Click to read the original article for details. This article is republished with permission from AI Finance and Economics (ID: aicjnews).

Zhao Jia works at a PR company, with clients mostly in the internet industry. In recent years, she has clearly felt the tightening of client budgets, but it was the first time a client refused to pay the final payment. On July 3, Zhao Jia set off early from her company on the East Fourth Ring Road, driving to the Mentougou District People's Court outside the West Sixth Ring Road, crossing ten rings of Beijing, just to recover the 20,000 yuan final payment owed for nearly a year.

"Money is hard to earn these days; the company had no choice," Zhao Jia complained to AI Finance and Economics. The one-year contract ended in July 2018, but the other party had been delaying the final payment. After repeated communication failures, even the contact person could not be found.

On the morning of July 3, at the Mentougou District People's Court, Zhao Jia reached a mediation with her client BingoBox. The representative from BingoBox was founder Chen Zilin.

Coincidentally, on the same day two years earlier, July 3, 2017, BingoBox announced the completion of an A-round financing of over 100 million yuan and claimed it would set up 5,000 outlets within a year. Six months later, BingoBox announced the completion of a B-round financing of 510 million yuan.

BingoBox emerged from the wave of new retail startups, becoming the hot unicorn of unmanned retail at the time. In August 2016, it conducted preliminary tests in Zhongshan, Guangdong. In June 2017, it announced its landing in Shanghai, opening two experimental stores to test the performance of unmanned stores under heavy traffic in first-tier cities. Both Shanghai stores were in cooperation with Auchan, one near the Auchan supermarket on Changyang Road and the other near the RT-Mart store in Zhabei District.

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Embarrassingly, the influx of curious consumers did not overwhelm the unmanned store's system; instead, Shanghai's high temperatures forced the store to suspend operations. Several consecutive days of temperatures above 35 degrees Celsius pushed the indoor temperature of the "glass house" BingoBox above 40 degrees, melting donuts and chocolates.

Besides the heat, a bigger challenge was its "identity." The small, seemingly portable boxes were not recognized by traditional regulatory authorities. The BingoBox near the Auchan supermarket was investigated by urban management for possibly being an illegal structure, and the matter was eventually resolved by Auchan's senior management.

So when BingoBox entered Beijing, where regulations were stricter, it chose Mentougou District, which had supportive policies. At that time, Beijing was conducting a campaign to improve the city's appearance, and a large number of unlicensed street vendors disappeared. Community commerce, which met the basic needs of residents, became a hot area favored by policy. Unmanned convenience stores could fill part of the market gap left by the crackdown. The Mentougou government provided BingoBox with policy support, including allowing it to try first. On September 15, 2017, Beijing's first BingoBox opened at the Innovation Building of Zhongguancun Mentougou Science and Technology Park.

At that time, Chen Zilin certainly did not expect that two years later, he, once treated as a guest of honor, would appear as a defendant in court over a 20,000 yuan debt.

That was the most glorious period for unmanned stores. At the end of 2016, Amazon opened the world's first unmanned store, Amazon Go, in its Seattle headquarters, though only for employees, it captured the attention of global retail professionals. In China, Amazon Go became a beacon for many in the unmanned retail industry.

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According to IT Orange statistics, in 2017, 93 unmanned retail events received financing, accounting for more than half of all investment events in the new retail sector that year. Zhang Bo also entered the unmanned store field during this period. In October 2017, his unmanned store project received angel round financing, and three months later, A-round financing.

At that time, unmanned retail was the hottest of hot trends. "At first, we did it ourselves, then after the technology matured, we opened franchising, with a complete set of technical solutions and marketing platforms. It sounded like a good story," Zhang Bo recalled. At that time, the industry followed this path, and VCs were excited.

Wang Jian, a former executive at BingoBox, recalled the situation at the time: "In August 2017, one of my salespeople had up to 350 missed calls a day. You couldn't get through; the phone never stopped ringing. That was the hottest time."

Wang Jian listed a series of numbers: in two months, they received 6,729 customers from 93% of the counties and cities across the country. Among them, 5,729 had traditional retail backgrounds, ranging from large regional retail giants with sales over 10 billion yuan to small ones with only a few or a dozen stores.

BingoBox wanted to become a government-friendly enterprise to lower the "identity" threshold when entering new regions. According to public reports, BingoBox successively reached strategic cooperation agreements with 37 city and district governments, including Tianjin, Chengdu, and Dalian.

City agents were required to bring their own government and market resources. They were BingoBox's tentacles into various regions and the main driving force behind the goal of 5,000 stores. After becoming an agent for a city, the agent could franchise out the right to set up boxes at different levels, accelerating BingoBox's deployment speed.

The franchise hotline was overwhelmed, but the city agents, who were highly anticipated, did not help BingoBox achieve the 5,000-store goal. Instead, they brought new problems, fully exposing the flaws in the unmanned store business model.

In mid-2018, some individual franchisees in Dongguan discovered that the boxes they had invested in had not been delivered. According to a report by Guangdong TV Public Channel, some franchisees invested over 700,000 yuan in three BingoBoxes in July and August, but three months later, they had not been installed by the contract date. Other franchisees found that the boxes that had been installed had been emptied of goods for a long time. After repeated delays by the headquarters, individual franchisees discovered that the Dongguan city agent headquarters had ceased operations.

The above franchisees said that in their rights protection group, such cases involved more than 70 franchisees. The Dongguan city agent explained that they had taken the agency because they were very optimistic about the product, but later found during operations that it was too good to be true, did not meet expectations, and funds became increasingly tight.

At that time, only a small portion of BingoBox's outlets were directly operated; later, they mainly relied on city agents to expand. "At that time, we recruited nearly 50 agents nationwide, collecting nearly 40 million yuan in agency fees alone. The Dongguan city agency fee was about 1 million yuan."

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In June 2018, a year after announcing the goal of 5,000 stores within a year, BingoBox had only about 400 stores nationwide. Wang Jian revealed to AI Finance and Economics that the initial deployment of boxes was acceptable, but the front-end output was poor. "Placing boxes in communities is not essentially retail in nature; the consumption frequency is too low to cover costs, and the financial model does not hold."

The most prominent gimmick of early unmanned convenience stores was that the small area meant lower rent, and unmanned operation reduced labor costs, making profitability easy to achieve. This sounded reasonable, but reality was different.

"Without revenue, no matter how low the costs, it doesn't work!" Yida's company was one of the earliest in Beijing to engage in unmanned shelves and stores, entering the unmanned market in 2016.

He analyzed that unmanned stores in communities are generally located on the ground floor, but once users go downstairs, they have many choices: mom-and-pop shops, supermarkets, and convenience stores. And unmanned operation did not bring significant cost reductions. "A bottle of water costs two or three yuan, but for consumers to self-checkout, the RFID tag on the bottle costs at least 0.3 yuan each. RFID is not suitable for low-ticket scenarios. Although it saves in-store staff, labeling and restocking also require labor."

Whether in terms of product variety or price, unmanned stores are less competitive than traditional formats in communities. Traditional retailer Wumart also opened an experimental unmanned store. Dong Gang, general manager of Wumart convenience stores, admitted, "(Revenue) is very average. On the opening day, sales exceeded 1,000 yuan, but it lasted less than a week. Now it's about 500-600 yuan per day."

This unmanned store opened in December 2017, located downstairs at Wumart's headquarters in Huike Building, in a 3m x 6m box. When AI Finance and Economics asked about its profitability, Dong Gang laughed and said, "What do you think?"

According to Dong Gang, the box's security mainly relied on the building's own cameras, so rent and monitoring were basically zero cost. The box cost about 60,000 yuan. The electricity for 24-hour operation, including an OPEN cabinet for chilled drinks and a self-checkout machine, cost about 100 yuan per day.

Since it was close to the Wumart convenience store inside the building, restocking costs were almost negligible. "Overall, this store has a special location, almost no theft or loss, no RFID tags, and low costs. If we calculate based on monthly sales of 1,000 yuan and a 25% gross margin, it just breaks even."

Not far from this unmanned store, entering the building, you can see a traditional Wumart convenience store, which typically has daily sales of 7,000-8,000 yuan. Dong Gang believes the difference lies in fresh food. They once tried selling the convenience store's popular steamed buns in the unmanned store, but the results were unsatisfactory. "The bun machine was prone to scalding customers with steam, so we removed it. For boxed meals, we needed to add a microwave, but the effect was also poor."

Later, Dong Gang provided hot water for consumers to make instant noodles, but the sales of instant noodles were not high either. The best-selling categories in the unmanned store were only beverages, water, and biscuits, as well as some emergency items like socks, masks, and band-aids. "Strictly speaking, as an innovative business, it may stop here."

Things began to develop in another direction. News of layoffs, unpaid wages, and withdrawal from some cities emerged one after another. BingoBox responded that the company underwent a significant strategic adjustment in 2018, optimizing many unsuitable employees, but also recruiting new people. The previous scale of several hundred people was overstaffed; the current team of over 100 people matches business needs.

AI Finance and Economics learned from a manufacturer in East China that had cooperated with BingoBox that after January 2019, they received no more orders from BingoBox. Previously, the manufacturer mainly produced boxes of about 17-18 square meters, with a minimum order price of 98,000 yuan per unit. They completed the last order of over 30 boxes at the beginning of this year and then had no more cooperation. "We heard they had problems with their capital chain."

BingoBox publicly announced two rounds of financing totaling 600 million yuan, just over a year after the last round. When asked about money, Wang Jian was silent for a moment. "I don't know much about the authenticity of the financing."

The wind has passed; unmanned stores need to find a path that can walk on the ground.

Box-form unmanned convenience stores face many problems: identity, location, cost, and operation. So far, there is no reasonable and balanced solution model. Yida insists that pure unmanned stores are not viable in business logic, but they can exist as part of an ecosystem.

His company opened its first unmanned store in 2017, and now has only three. If there is no suitable location, they will not open stores. The more important function of the unmanned stores Yida operates is to restock nearby unmanned shelves, while also opening front-end retail, which is just an additional function to improve sales per square meter. Considering the integration of store and warehouse, Yida believes costs are easier to balance.

Zhang Bo's unmanned store abandoned the box form, based on traditional stores, avoiding the above problems. It uses visual technology, tracking consumer shopping paths through cameras and sensors, without the need for scanning and payment—just grab and go.

After opening three stores, Zhang Bo also stepped on the brakes in time. His unmanned store is on the same street as a 7-Eleven. Although daily sales are around 7,000 yuan, the brand premium and negotiation power cannot compare. The rent is three times that of 7-Eleven, and the savings from unmanned operation are not enough to cover the rent. At this time, investors suddenly stopped looking and investing. According to IT Orange statistics, in 2018, new financing for startups fell by 23% compared to the previous year, and the total amount of RMB financing saw its first decline since 2013.

Yida felt that fewer and fewer peers were around. Of the players who entered the unmanned retail track in 2017, by 2018, more than 95% had gone bankrupt, leaving only three or four.

Zhang Bo had no choice but to retract his front, close stores, and begin to review and find a way out. Unmanned stores, like traditional convenience stores, follow the 532 principle: 50% depends on location, 30% on products, and 20% on operations. And good locations inevitably come with high rent.

In his review, Zhang Bo believed that opening a convenience store is itself a technical job. Retail expansion is very slow, and adding advanced technology makes it even harder. Startups find it difficult to balance both retail and technology R&D. Zhang Bo decided to stop C-end store operations and shift to B-end store empowerment, focusing only on technology, and specifically on unmanned technology for small stores of 30-50 square meters. This technology is relatively more mature and easier to promote.

The premise of this decision is that unmanned is still meaningful and has market demand; the question is how to achieve it at low cost.

Zhang Bo moved his battlefield down to third- and fourth-tier cities full of small-town youth, the elderly, and children. The clients he currently serves are local retailers with mature supply chain resources and store location resources. For them, adding unmanned stores is a way to achieve dense layout and improve supply chain efficiency.

Wang Jian also chose to empower traditional convenience stores with unmanned technology, but with a different approach.

When BingoBox was at its hottest, among the more than 5,000 customers who came to inquire about franchising, the vast majority did not want to make boxes with BingoBox. They were more interested in how to apply unmanned solutions to their existing traditional stores. This gave him an inspiration: Traditional retail is declining, profit margins are being squeezed to the extreme, so the only option is to improve cost efficiency, and labor is the only cost that can be improved. "Unmanned stores are a false proposition, but the application of unmanned technology is correct; we just cannot pursue gimmicks."

Wang Jian is currently starting a business in Shenzhen, integrating convenience stores with online platforms and unmanned technology. The online platform adopts a pre-sale model as a supplement to the convenience store's product categories. Unmanned technology functions at night, with magnetic strips on products priced above 3 yuan to prevent theft. These strips cost only 0.07 yuan each, and one person in the back end monitors four stores.

"For users, daytime is a period of high consumption frequency, so they need someone to provide service. At night, as long as there is a place where users can buy things, their service requirements are lower. It is also difficult to recruit people for night shifts."

In his view, the form of "someone during the day, unmanned at night" may not be cool, but it is more practical and replicable.

This form has already been tried by Taiwan's 7-Eleven, and Dong Gang also experimented with it in Beijing. He found that if the night shift staff were removed, the only saving was labor costs, but sales also declined.

In April this year, Dong Gang selected a Wumart convenience store for testing. As a result, sales during the unmanned night period fell by one-third. For this store, 22% of daily sales come from the night, which can contribute 1,500 yuan in sales, but in the unmanned state, it was only 500 yuan. The cost of hiring someone to work from 11 p.m. to 7 a.m. the next day was only a little over 200 yuan.

Clearly, the business logic of unmanned stores and customer needs are not as simple as imagined. But Zhang Bo remains optimistic: "Once the data comes out, someone will invest in us again. In another six months, I will have conquered the market." (At the request of the interviewees, Zhao Jia, Wang Jian, Zhang Bo, and Yida are pseudonyms.)

This article is republished with permission from AI Finance and Economics (ID: aicjnews).