Hema no longer wants to be the Chinese version of Sam's Club

In recent years, Hema has been continuously exploring the new retail field, and the brand is actively adjusting its business strategy. It no longer imitates Sam's Club, but is committed to creating a business model with more distinctive characteristics.

Sam is not easy to learn, and he still has to pay "tuition fees".

Hema is actively adjusting its business, and its latest profit data shows a positive signal. Its business focus is more focused, which means that Hema will no longer copy Sam's Club and wants to be a unique Hema.

1. Hema no longer wants to be the Chinese version of Sam’s Club

Against the backdrop of a clear cooling in enthusiasm for the new retail concept, the market welcomed the long-awaited news about Hema.

"Xinpinlue Finance" noticed that on August 7, LatePost reported that at the Hema all-staff meeting in June, Hema's new CEO Yan Xiaolei clearly stated: Hema will not be sold!

Since Alibaba replaced its new generation of management, it has entered a period of strategic adjustment. In November last year, Alibaba Group announced that the listing of Hema would be postponed.

Since then, there have been rumors in the market that Alibaba will gradually divest non-core businesses, and Alibaba's offline retail businesses including Hema, Gao Xin Retail, and Intime have been rumored to be sold many times.

From the outside, it seems that Hema has an uncertain future under such circumstances and it is unclear where to go. It is definitely unstable internally.

According to media reports, Yan Xiaolei said "Hema will not be sold" at least four times in his internal speeches at Hema recently. Although it seems that this is to reassure Hema employees, after the news was reported by the media, it undoubtedly sent a positive signal to the outside world: Hema has not been abandoned by Alibaba.

An old employee said in an interview with the media that at the end of last year, he didn't know when the company would be sold or when he would be optimized. Now he feels that the business is gradually becoming stable and he has begun to accept the new normal without aggressive growth.

It is worth noting that Hema's profit data has shown a positive trend. It is reported that from March to June this year, Hema achieved off-season profitability for the first time. The last time Hema achieved continuous and overall profitability was in the fourth quarter of 2022 and the first quarter of 2023.

In the past, the market generally believed that Alibaba would accelerate the listing of Hema according to the original plan, and it was even revealed that Hema was preparing to go public in the second half of 2023, but it did not proceed as scheduled.

In 2023, under the background of low prices and big discount wars in the entire retail industry, Hema also followed the trend and launched a "discount reform". However, this is what the outside world cannot understand. Hema is relatively taking the quality route. Its warehouse membership supermarket claims to be a benchmark for Sam's Club. Last year, it once stopped accepting new members. Hema's discount strategy has caused Hema, which is already under performance pressure, to fall into losses again.

However, the latest information shows that Hema has been profitable in the off-season for four consecutive months, which means that Hema's profitability is gradually improving. Some market opinions believe that Hema has the hope of achieving long-term and stable profitability.

Compared with the aggressive development strategy in the past, Hema's current goal is to achieve normalized profitability. Yan Xiaolei also set a goal for Hema to achieve a GMV of 100 billion yuan in three years, a 69% increase compared to 2023.

In addition, what is more noteworthy is that Hema has focused its business focus. Hema Fresh and Hema NB will become Hema's next main direction, which means that Hema will no longer copy Sam's business model. To put it more bluntly: Hema no longer wants to be the Chinese version of Sam's.

2. Sam is not easy to learn, and you have to pay "tuition"

In recent years, China's retail industry has presented a situation of extreme contrast. This sharp contrast is very impressive.

The cold side is that traditional chain supermarkets and traditional hypermarkets are suffering a major defeat.

Whether it is Walmart, Carrefour, or even China Resources Vanguard, they are all closing stores one after another. According to Lianshang.com, at least 131 supermarkets were closed in the first half of this year.

The hot side is that warehouse-style membership supermarkets are booming. Among them, Sam's Club has the fastest growth momentum. Currently, Sam's Club has nearly 50 stores in the Chinese market and has entered 24 cities across the country. Sam's old rival Costco is also accelerating its development in the Chinese market.

According to incomplete statistics, there are at least 11 warehouse-style membership supermarket brands in the domestic market, with more than 160 stores.

Among the many local Chinese warehouse-style membership supermarket brands, Hema's warehouse-style membership supermarket Hema X Membership Store is the most representative brand.

In October 2020, the first Hema X membership store opened in Shanghai, setting off a craze for Hema warehouse membership supermarkets. The development speed of Hema warehouse membership stores has indeed exceeded market expectations.

For example, in 2022, the sales of Hema X membership store increased by 247% year-on-year, the average customer spending increased by about 30% year-on-year, and its gross profit margin reached 14%.

Hema X Membership Store was once considered by the market to be a Chinese local warehouse-style membership supermarket brand that could challenge Sam's Club. Hema X Membership Store and Sam's Club fought fiercely, even for a cake, and launched a price war in 2023. Many market opinions even believe that Hema X Membership Store will become the Chinese version of Sam's Club.

Data as of December 2023 shows that Hema X membership stores have opened 10 stores in the domestic market. At least from the comparison of store numbers, Hema still loses to Sam's Club.

However, what is interesting is that since Hema implemented its discount strategy last year, the development of Hema X membership stores has obviously slowed down. The reason behind this is that Hema is adjusting its market strategy.

According to media reports, the Hema X Member Store Jianguo Road Store was closed on May 31 this year after only seven months of opening. An employee told reporters that the main reason for the closure was that there was not so much customer flow, and it was not profitable but losing money.

Although Hema has not officially responded to the reason for the store closures, we can also see that not all warehouse membership stores are profitable. It is not easy for Sam’s Club to learn, and one has to pay the “tuition fee” on their own.

Warehouse-style membership supermarkets have a strong brand effect. Take Sam's Club and Costco as examples. These two global warehouse-style membership supermarket giants have strong global procurement and supply chain capabilities.

More importantly, a warehouse-style membership supermarket like Sam's Club has a large market coverage and coverage capabilities. For example, there are now four Sam's Clubs in Shenzhen, which can cover the surrounding areas in different directions. Many cities only need one or two Sam's Clubs.

This also directly illustrates one point: the more warehouse-style membership supermarkets there are, the better it is not, but the better the quality, the better.

Many domestic warehouse-style supermarkets are a bit of a quack, imitating the appearance of Sam's Club but not the essence of Sam's Club. Of course, Hema X Membership Store is considered to be the best among the outstanding warehouse-style membership supermarkets in China.

3. Hema should be itself

As one of the core brands of Alibaba's new retail business, HEMA has done a lot of exploration and experimentation, and has also laid out many new business formats.

Now Hema is more focused on its business focus, and has made Hema Fresh and Hema NB its main focus in the future. It can be seen that Hema is actively balancing its business products and optimizing the ecosystem.

Yan Xiaolei said that Hema Fresh stores are profitable overall, and after going through multiple rounds of model iterations, they are more likely to expand quickly in the sinking market, because users have the strongest awareness of Hema in its fresh stores.

Yan Xiaolei's statement has sent a clear signal to the outside world that the priority of the development of Hema X membership stores should be placed after Hema Fresh stores.

Whether it is the initial investment in opening a store, the long-term operating cost investment, or the market trial and error and stop-loss, the operating costs of Hema Fresh stores are much lower. In addition, Hema Fresh stores have a clear market coverage and a certain repurchase rate.

The scale of Hema X membership store is much larger than that of a Hema Fresh store, and the corresponding investment and cost are much higher. If there are Sam's Club and Costco in an area, Hema X membership store will not have much advantage.

Of course, this does not mean that Hema will give up its warehouse membership supermarket business and abandon Hema X Membership Store. In the warehouse membership business, Hema X Membership Store is definitely not evaluated by the number of stores, but with profitability as the main goal and sustainable operation.

Retail is a tough business. Different store types have different operational logics behind them. It is not as simple and glamorous as it seems on the surface.

From the perspective of market coverage and development speed, Hema Fresh stores are obviously Hema's priority business project and have strong market adaptability. Whether it is first- and second-tier cities, third- and fourth-tier cities, or even some sinking markets such as county-level cities with consumption power in the future, Hema Fresh should be able to accelerate its development.

From the era of traditional supermarkets to the era of community supermarkets, and then to the era of warehouse membership supermarkets, the retail business model has been constantly updated and developed, and every retail brand has been moving forward with the times.

In the past two years, Pang Donglai, which originated from Xuchang, Henan, has become a new internet celebrity and new benchmark in the retail industry. In particular, Pang Donglai has adjusted traditional supermarket brands such as Yonghui Supermarket, changing its appearance, ideas, marketing model, product categories and layout, and has achieved good results.

The popularity of Pang Donglai also shows that Chinese retail supermarkets can also build their own brands, and the key to Pang Donglai’s success lies in: insisting on being a better self!

China's retail consumer market is large enough to accommodate large and small retail brands from home and abroad. It can not only accommodate Sam's Club and Costco, but also Hema, and even market players such as Pangdonglai.

Only when retail brands learn from and compete with each other can the industry be promoted, rather than blindly following and imitating. The more important key is to be themselves.

Judging from the latest adjustment of Hema’s business strategy direction, Hema has given up on replicating Sam’s Club. Hema should just be itself, keep exploring during its development, become the one and only Hema, and become a better version of itself.

Author | Wu Wenwu This article is written by the author of Operation School [Xinpinlue Financial View], WeChat public account: [Xinpinlue Finance], original/authorized to be published on Operation School, and any reproduction without permission is prohibited.

The title image is from Unsplash, based on the CC0 protocol.