Recently, it was reported that the American commercial discount chain 99 Cents Only (99 cents store, often called "9 Mao 9" by local Chinese) will close all 371 of its stores and gradually close its business after more than 40 years of operation.
Source: Screenshot of Los Angeles Times News
"This is an extremely difficult decision and not an outcome that we expected or hoped to achieve," interim CEO Mike Simoncic said in a statement.
At this point, this discount chain brand with a history of more than 40 years has come to a desperate situation.
42 years of history is over, who killed it?
Who is the 99 Cent Store?
It is one of the most representative chain brands in the American discount retail industry, opened its first store in California in 1982 by founder Dave Gold, and its business mainly covers California, Arizona, Nevada and Texas, with more than 10,000 employees. The company went public on the New York Stock Exchange in 1996, making founder Dave Gold a billionaire.
Image source: CCTV News
But in recent years, the pressure to survive the 99-cent store has long been significant. It is understood that 99 cent stores are popular with customers, especially those with low and middle incomes, for offering a wide range of inexpensive and high-quality goods, and were once known for the fact that the vast majority of goods were only sold at 99 cents or even lower. However, in recent years, due to the pressure brought by inflation and other factors, the prices of some goods in the store have increased significantly.
In 2008, in the face of rapidly rising inflation, soaring food and fuel prices, and a higher minimum wage, 99 Cents announced that it would deviate from its long-standing price strategy. Three years later, the company announced that it had agreed to sell it for about $1.6 billion. In 2013, Howard Gold and other members of the family management team left the company.
On April 4 of this year, 99 Cents said in a statement that it had reached an agreement with the relevant financial services company to liquidate all goods owned by the brand and dispose of the in-store equipment. In addition, 99 cent of real estate owned or leased by the store will also be disposed of. The agreement will be implemented gradually from the 5th.
The reason for the collapse of the former star company and the rapid changes in the external environment of the industry are a sharp blade against the throat of fate. Mike Simoncic, interim CEO of 99 Cents, said that the retail industry has faced significant and ongoing challenges over the past few years, with the impact of the new crown epidemic, changes in consumer demand, persistent inflationary pressures and other factors that have greatly hindered the company's ability to operate.
From its peak to its decline, the 99-cent store drew a perfect parabola and became a passing visitor of the times.
China hard discounts in full swing
Someone falls, someone gets in
The fall of the 99-cent store is not unique in the path of hard discounts.
Looking at it, affected by multiple factors, domestic hard discount chain brands are also under great pressure.
On December 22 last year, the supermarket chain Biyide announced that it would suspend business from December 22, 2023. According to the data, Biyide is a hard discount store brand founded by German Philipp Spangenberg in China, which has been operating for many years and has more than 200 stores in China. Online, some people refer to it as the "Poor Man's Happy House".
The old supermarket is also "full of thorns" on this road of transformation, and in recent years, Carrefour's attempt to transform has ended in failure. According to the analysis of industry insiders, traditional supermarkets need to operate at a discount, abandon supplier channel fees, compress gross profits, and shift from the rent-seeking model of the store to the procurement and sales model, which involves huge redistribution of interests, which is quite difficult.
Source: Biyide public account
However, this does not seem to affect the rapid penetration of hard discounts in the Chinese market, and with the acceleration of the development of China's hard discount retail model, more and more supermarkets are exploring the possibility of new discount formats in 2023.
The first type of discount format is the opening of shop-in-shop/in-store discount areas represented by Yonghui supermarkets, where selected specific categories are sold at very low prices. The advantage of this approach is that the store-in-store will form a kind of drainage consumption landscape, and from the stock of stores, the cost of trial and error is low, and the replication is fast, and the limitation is that the game relationship with upstream suppliers has not changed substantially.
For example, Yonghui has set up a discount area in the store, covering a wide range of categories, including snacks and beverages, rice, flour, grain and oil, beauty and skin care, daily necessities, etc., and will analyze the performance of goods according to the data system, flexibly adjust the discount product pool and discount range, which plays a role in accelerating the circulation and replacement of goods and improving business efficiency; Lychee, marked with the purchase price, is sold at a very low markup rate (close to the wholesale price), but it is basically not profitable, and it plays more of a role in draining traffic and improving the favorability of customers.
Another type of discount format is the comprehensive discount transformation of the stock stores of the main format led by Freshippo. Launched the "Moving Mountain Price", announced a 20% price reduction of more than 5,000 products, launched the "Moving Mountains and Fighting Cattle", and closed the entrance to apply for paid members...... In order to achieve a true "price competitive advantage" and narrow the distance between itself and the traditional international retail giants, Hema has made drastic adjustments and innovations to its main business formats, including efforts to reconstruct the zero-supply relationship.
According to the data disclosed by Freshippo, the sales of one of the popular products of Yishan price of mille-feuille durian cake increased by 26 times in Shanghai, and during the Yishan War, the weekly DAU of Hema APP increased by 13.3%.
From the above, it is not difficult to see that the leading retail players are actively embracing this trend and actively deploying their attitudes.
Who will survive the tide of discount stores?
In the past year, an unprecedented wave of discounting has swept through China's retail industry. Entering 2024, when consumer confidence is still difficult to recover, consumption decisions will still tend to be rational, which also means that discounting in the retail industry will still be a mainstream trend, and after a whole year of fighting, the integration of discounting formats in 2024 will accelerate.
For example, in 2024, Hema NB outlets will fully launch the opening of stores nationwide, planning to open 500 Hema NB outlets, Sam's completed the construction of the second store in Tianjin in January, another 20 stores are in preparation, and it is expected to open 6~7 new stores in 2024......
Image Credit: Sam
However, with the intensification of competition in the retail discount format, enterprises must face three core issues if they want to go on for a long time:
First, in terms of product selection, it is necessary to develop a wide range of discount formats, how to select the number of SKUs, how to select several brands under each category, and how to realize the dynamic adjustment of the product structure, these core issues are related to the customer positioning of each discount store. For example, the outlets of Outair and Aldi also have about 2,000 SKUs, but due to the different positioning groups, the category structure of the two is very different.
Second, in terms of transforming the supply chain and developing its own brand, enterprises need to consider how much energy to invest, how much to participate in the upstream supply chain, and what proportion to develop their own brand. For example, hard discount supermarkets are aimed at the living needs of specific customer groups, and need to polish store types and local supply chains based on the regional market, with a high proportion of private brands;
The third is the question of how the growth flywheel accelerates. Although the growth flywheel of hard discount supermarkets is slower, they are more sticky to specific regional markets and specific customer groups, and traditional supermarkets such as Hema will be a protracted battle to reform the zero-supply relationship, and it will be a protracted battle to compete with who can run longer.
Now, this vigorous wave of discounting has just begun, discounting is not a day's work, how the industry will be differentiated in the future, we wait and see.