As for future results, time will tell.

After more than two years of rapid expansion, Suning Xiaodian, which has opened stores everywhere, may now need to consider profitability and is "adjusting its battle lines." Recently, reporters from The Beijing News found that several Suning Xiaodian stores in Beijing are being closed or adjusted. Some store staff believe the closures are related to poor site selection, product selection, and unprofessional operations.

Industry insiders and experts believe that Suning Xiaodian does have certain problems in site selection evaluation, store operations, and supply chain, but the root cause is that Suning lacks convenience store operational experience and expanded at all costs before its business model and operational architecture were perfected. Therefore, it must bear the risk and close some severely loss-making stores to stop the bleeding in time.

However, reporters from The Beijing News also noted that Suning Xiaodian is actively exploring new models, such as changing product structures, trying new store formats, and implementing a partner system to motivate employees. As for future results, time will tell.

-01- Suning Xiaodian Stores Are Gradually Closing

Recently, reporters from The Beijing News found that several Suning Xiaodian stores in Beijing have had their signs removed, with no brand markings, and notices posted at the entrances saying "Store rectification, temporarily closed."

On December 9, the Suning Xiaodian Xingfujiayuan store was in disarray, with goods removed and disposable bowls and cups scattered on the floor. A similar situation occurred at the Suning Xiaodian Xinzhaojiayuan store, which had been closed for over half a month, with staff responsible for inventory and final tasks. The landlord said the store had been re-leased. Regarding the closure of the Xinzhaojiayuan store, employee Wei Hua (pseudonym) said, "Business is bad; we sell a few hundred yuan a day, normally just over 300 or 500 yuan. The losses are too severe."

In his view, the store's site selection was problematic. Although it was backed by a large residential area, there were four or five supermarkets and convenience stores nearby, and there was a food street in the community offering good value. Suning Xiaodian had no advantage in either products or prices. According to Wei Hua, since August, stores with daily turnover below 2,000 yuan were to be closed.

However, an unnamed Suning Xiaodian executive told The Beijing News, "That's not necessarily the case." Store closures depend on several factors: whether the area is part of strategic layout, whether sales are growing consistently, the ratio of costs to revenue, and the store's future potential.

Suning Xiaodian Xingfujiayuan store

Taking the Xinzhaojiayuan store as an example, the 100-square-meter store mainly sold snacks and beverages, with no food service or fresh food. According to Wei Hua, the monthly rent was about 10,000 yuan, wages for three employees were about 15,000 yuan, and utilities were 2,000-3,000 yuan per month, rising to 6,000 yuan in summer. If these figures are accurate, the store would need to earn about 30,000 yuan per month to break even.

Suning Xiaodian Xinzhaojiayuan store

However, the store's performance was poor. With daily turnover of 500 yuan, monthly sales would be 15,000 yuan. An industry insider told The Beijing News that convenience store gross margins are about 30%, so the store's profit would be only 4,500 yuan per month, with losses possibly reaching 25,000 yuan per month.

If the store operated for a year, it would lose about 300,000 yuan. Wei Hua revealed that in his area, there were 40 stores, and only two had daily turnover reaching 10,000-30,000 yuan. Other stores had varying sales, with some at 6,000 or 8,000 yuan, but the average daily turnover was about 2,000-3,000 yuan.

It is reported that loss-making Suning Xiaodian stores have been divested from the listed company. According to an announcement by Suning.com in October 2018, as of July 31, 2018, Suning Xiaodian had net assets of -310 million yuan and a net loss of 296 million yuan in the first seven months of 2018. Suning.com also lent 653 million yuan to develop the Suning Xiaodian business. Suning explained at the time that the losses were due to rapid store openings, with most stores in a cultivation period, and significant upfront investments in organization, staffing, store development, promotion, and supply chain.

-02- Beijing Store Closures May Exceed 80

According to public information, Suning Xiaodian stores range from 80 to 200 square meters and are mainly located in communities, CBDs, and transportation hubs. Suning Xiaodian integrates online and offline, offering fresh produce, hot food, beverages, and also providing convenience services such as lottery, laundry, housekeeping, and real estate brokerage.

In 2017, Suning Xiaodian was still in its infancy with only 23 stores nationwide. In 2018, it expanded rapidly, reaching 4,177 stores by year-end. As of June 30, 2019, Suning Xiaodian and Dia Tian Tian self-operated stores totaled 5,368, with 42 Dia Tian Tian franchise stores.

Notably, Beijing is a market Suning Xiaodian values highly. Previously, media reported that on December 31, 2018, Suning Xiaodian announced it had achieved the goal of opening 500 stores in a single city. However, a store manager at Suning Xiaodian's Chaoyang North Road store said that Beijing had closed over 100 Suning Xiaodian stores this year.

On December 9, Dianping showed 420 Suning Xiaodian stores in Beijing, with 9 marked as closed and 3 not yet opened, bringing the current number to around 410. The Suning Xiaodian executive confirmed these figures. If calculated from the 500 stores at the beginning of the year, Suning Xiaodian may have closed over 80 stores in 2019. Regarding the closures, the executive said that store optimization alongside openings is normal, and other convenience stores also experience closures.

In the view of Wen Zhihong, partner at Hejun Consulting and head of chain operations, store openings and closures are normal adjustments for retail chains. "But if there are a large number of closures, it indicates that the previous expansion was too blind, and site selection evaluation, store operations, and supply chain were not mature enough, leading to poor profitability. Many stores would find it difficult to profit in the short term and even in the coming years, hence the closures."

-03- Experts: Site Selection, Products, and Operations May Be Lacking

Losses are the most direct reason for closures, but why is Suning Xiaodian losing money? Wei Hua believes that many early store openings had unreasonable site selection. Taking the recently closed Guanzhuang Road Second Store as an example, reporters from The Beijing News noted that next door were a retail store and a fresh produce store, and across the street was a shopping mall, with two fresh produce stores within 300 meters, indicating fierce competition.

For community stores, selling vegetables not only brings sales but also attracts foot traffic, but several staff members said fresh produce "doesn't sell well." According to a staff member at the Chaoyang North Road store, vegetables were removed from shelves due to limited sales and high spoilage. At the Suning Xiaodian Meiran Dongli store, reporters saw on the morning of December 9 that oranges were shriveled, bananas had blackened peels, and vegetables like cabbage and onions were not fresh. An unnamed Beijing online fresh produce entrepreneur told The Beijing News that compared to other community stores, Suning Xiaodian had fewer fresh produce categories and insufficient freshness.

Fruits and crabs sold at the Suning Xiaodian Meiran Dongli store appeared not very fresh.

However, Suning Xiaodian is also adjusting, opening specialty coffee and tea stores, and some stores no longer have fresh produce sections, shifting to online. Reporters noted that in the first half of this year, a Suning Xiaodian store in Ganluyuan still sold fresh produce, but sales were poor, often discounted in bulk, and the store has now removed fresh produce. Several staff members said, "Many Suning Xiaodian stores no longer stock fresh produce; stores with poor sales have stopped. It's mainly online now, cheaper and fresher."

The fresh produce entrepreneur believes that consumers have many online options for buying vegetables, with instant delivery being mainstream. Unless the products are particularly good or prices are particularly low, "it's basically hopeless."

Regarding the shift from in-store fresh produce to online, the Suning Xiaodian executive said that selling vegetables offline initially required too high a demand on staff numbers, quality, and training, and daily clearance led to high spoilage. So they turned to an online vegetable market with a "order today, pick up tomorrow morning" model.

To ensure quality, the core is proximity to consumers, fresh produce, and increased variety. Currently, the Nanjing market has increased SKUs to 1,000. Regarding delivery time, the executive said that compared to instant delivery, next-day delivery reduces costs and controls spoilage, ensures freshness, and offers relatively lower prices, making it the main direction for Suning's vegetable market.

Notably, some staff said Suning Xiaodian also has "pain points" in products and operations. An unnamed store manager said that a snack in his store hadn't sold a single unit in months; the company's display plan required instant noodles to be placed in the golden position. Having worked at several chain convenience stores, he found this unreasonable and applied to change the display, but was not allowed.

Lai Yang, dean of the Beijing Business Circulation Strategic Research Institute, told The Beijing News that store operations must follow basic business laws, with products centered on consumer needs. However, Suning lacks experience in fresh produce and convenience store operations, resulting in poor product structure and brand selection, and the store image, product quality, and prices are not competitive. Taking hot meals as an example, it's not simply signing a fast-food supplier and reheating in-store; it tests the infrastructure and details of fresh food.

Lai Yang believes that on the surface, Suning Xiaodian has product and operational issues. "But at the root, the key early investment for small stores is not rapid store opening, but designing the business model and operational architecture."

-04- Exploring the "Partner System"

Despite changes in stores, Suning Xiaodian has not pressed the "pause button," continuing to expand through acquisitions to seize market share. At the same time, Suning Xiaodian is piloting a new model—the partner system.

In April 2018, Suning Xiaodian announced the full acquisition of Shanghai Dia Tian Tian, completing the renovation of all 308 stores by the end of July, rebranding them as Suning Xiaodian. In December of the same year, it acquired 31 subway station convenience stores from Xi'an Guo'an Convenience. In August this year, Suning Xiaodian signed an equity transfer agreement with Fung Retailing for Lia Ya Hua Nan, and after completion, Suning Xiaodian will 100% own its 60-plus OK convenience stores in the Guangzhou area.

In May this year, the China Chain Store & Franchise Association released the "2018 China Convenience Store TOP100," ranking Suning Xiaodian fourth with 4,508 stores, behind Sinopec and PetroChina's Yijie, Kunlun Haoke, and Meiyijia. As of the first half of 2019, Suning Xiaodian and Dia Tian Tian self-operated stores totaled 5,368, with 42 Dia Tian Tian franchise stores.

Regarding Suning's continued losses without pressing the "pause button" on expansion, Wen Zhihong believes Suning wants to achieve scale effects through rapid expansion and also to compete for the convenience store market. He mentioned that in convenience store expansion, seizing store resources is crucial. In recent years, companies like FamilyMart and Lawson have been accelerating expansion, and Suning also wants to seize opportunities and spatial resources. Currently, Suning's model is not yet mature and is still in a trial-and-error stage, so it must bear certain risks.

While continuously opening stores, Suning Xiaodian is also trying new management methods. According to media reports, around August this year, Suning Xiaodian launched a small store partner project, encouraging store employees to become partners.

According to several Suning Xiaodian partners, the company covers store rent and provides some utility subsidies, but store operations are handed over to partners. In return, partners receive a labor fee of 15,000 yuan. Partners still purchase through Suning, and supervisors conduct regular inspections, but they can hire their own staff or operate themselves. Additionally, Suning Xiaodian sets operational targets for partner stores, and commissions are given based on target completion and turnover.

According to the Suning Xiaodian executive, the partner system began piloting around April or May this year and currently accounts for about 60% of stores. He said the core of the partner system is "sell more, earn more," and stores implementing the partner system have seen increased turnover, with particularly good ones growing by 150%, and staff income has also increased. Currently, it's mainly revenue sharing, but profit sharing will be added in the future.

Regarding the partner system, Wen Zhihong believes that Suning Xiaodian separates store ownership and operation rights, similar to "contract operation." It gives partners a certain degree of freedom, stimulates their enthusiasm, and supervisors manage to prevent complete loss of control. It's a new attempt that aligns with the operational laws of small stores. However, Wen Zhihong also mentioned that the key to the partner model is whether profit distribution is mature. Clearly, compared to convenience store companies like FamilyMart and 7-Eleven, Suning Xiaodian still needs continuous trial and error and refinement.

Lai Yang stated that Suning Xiaodian's core problem now is whether the entire management system can keep up. "The partner system is a development direction, but when Suning Xiaodian's overall system is not yet perfected and supportive, the partner system may seem to leverage employee initiative, but in reality, it will only burden employees with greater operational pressure, potentially leading to staff turnover." Lai Yang also emphasized that the partner system does not mean laissez-faire; there must be strict management and supervision systems, and execution and service standards must be ensured.

Source: The Beijing News

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