On February 20, Sun Art Retail released its full-year 2019 financial report, the second year after being acquired by Alibaba. According to the annual report, as of December 31, 2019, Sun Art Retail's total sales revenue was 101.868 billion yuan, a year-on-year increase of 0.5%; revenue was 95.357 billion yuan, a decrease of 4% compared to 99.359 billion yuan. Operating profit was 4.890 billion yuan, up 4.1% from 4.698 billion yuan the previous year. Additionally, total sales revenue (cash generated from in-store sales) for 2019 was 101.868 billion yuan, a year-on-year increase of 0.5%. Revenue from sales of goods was 91.279 billion yuan, a year-on-year decrease of 4.5%. It is explained here that the home appliance department's business model changed from self-operated to consignment sales by Suning since August 2018. Since then, revenue from home appliance products has been commission income, not total sales revenue. Same-store sales growth (calculated based on merchandise sales excluding home appliances) was -1.01%. However, with the completion of the integration of operating systems and supply chains between RT-Mart and Auchan, Sun Art Retail expects same-store performance to return to normal in 2020. Calculated based on merchandise sales excluding home appliances, same-store sales growth for RT-Mart brand stores was positive. -01- Store Openings in 2019 Regarding store openings, in 2019, Sun Art Retail opened 7 new hypermarket stores, all under the RT-Mart brand. Three were located in East China, two in Central China, and two in South China. It closed 5 loss-making stores: one in East China, one in North China, two in Central China, and one in South China. Through signing leases or acquiring land, Sun Art Retail secured 43 locations for opening hypermarkets, with 37 under construction. As of December 31, 2019, Sun Art Retail had a total of 486 stores. 70% were self-operated, and 29.7% were owned properties. 16.5% were in second-tier cities, 46.3% in third-tier cities, and 21.6% in fourth-tier cities. -02- Alibaba's Transformation Accelerates in 2019 In the financial report, Sun Art Retail also mentioned business progress. It should be noted that in November 2017, Alibaba invested approximately HK$22.4 billion, directly and indirectly holding 36% of Sun Art's shares, becoming the second-largest shareholder. In early 2018, Alibaba completed actual control of Sun Art Retail, holding 71.98% of shares. Since then, Alibaba's genes have been gradually implanted into RT-Mart, including Alibaba's new retail transformation of RT-Mart stores. According to Sun Art Retail's last year's financial report conference, "2018 was the infrastructure year, 2019 was the scale acceleration year, and 2020 will be the harvest year." Sun Art Retail may still need to make many changes in 2020, but more likely it will be harvesting. So how has Sun Art Retail's business progressed after the new retail transformation? 1. B2C (1-hour delivery to home + half-day delivery, etc.) After a year of development, the number of users has exceeded 33 million, with active users exceeding 10 million, and the average daily order volume and average order value per store have been steadily rising. Taking November 11, 2019 as an example, total orders doubled compared to the previous year, exceeding expectations, and the on-time delivery rate exceeded 99.5%. The entry points for this service include Sun Art Retail's own "RT-Mart Youxian" and "Auchan Home Delivery," as well as partner entries such as Taoxianda, Ele.me, and Tmall Supermarket, offering one-hour fresh food delivery to consumers within a 5-kilometer radius of the store. O2O business (online-offline integration) total sales revenue increased nearly 90% year-on-year. Sun Art Retail believes that the success of its one-hour delivery business is due to the national supply chain and store layout, and the model of integrating store and warehouse. 2. B2B Business According to the financial report, Sun Art Retail's B2B revenue in 2019 increased by approximately 50% year-on-year, and it is expected that the B2B business revenue scale will further expand in 2020. As of now, existing users exceed 530,000, active merchant users are close to 240,000, and the average order value exceeds 1,000 yuan. The main users are wholesale and retail enterprises and institutions, as well as catering, canteen, and entertainment customers. Sun Art Retail also expects to continue developing potential users in 2020, increase user penetration within the service radius, and deepen existing user relationships. 3. Store Restructuring As for hypermarkets, Sun Art Retail upgraded 10 hypermarket stores, including five in Shanghai, one in Suzhou, one in Jinan, one in Shenyang, one in Wuhan, and one in Guangzhou. The same-store growth of renovated stores improved significantly, especially in the fresh food category, which averaged double-digit growth. Sun Art Retail expects to continue upgrading 50 more hypermarket stores. Sun Art Retail stated that restructuring hypermarkets mainly involves functional restructuring, category restructuring, and mind-share restructuring. It is not only about making the shopping environment more vibrant and display methods more professional, but also focusing on differentiation in product selection and assortment. The goal is to become an expert in fresh food and food, building a new retail hypermarket that offers value-for-money, professional, and fashionable products. -03- Impact of the Epidemic on Sun Art Retail Regarding the impact of COVID-19, Sun Art Retail stated that the epidemic has had a relatively significant impact on the Chinese market and Sun Art Retail's operating environment. As a necessity industry, as of the date of the announcement, operations have not been materially affected by the spread of the epidemic. Due to preventive measures taken in coordination with the government, some store street tenants in certain hypermarkets were required to suspend business. Currently, as many companies resume work, some tenants have been allowed to reopen. Sun Art Retail believes it is still too early to draw conclusions about 2020 at this stage.