---
title: "With 5% Annual Customer Churn, How Can Physical Stores Digitally Save Themselves?"
description: "Traditional stores face a crisis of customer loss, with an annual churn rate exceeding 5%. Digital self-rescue strategies, such as implementing dual-store models (physical + cloud) and leveraging KOC relationships, can help mitigate this trend."
author: "刘春雄"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2021-04-21"
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# With 5% Annual Customer Churn, How Can Physical Stores Digitally Save Themselves?

> Traditional stores face a crisis of customer loss, with an annual churn rate exceeding 5%. Digital self-rescue strategies, such as implementing dual-store models (physical + cloud) and leveraging KOC relationships, can help mitigate this trend.

**-01-**
The biggest crisis for traditional stores is customer churn, with an annual loss rate of over 5%.
**Channel diversification inevitably leads to customer loss for traditional retail. Every new online business brings a round of store customer attrition.**
This is an unstoppable trend for stores. At least for now, there is no sign of it slowing down.
**Digital self-rescue is built on the premise of continuous customer loss.**
**I have said before that retail has innovation, not revolution. New retail formats have emerged, but traditional formats still exist. Isn't the oldest retail format, the 'grocery store,' still alive?**
According to the 'Retail Wheel Hypothesis' proposed by Harvard Business School retail expert Professor M. McNair, new retail formats will evolve from 'three lows' to 'three highs' (as e-commerce has proven), and traditional retail formats will self-evolve, eventually forming a new equilibrium.
**However, during the evolution of traditional retail formats, some stores will inevitably disappear. Only the best-adapted will survive.**
China's current retail landscape was formed during a period of rapid growth. The impact of e-commerce has masked the fact that Chinese retail has entered a low-growth environment. Therefore, we must consider both major variables affecting retail simultaneously.
**First, strategies for retail to cope with low growth; second, strategies to counter the online impact. These two issues must not be confused.**

**-02-**
First, let's discuss strategies for coping with low retail growth. This is not new; Western developed countries have faced it before.
**The solution is structural adjustment.**
Without quantitative growth, structural adjustment is necessary. Quantitative growth, like flooding, generally doesn't care about structure; scale is more important than structure. China's KA (Key Accounts) grew and expanded during this process.
Should you get bigger first or stronger first? In the era of quantitative growth, big is strong; in the structural era, only scale with structure is strong. Except for niche players, there is no small-scale strength.
**Looking at the current structural adjustments in KA, there are roughly the following paths:**
1. Increase the proportion of fresh produce. This is a method to counter customer decline. For example, in 2020, RT-Mart's online revenue exceeded 20 billion yuan, accounting for 24%, with fresh produce taking a significant share. Due to the high stickiness of fresh produce, it becomes an important way to prevent customer loss and even attract new high-end customers.
2. Add new consumer products. As young customers drift away, KA becomes a shopping scene for the elderly. Therefore, new consumer categories are needed to 'recall' young customers.
3. Product upgrades. The higher-end the customer, the more they value on-site experience. Of course, the process of retail entering low growth is also a process of product structure upgrading.
4. Focus on categories that e-commerce cannot replace, such as frozen and prepared foods, which require long-term offline services, giving customers a different online shopping experience.
5. The proportion of self-purchased products. This topic deserves separate discussion.

**-03-**
**The proportion of self-purchased products is the key to whether retail thrives during low growth.**
Pangdonglai in Xuchang, Henan, is a unique flower in retail. Those who watch the excitement see the 'unimitable' culture and extreme service, while those who understand the craft see the 'high self-purchase rate' that can be borrowed.
Pangdonglai's logical loop is: high self-purchase rate → high gross margin → high salaries → corporate culture → customer stickiness → high revenue.
High self-purchase and high salaries are the two key points of Pangdonglai's operating system. Without a high self-purchase rate, there is no high gross margin; without high gross margin, high salaries cannot be paid; without high salaries, Pangdonglai's culture cannot be implemented, and its logical system cannot be self-consistent.
In Western developed countries, retail private labels have a high proportion, some even entirely private label. China's decades of rapid export growth were not dominated by brand enterprises but by small enterprises doing OEM, especially for Western retail. **Therefore, China's exports have grown in tandem with the growth of private labels in world retail.**
**Whether it's private label or self-purchase, the core is 'premium,' i.e., who owns the premium. As long as it's a well-known brand, the premium belongs to the brand owner. As long as it's self-purchased, the premium belongs to the retailer.**
**In the logic of new retail, new retail inevitably accompanies new manufacturing. New manufacturing, euphemistically called C2M, is essentially retail private labels, bypassing traditional channel supply chains and brand owners to self-purchase at the source.**
If new retail could solve the new manufacturing problem early, then new retail flagships like RT-Mart wouldn't have so many problems.
However, self-purchase (new manufacturing, private labels) is precisely the biggest weakness of Chinese traditional retail. KA has historically focused on backend gross margins, with insufficient research on frontend supply chains, making it difficult to improve self-purchase in the short term.
Self-purchased products also involve retail operating system issues, such as brand-owner-provided sales staff and centralized display of brand products, which affect the sales of self-purchased items.
**In the future, large stores will definitely have their own self-purchase systems. Small stores face difficulties with self-purchase, but I have also come into contact with some new platforms dedicated to building M2b supply chain systems. This is an opportunity.**

**-04-**
Now let's discuss how stores can be digitally rescued by others.
**Rescue by others differs from self-rescue; it relies on others to save you. These platforms often wave the banner of 'savior' (empowerment).**
Many stores are now digitizing, but it's not self-rescue but rescue by others. Examples include community group buying and some so-called empowerment platforms like SB2C.
What is digital rescue by others? **It means relying on others' digital platforms, under the guise of empowerment, ultimately contributing your 'private domain traffic' to the platform, becoming your own 'gravedigger' and accelerating customer loss.**
For example, I predicted long ago that community group buying would eventually 'de-leader' or force 'leaders' to quit (e.g., due to low commission rates). But the leader's 'private domain' has already been converted to the platform's 'public domain,' and the platform only needs a pickup point.
**How to avoid converting store private domain to public domain? I think there are two methods:**
1. As long as it's a trading platform, once the platform has enough fans, it will eventually compete for business. Before attracting fans (during ground promotion), the platform relies on stores; after attracting fans (when the platform is formed), stores rely on the platform. Some platforms don't do transactions, like Tencent, which can only show value through empowerment. Some platforms are themselves transactional, where an extra link means less profit. So, trading platforms will eventually conflict with stores.
As long as stores become targets for platform ground promotion, the final outcome is that the platform grows and customers are lost.
2. Whether digital platforms have the potential for F2C (disintermediation). Traditional head brands and major merchants rely on their order platforms depending on millions of stores operating normally. Although there are profit conflicts with stores, there is more of a symbiotic relationship.

**-05-**
Finally, let's discuss digital self-rescue for stores.
Many people simplify digitization to 'store + group,' not understanding the core value of digitization for retail.
In traditional retail, there is an unsolvable concept of 'differential rent.' High store revenue, besides product selection and operations, depends on two hard conditions: **store location and area.**
A good location brings high foot traffic and good sales, but rent is correspondingly high. High revenue is offset by high rent.
A large store area allows more SKUs, a larger trade area, and higher revenue, but rent is also higher.
**Store rent is differential rent. Good locations have high rent; large areas have high rent. Rent is graded. This is differential rent.**
**Facing differential rent, traditional retail has no solution.**
However, digitization has a solution!
Digitization solves this in two ways: one is the contradiction between store area and SKUs; the other is the contradiction between trade area and location.
These solutions can be summarized as: dual customer relationships and dual stores.
**Dual customer relationships solve the location problem; dual stores solve the SKU problem.**

**-06-**
Store area is limited, so only head brands can be shelved. The long-tail effect only occurs on large platforms.
As long as it's a head brand, the premium belongs to the brand owner, and store gross margins are low.
The higher the brand awareness, the lower the store's gross margin, and it's a must-sell with no choice.
To increase SKUs, you must increase store area, which increases costs.
**This is a paradox. No solution!**
**Digitization provides a solution: build customer relationships through physical stores and increase SKUs through cloud stores.**
**Dual-store strategy: physical store + cloud store.**
**Physical store shelves are limited, only head brands can be listed. Cloud store shelves are unlimited, and SKUs can be infinitely extended.**
**Physical store shelves are high-frequency, low-margin; cloud store shelves can be low-frequency, high-margin.**
The unsolvable problem of traditional commerce is solved through the 'dual-store' model.

**-07-**
Store foot traffic initially relies on location traffic (passive traffic), and later on relationship-building ability and operational capability.
Retail stores are standard 'sit-down merchants,' waiting for customers to come. Even when building relationships, it's only during the customer's visit.
Large stores rely on operational capability for customer relationships; owners, store managers, and staff find it hard to build relationships with customers. Small stores rely mainly on the owner's and staff's relationship-building skills.
We often interact with stores; the moment we enter, we can basically tell the owner's and staff's relationship-building ability.
**But even if you're particularly good at building relationships, anyone's ability is limited by the 'Dunbar number.' A person can maintain stable social relationships with no more than 148 people.**
The Dunbar number is the upper limit of interpersonal relationships in a natural state, but with professional ability, you can build relationship chains. Especially by establishing strong relationships and strong cognition with KOCs (Key Opinion Consumers) who have strong relationship abilities, they can influence other customers. We call this phenomenon relationship transfer.
Relationship chains can expand foot traffic, but if it's purely offline transactions, it's still difficult, so achieving the first transaction through a cloud store is important.
**The value of a cloud store is not only to increase SKUs and facilitate the first transaction during relationship transfer, but also to evolve from 'to-store' business to 'to-home' models.**
**'To-home' business breaks through the limitations of differential rent.**

**-08-**
**Summary**
There are three key points for digital self-rescue of stores: exclusive scenes, KOC, and cloud stores.
The role of exclusive stores as sales points will decline; in the future, they will have three major values: first, scene experience, especially for new product trials. Scene experience is also a place to attract KOC attention; second, pickup points. Order via cloud store, pick up offline; third, front warehouses for 'to-home' business.
Among store users, there is a type of KOC who can influence more users. Through scene experience and professional operations, relationship chains can be formed through KOCs, thereby expanding the customer base.
As long as they are KOCs, they can naturally influence more customers. As for how to influence, it must be a combination of online and offline. We call this process 'circle deep segmentation.'
Cloud stores will become standard for stores in the future. Through cloud stores, you can expand SKUs, form first transactions in long relationship chains, and create 'to-home' business.
How to establish a store's '去店' (offline store)? Large stores have their own cloud stores; small stores have brand owner cloud stores, major merchant cloud stores, and can also have their own cloud stores.

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