Summary of Key Points
China's retail industry is undergoing a profound transformation from a focus on "price competition" to an emphasis on "efficiency." Over the past 30 years, the industry has gone through the era of hypermarkets, the era of e-commerce efficiency, and now has entered a phase of low-price retail. The surge in discount stores is not a short-term trend; it is the result of changes in consumer demand (tighter wallets and increased sensitivity to prices) and industry-wide cost issues. The key to future retail success lies not solely in offering low prices but in combining low costs with high turnover rates, along with offering tasty processed foods, unique experiences, and engaging shopping environments, ultimately making consumers feel that their money is well spent.
The Retail Industry Over the Past Thirty Years: Three Major Transformations, Each Solving a Specific Problem
China's retail landscape has changed every decade, with each transformation addressing the challenges of the previous era:
- 1990s-2010s: The Era of Hypermarkets (Carrefour, Walmart)
The advantage of hypermarkets was that they introduced the concept of "one-stop shopping" for the first time in China, and concepts such as chain operations and supply chains became widely accepted. However, there were significant drawbacks: hypermarkets relied on suppliers for product distribution, charged high entry fees and back-office costs, and extended payment terms. Over time, these costs were passed on to consumers, leading to rising prices—a form of "systemic corruption."
- 2010s-2020s: The Era of E-commerce Efficiency
E-commerce solved the problems of convenience and lower prices, but it did not address the core issue of high supply chain costs. Later initiatives like O2O and new retail models (such as Hema) attempted to integrate online and offline services, yet they still did not tackle the root cause of high prices.
- 2020s to the Present: The Era of Low-Price Retail
The pandemic led to a decline in consumer spending, and coupled with issues in the real estate and debt sectors, consumers became more price-sensitive. Companies like Hema began to build their own stores and control their supply chains, directly reducing costs, which contributed to the popularity of discount stores. This time, the focus is truly on lowering product costs.
Why Have Discount Stores Suddenly Become Popular?
The popularity of discount stores is driven by both consumer and industry factors:
- Consumers:
Consumers have tighter wallets, but they still want to get value for their money. Young people in big cities have decent incomes, but they face high housing and education costs, so they want to spend wisely. Residents in smaller towns also prefer products with good value for money.
- Industry:
Previous retail models (hypermarkets and e-commerce) had high costs, such as high entry fees and expensive advertising. Discount stores eliminate these intermediaries by cutting out unnecessary expenses and buying products at direct prices, allowing them to offer lower prices.
Differentiated Consumer Needs in Different Regions
- Big Cities:
Community-based discount stores provide convenient daily shopping options, while shopping centers offer a more leisurely experience on weekends. In smaller towns, large supermarkets and shopping centers also serve as social hubs, making them more popular.
Are Hypermarkets Adjusting Their Strategies?
Many hypermarkets are making changes (renovating stores and expanding product offerings), but this does not mean a return to their golden age. Instead, it is a way to make room for discount stores. However, these adjustments come at a cost: better facilities and services may increase prices, prompting consumers to shop at cheaper discount stores.
- The Real Impact of Discount Stores:
Discount stores force the industry to reduce costs. If everyone focuses on low prices, they cannot compete solely on price; they must also offer unique experiences and products. Otherwise, price wars will result in no profit for anyone.
New Opportunities for Offline Retail
Online platforms cannot replace the personal experience of offline shopping. The future of offline retail lies in offering processed foods that are fresh and of high quality. Offline stores that can meet consumers' daily needs (breakfast, afternoon tea, light meals) will have a competitive advantage. It is important for retailers to develop their own brands that offer something truly unique, rather than simply rebranded products. Low costs alone are not enough; high turnover rates are also crucial to ensure smooth cash flow.
The Concerns of Low Prices
Low prices can create a "price standard" among consumers, making it difficult for retailers to raise prices in the long term. For example, Japanese brands like Don Quijote have set a price benchmark, and other stores may seem expensive by comparison. Even if the economy improves, consumers may continue to expect low prices. Therefore, while low prices are a fundamental aspect of retail, retailers must also offer better products, faster delivery, and more comfortable shopping experiences to stand out.
In Conclusion:
Low prices are just a starting point for retail businesses. The ones that survive will be those that provide consumers with value for their money. This is the essence of the low-price era.