, with a store operating area of about 3,000 to 5,000 square meters, about 15,000 SKUs, and fresh food and daily distribution accounting for about 57% of revenue, and FMCG for 38%. Each Zhongrunfa can create a more differentiated product structure based on the different business districts and customer positioning. Currently, the Zhongrunfa Jiuzhou store has achieved profitability. The annual report stated that the business model of Zhongrunfa has basically taken shape and will usher in nationwide large-scale expansion in 2021. It will focus on second- and third-tier cities and create fresh food supermarkets closer to young consumer groups. Xiaorunfa opened 24 stores, concentrated in Nantong and Taizhou in Jiangsu Province. The operating area of Xiaorunfa is 100 to 300 square meters, and fresh food and daily distribution account for a relatively high proportion of performance, at about 75%. Sixty percent of store revenue comes from fruits and vegetables, aquatic products, and livestock meat. The design concept of Xiaorunfa is "RT-Mart at your doorstep," meeting customers' needs for three meals a day and building a "fresh food processing center" for the city. Lin Xiaohai revealed at the conference call that in the next fiscal year, 30 to 50 Zhongrunfa stores and more than 200 Xiaorunfa stores will be opened. According to the plan, new formats will account for a larger share of revenue in 2021. In terms of community group buying, RT-Mart's self-operated Feiniu Group Buying and Yifagou, which cooperates with Cainiao stations, are developing together. Currently, Cainiao station community group buying business has started cooperation in more than 36 cities and over 100 stores, with nearly 8,000 active stations. Feiniu Group Buying stations have landed in 125 cities, with business launched in over 220 stores. -03- Format Restructuring and Outlook For veteran hypermarkets like RT-Mart, in addition to opening new stores, how to handle old stores with weak revenue is also crucial. In this regard, Lin Xiaohai stated that the company will restructure its own hypermarkets. First, old stores will be transformed into new formats. Of the 6 Zhongrunfa stores newly opened in 2020, 3 were converted from old stores. At the same time, RT-Mart piloted the "warehouse store" model in 2020. Considering that non-food products in physical stores are impacted by online channels, the group transformed some stores into "warehouse store" models. Compared with ordinary stores, the operating area of warehouse stores is reduced, and the warehouse area is significantly increased. The inventory of transformed warehouse stores must not only meet the needs of their own stores but also serve same-city half-day delivery, community group buying, and B2B businesses. Such warehouse stores will achieve one city, one store, so that each city has its own city warehouse, thereby reducing logistics costs and improving product efficiency. Lin Xiaohai stated that the group hopes to reconstruct the reasons for customers to visit stores, and hopes to focus on categories that e-commerce cannot replace in the future. In addition, the group plans to change the commercial street model, and in the future create a commercial street model that adds service, catering, and entertainment stores, so that customers must come to the store. Source: 36Kr - Future Consumption (ID: lslb168) —end—