---
title: "The Truth Behind the Retail Store Closure Wave: The Traditional Supply Chain System Is Collapsing"
description: "Can Dongfeng's strategic investment save Carrefour? Traditional retail enterprises that lack the courage to make bold changes and rebuild their supply chains, while only making superficial store format adjustments, have no promising future. Despite experiencing a large-scale out-of-stock crisis, Carrefour remains calm, apparently backed by its 'strategic investment'."
author: "龙商网"
publisher: "New Distribution"
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published: "2023-02-27"
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# The Truth Behind the Retail Store Closure Wave: The Traditional Supply Chain System Is Collapsing

> Can Dongfeng's strategic investment save Carrefour? Traditional retail enterprises that lack the courage to make bold changes and rebuild their supply chains, while only making superficial store format adjustments, have no promising future. Despite experiencing a large-scale out-of-stock crisis, Carrefour remains calm, apparently backed by its 'strategic investment'.

Can Dongfeng's strategic investment save Carrefour? Traditional retail enterprises that lack the courage to make bold changes and rebuild their supply chains, while only making superficial store format adjustments, have no promising future.

Despite experiencing a large-scale out-of-stock crisis, Carrefour remains calm, apparently backed by its 'strategic investment'.

On February 20, it was reported that Carrefour China signed a strategic cooperation agreement with the Yingjiang District Government of Anqing City, Anhui Province, to promote deep cooperation in supply chain, capital, commercial operations, and other aspects. A representative from Yingjiang District, Anqing City, stated that they would support Carrefour's transformation and upgrading through equity investment.

In recent years, some well-known retail enterprises have successively faced survival crises, especially hypermarket-based physical retailers, which have been widely criticized. Even as the industry enters a recovery period, survival pressure continues to increase.

This will lead to some new changes: First, competition among traditional retailers intensifies, focusing on cost, efficiency, and endurance, ultimately competing on supply chain systems. Second, some enterprises that emphasize supply chain infrastructure and have solid operations begin to offer franchising. Third, 'cost reduction, efficiency enhancement, and high-quality development' become the operational demands of enterprises.

In 2023, the retail industry is slowly recovering, but this recovery is an industry-wide phenomenon and does not necessarily apply to every enterprise. At the enterprise level, recovery does not automatically mean increased foot traffic; it depends on the enterprise's ability to meet new consumption characteristics and demands in an increasingly favorable environment.

According to the industry trend of high-quality development, retail enterprises should be psychologically prepared for a decline in sales scale this year. While striving to maintain sales, can they still be profitable, and how? Under the trend of the traditional retail supply chain system collapsing, what should be the path to solve the 'high-quality development' problem?

**Model Crisis**

The 'store closure wave' has been a must-have in the industry's annual keywords in recent years.

What is the fundamental reason behind those waves of store closures? Expired leases, strategic adjustments, and poor management are direct causes, but the fundamental reason is the chronic problem or even crisis in the traditional supply chain system of retail enterprises. The traditional supply chain system formed over many years has lost its competitive advantage and is beginning to collapse.

First, the structure of upstream manufacturing, processing, and supply systems is undergoing fragmentation.

In the past, the distribution systems of national and multinational first- and second-tier well-known brands, especially in categories such as cleaning, personal care, food, beverages, and grain and oil, played a pivotal role in the commodity supply chain of chain retail. Some brand owners even held a dominant position in certain categories, such as P&G, Unilever, Coca-Cola, PepsiCo, and Nestlé, whose sub-brands are leaders in their categories. Domestic local retail brands had only a few national counterparts to support these multinational brands.

However, in recent years, with changes in the domestic consumption environment, market structure, and industrial structure optimization driven by supply-side reforms, the market scale and competitiveness of multinational brands in China have significantly declined. Meanwhile, localized, regional, and personalized FMCG manufacturing brands have sprung up, driving wave after wave of 'national tide' in the domestic FMCG market. Just as local Chinese retail enterprises rose rapidly after supporting foreign retail brands for a few years, local manufacturers and processors that once OEM'd for multinational brands have awakened their national brand awareness and now possess manufacturing and processing capabilities comparable to foreign product brands.

The changes in the upstream FMCG manufacturing, processing, and supply chain structure have forced the traditional supply chain systems of chain retailers to change accordingly. Personalized product brands have greatly enriched the market, and the once-popular first- and second-tier well-known brands that drove store traffic no longer have the same appeal. The supplier system structure, where one category was dominated by a single supplier or two strong competitors, is being replaced by a structure of diversified positioning and personalized brands.

This forces retail enterprises to reform and optimize their traditional supply chain systems that relied on 'extracting profits from upstream'. It is difficult for a single brand supplier to dominate a category again, meaning that retail enterprises can no longer rely excessively on a strong brand supplier for traffic and squeeze profits from other supporting suppliers. Instead, they must test their ability to understand and grasp consumer demand in their trade areas and to select products and organize marketing when faced with more diverse and abundant supply chain resources.

Second, changes on the consumer side objectively require traditional retail enterprises to break away from outdated product assortments and obsolete supply chain models.

Physical stores, represented by traditional hypermarkets, appear to lose on outdated layouts and cluttered merchandise, filling shelves according to old patterns regardless of whether customers still buy. But in reality, they lose on product and business format innovation that lags behind changes in consumer demand.

In terms of category breadth, they have not effectively responded to changes in consumer behavior. For example, the three major sections of physical stores—fresh food, groceries, and general merchandise—have remained unchanged for years. In the current environment of online-offline integration, diversification, segmentation, and fragmentation, where purchases can be made anytime and anywhere, how many categories and items still require customers to visit the store to buy?

Do physical stores have to organize around the above 'three major sections'?

Answering this question objectively requires retail enterprises to re-examine themselves: How many purchase scenarios can they provide? Which categories can be sold in these scenarios? Which categories must become core competencies? Which categories are no longer suitable for their business? They should fully strengthen the basic categories they can do well, and for categories they lack capability or advantage in, either cooperate with others or decisively abandon them.

In terms of category depth, they should dig deeper into consumption characteristics and evolving demands. In the past, 'big brand' quality products were only available in first- and second-tier large cities, but now they are conveniently available in township markets. With the rapid development of technology applications and logistics systems in recent years, and the sinking of channels, the quality difference between online and offline, urban and rural purchases has greatly narrowed.

People's consumption concepts are also shifting from focusing on price to focusing on quality and experience. First, many products that were once considered expensive are now significantly cheaper. Second, with the rise of the national tide, the quality gap between local brands and well-known multinational brands has narrowed significantly.

These changes in consumption factors objectively require retail enterprises to abandon their past supplier system structures and provide quality product resources that align with consumption trends and local trade area characteristics, which means rebuilding the supply chain.

**Resource Rebuilding**

In the past, it was said that retail enterprises must not be 'greedy'. Looking back, how many giants took detours due to national, cross-regional, and diversified strategies? How many enterprises fell into quagmires?

In the current era of channel diversification and consumption fragmentation, retail enterprises must resist temptation, seize the opportunities brought by changes in the manufacturing brand landscape due to supply-side reforms, lead and rebuild supply chain systems that suit localized consumption characteristics, and protect their own value by doing some things and not others. For example, online-offline integration will become standard for every physical retail enterprise in the future, but most can achieve it with external help.

As the industry develops to this point, physical retail enterprises must clearly think about what their 'core value' should be and what path they should take.

Walmart, Costco, Yonghui Superstores, Hema, and Dazhang Company—these excellent domestic and foreign retail enterprises have different development strategies, but a common feature is that they attach great importance to and successfully build supply chains with their own characteristics.

Walmart and Costco have deeply cultivated upstream industry chains for many years and have formed mature, efficient supply chain systems led by themselves that adapt to trade area changes. Yonghui Superstores, since its listing in 2010 and the introduction of Hong Kong's Dairy Farm International in 2014, has determined to take the path of a manufacturing-oriented retail enterprise. Its subsequent investments in multiple manufacturers and its creation of supply chain companies like Caishixian are all deep cultivation of supply chains starting from the source.

Of course, since 2017, Yonghui has also taken nearly five years of detours, typically represented by 'exploring new retail'. The strategy of technology-driven business format innovation actually deviated from the 'duty' of a retail enterprise. Fortunately, with the turning point of 'Li Songfeng taking over as CEO of Yonghui' in 2021, the implementation of the 'Technology Yonghui' strategy means Yonghui Superstores has returned to the essence of 'products and efficiency' of a manufacturing-oriented retail enterprise.

Where does Yonghui Superstores' supply chain advantage lie? A detail can give a glimpse.

If you pay attention, you'll notice that the competitive advantage of Yonghui Superstores' stores is no longer low prices, but quality products at reasonable prices, or even higher prices for comparable quality. This is not because its procurement costs are high (excluding internal management factors), but because it reflects higher profits and stronger operational strength. If foot traffic were not ideal, Yonghui would not have the confidence to price quality products higher.

As a representative of new retail that opened its first store in 2016, Hema took nearly eight years to explore, disprove, and verify why retail enterprises should return to their essence.

As of July 31, 2018, Hema had developed to 64 stores in less than three years, with stores over 1.5 years old achieving daily sales of 800,000 yuan, and online sales accounting for 60%.

However, after exploring front warehouses and self-operated home delivery e-commerce, Hema decisively shifted its focus to deepening offline stores and segmenting business formats, while insisting on the backend of buyer-style and direct sourcing from bases to build a manufacturing-oriented retail supply chain model, returning to the 'duty' of a retail enterprise. In July 2022, Hema's modern supply chain operation centers in Chengdu and Wuhan were put into operation one after another.

Including Dazhang Company, empowered by efficient upstream supply chain systems such as modern logistics distribution and central kitchens, not only do Dazhang stores have advantages in products and operational efficiency in Luoyang and Henan retail markets, but they also leverage supply chain advantages in remote empowerment of Suzhou, Zhenjiang, and other Yangtze River Delta markets.

Now, medium and large chain retail enterprises, represented by regional retail leaders, are seeking changes in their supply chain systems to varying degrees, gradually breaking free from the shackles of past supply chain models, going deep into upstream manufacturing, and leading the construction of empowering supply chains. Small and medium retail enterprises can also break their original supply chain systems. For example, they previously had almost no opportunity to directly cooperate with first- and second-tier well-known brands, but now, due to the rise of national brands, these brand owners have to sink channels and proactively develop cooperation with regional small and medium retail enterprises.

The supply structure of upstream manufacturers is changing, and the market share of physical retail is shrinking. The traditional supply chain model that once supported the 'arrogance' of physical retail enterprises has lost its survival soil. Regardless of size, they urgently need to find the foundation for existence in a market segmentation environment and lead the rebuilding of supply chains.


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