The "County Survival Rules" of Specialty Stores: Good Quality, Affordable Prices, and Enthusiastic Service

In the harsh winter of the retail industry, some mid- to high-end specialty stores are experiencing unprecedented challenges. So what is the key to survival?

1. “Business is good”

"Business is usually good, and it gets even better during traditional festivals." Wang Wei told Spirit Beast that compared to the period before the epidemic, although revenue has fluctuated in recent years, as a mid-to-high-end specialty store, business is considered good locally.

More than 20 years ago, Wang Wei and his lover started running a seafood specialty store in a county city in Binzhou City, Shandong Province. During this period, the store was constantly renovated and upgraded, and the products and gift boxes were also upgraded accordingly.

"We don't sell fresh food, we only sell local dried seafood, all of which are packaged in premium gift boxes," said Wang Wei.

The gift box packaging is simple and elegant, and the products are good. The main customers are those who need to give gifts. "It is one of the main choices for local people to give local specialties to outsiders." In addition, people who work in some units also usually take goods.

Wang Wei's store is located in the old town of the county. The store is about 90 square meters, and there is a cold storage for inventory at the back. The store's main gift box products throughout the year include dried sea cucumbers, large grilled shrimps, dried razor clams, grilled small yellow croakers, etc.

"We also have related products in every corresponding season. For example, around May Day is the time when mantis shrimps are the fattest. We have gift boxes and also large boxes of ten kilograms at wholesale prices for locals. The next is around the Mid-Autumn Festival, crabs, sea slugs, etc., which also sell quickly." Wang Wei said.

"In fact, business is better now than before. Before, people might buy cigarettes and alcohol when visiting relatives, or some people might buy milk, etc., but now everyone's cognition or consumption concept has been upgraded. They think that the health of gifts is more important, and a gift box of grilled shrimps is only about 200 yuan, which is not expensive, and it is also face-saving to give it to others, so there are more choices. For example, sea cucumber gift boxes range from 1,000 yuan to 8,000 yuan. During the Chinese New Year and other festivals, sea cucumbers can be sold in large quantities." Wang Wei said.

Although Wang Wei's store is positioned as a mid-to-high-end store among the local seafood specialty stores, the prices of its products are very advantageous compared to the entire market now, which is why his store has been doing well.

"When opening a store in our place, everyone is a local. In addition to the products having to stand the test of time, the prices have to be affordable. Once the prices are inflated, there is no room for survival. Also, if the service is enthusiastic, people will recognize your store and generally come to you when they need to give gifts," said Wang Wei.

Over the years, Wang Wei has established a stable purchasing channel. "Everyone is familiar with each other and has formed a stable relationship, so the purchasing cost can be controlled."

In the county where Wang Wei lives, in addition to his specialty store, there are also some mid- to high-end specialty stores that have been recognized by local people and have always been doing good business. For example, there is a bakery that has been in business for more than ten years and has currently opened three stores in the local area.

"The county town is such a small place. Once people don't recognize it, it will be difficult for you to survive. But when everyone thinks that your store sells good products, the prices are reasonable, and the service attitude is good, then you can open a long-standing store with good business." Wang Wei said with a smile.

Although Wang Wei's store is doing well locally, the overall market situation of mid- to high-end specialty stores is not prosperous.

2. “The industry has entered a contraction mode

In 2024, mid-to-high-end specialty stores entered a new round of contraction.

Many boutique supermarkets, high-end restaurants, and specialty stores have reported closing down. In addition to the continued closure of traditional hypermarkets, boutique high-end specialty stores are also facing a time of change.

In the context of a poor economic environment and consumption downgrade, many mid- to high-end specialty stores "suddenly closed down", causing the industry to face tremendous pressure and challenges.

As the environment and consumer shopping habits change, traditional physical retailers are facing unprecedented challenges.

At a time when the trend of discounting is sweeping the industry, many supermarket companies are seeking competitiveness through price, while high-end formats, especially boutique supermarkets, no longer seem to have much practical significance.

This is also a topic that the entire industry is paying attention to and thinking about.

According to normal logic, at a time when consumption is accelerating, as a separate business format, quality and high-end consumer groups still exist, and there is definitely room for development. However, from the actual performance, whether it is the closure of Shanghai City Supermarket, China Resources Ole's boutique strategy, or City Super from Hong Kong, the performance of high-end boutique business formats in the domestic market is not very ideal.

The changes in the overall environment and consumer shopping habits have led to different demands for product categories, prices, experiences, etc. In addition, pressures from supply chains, labor costs, and other aspects have also exacerbated the operating difficulties of mid- to high-end business formats.

From the perspective of market changes, whether it is a low-priced supermarket or a high-end supermarket, price power has become an important part of commodity power, and the adjustment of the price system has become an inevitable strategy for store adjustments. The adjustment of this price system includes bargaining on the supply side and price comparison on the retail side, which requires adjustments to the supply chain as well as adjustments at the operational management level.

Judging from the market development environment and business competition, the development of high-end supermarkets and specialty stores has indeed encountered great difficulties. How to re-rationalize the logic of business development and find core competitiveness is the key to breaking the deadlock.

As Professor Chen Liping of Capital University of Economics and Business said, "The coming year will also be a difficult year for retail enterprises. The biggest variable is that the retail industry will enter a stage of integration in the next two years."

He said that cost-effectiveness is definitely the trend of the future. However, under the general trend of low prices, differentiated market segments and even high-end markets also have great hope and growth. For example, Seijo Ishii, which is aimed at high-end people in Japan, has also developed very well.

Of course, some high-end and specialty stores have also seen a wave of store closures. For example, Xiabu Xiabu’s (00520.HK) high-end barbecue brand “Chen Shao” has been closing stores within two years.

In September 2022, a new brand "Chenshao" with the theme of happy barbecue was launched, and stores were opened in first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen, with the plan to exceed 100 stores within 3 years. Unfortunately, before the "100-store goal" was achieved, Chenshao's stores in Hangzhou, Shanghai and other cities were closed first.

Since the second half of last year, two stores of Chenshao Happy BBQ in Guangzhou and Shenzhen were reported to have closed, and the last one left in Guangzhou has also closed. Now, the Longhuahui store of Chenshao, the last one in Shanghai, has also closed.

Apart from high-end specialty stores, from a global perspective, the retail industry in many countries has poor performance and is in operational difficulties.

3. Retail performance in many countries is poor, entering a "wave of closures"

Recently, the financial reports and business changes released by many foreign consumer companies show that the high inflation environment and weak consumption have dragged down the performance of enterprises, and some enterprises have been forced to close down. Adjusting business strategies has become the main means for many companies to cope with the adverse performance.

According to the Economic Information Daily, many brand retail stores have been mired in bankruptcy. For example, Cohen, an American furniture retailer, has recently become the latest chain retailer to enter the bankruptcy liquidation process.

Not only in the United States, retailers in many countries facing high inflation are also struggling. For example, in New Zealand, more and more retailers are worried that the economic situation will continue to be severe and they will have to close down.

The New Zealand Retailers Association's latest member survey showed that nearly 43% of members were unsure whether their business could continue to operate in the next 12 months. At the same time, more than 70% of retailers did not meet their sales targets in the second quarter. The head of the association said this showed that people were increasingly pessimistic about trading conditions.

Germany is also facing similar problems of weak retail industry. According to statistics released by the German think tank Ifo Institute for Economic Research on July 25, Germany's business climate index fell for the third consecutive month in July, from 88.6 points in June to 87.0 points. The retail industry index also deteriorated again. Whether it is the current business situation or future expectations, the judgment of the interviewed companies is very negative.

An analysis report from the German Retail Association shows that 5,000 retail stores will close in Germany this year, which means that since 2020, a total of 46,000 stores will be closed in Germany by the end of this year.

In addition, many global consumer retail and catering giants released poor financial reports, and the luxury goods industry was increasingly chilled, with big-name financial reports entering a "continuous decline" mode.

On the evening of July 24th, Beijing time, Gucci's parent company Kering Group announced its financial report for the first half of 2024. As of June 30, 2024, the group's revenue in the first half of the year fell 11% year-on-year to 9.018 billion euros. In terms of brands, Gucci's revenue fell 20% year-on-year to 4.1 billion euros, a slightly narrower decline rate than the first quarter report.

On July 23, LVMH, the parent company of LV, also released its performance report for the first half of 2024. The group's sales revenue fell 1% year-on-year to 41.7 billion euros, and net profit fell 14% to 7.3 billion euros; sales revenue in the Asian market (excluding Japan), led by China, fell 10% year-on-year. If divided by department, the revenue of the fashion and leather goods department where LV and Dior are located fell 2% to 20.8 billion euros in the first half of this year. The organic revenue of the jewelry and watch department where Tiffany & Co. and BVLGARI are located fell 3% to 5.2 billion euros in the first half of the year.

On July 16, Cartier's parent company Richemont Group released its new quarterly financial report. Calculated at a fixed exchange rate, the group's sales increased by 1% to 5.3 billion euros in the three months ending June 30, 2024, compared with a 19% increase in the same period last year. By region, sales in the Asia-Pacific region fell by 18%, with sales in Greater China plummeting by 27%.

In addition to the decline in performance, there have been frequent reports of consumer brands and retailers adjusting their business strategies recently, showing that companies are putting reforms into action to fight against industry headwinds and declining performance. Of course, the entire Chinese retail industry is still trying to get out of trouble and struggle to survive. Compared with the weak performance of the overall industry, professional store owners who can do "good business" in counties have their own survival rules. Although it is difficult to change the decline of the entire industry, it is a glimmer of hope after all. Hopefully, a spark can start a prairie fire.