The opening of a national chain store, Darunfa, had an undefeated streak of 19 years without closing any stores until this year. Recently, there have been reports of store closures in several locations, including Huanggang and Zhuzhou in Hubei, Zhenjiang in Jiangsu, Deyang in Sichuan, and more.
According to media reports, since 2023, at least 13 Darunfa stores have closed or announced closures.
In response to the closures, a spokesperson for Darunfa stated that it was part of their regional business strategy adjustment, and that both closing and opening stores were normal business actions. Furthermore, an insider revealed that one reason for the closures was upgrading and transformation, with some stores becoming new stores or M Club stores. All planned M Club stores are upgraded from existing Darunfa stores. Another major reason was related to properties, such as lease expiration or government plans for the area.
Within three days, three stores closed their doors. On February 17th, Darunfa's Zhenjiang Store in Jiangsu announced that it would cease operations from February 29th, 2024. On the same day, Darunfa's Deyang Store in Sichuan also announced that it would cease operations from February 26th, 2024. On February 19th, Darunfa's Zhuzhou Store in Hunan announced that it would cease operations from March 4th, 2024. Within three days, these three stores announced their closures.
The Zhenjiang Store and Deyang Store had been operating for more than 10 years since their openings in 2010 and 2013, respectively. Similarly, the Huanggang Store and Zhuzhou Store, which opened at the beginning and end of 2015, were also older stores.
"Lease expiration" is a major reason for many large retailers to close their stores. Previously, Walmart closed four stores in one day in December 2021, most of which had been in operation for over 10 years. Industry insiders stated that around 2011 and 2012, there was a peak in large retailers closing stores due to lease expiration. Now, another batch of older stores are seeing their leases expire one after another. Additionally, the rental prices have significantly increased, as properties that were signed on for relatively lower rental fees more than a decade ago have since skyrocketed, making it unaffordable for low-margin large retailers.
According to relevant institutions, at least 13 Darunfa stores have closed or announced closures since 2023. Furthermore, among the stores closed by Darunfa last year until now, there were also newly opened stores.
The Panshihua Store of Darunfa opened on December 26th, 2018, and ceased operations in January of last year, with a lifespan of only about four years.
Industry experts believe that the closure of traditional supermarkets' newly opened stores cannot be separated from timely damage control. Darunfa's store closures may be related to its performance pressure, closing poorly performing stores to reduce losses. Gaoxin Retail, the parent company of Darunfa, reported in its 2023 semi-annual report that for the six months ending on September 30th, 2023, the revenue was 35.768 billion yuan, a year-on-year decline of 11.9%. The net loss was 378 million yuan, a 334.5% increase compared to the same period last year (89 million yuan).
Gaoxin Retail also pointed out that the expansion of the company's losses had multiple reasons, including the strategic contraction of the supply chain business, contraction of supply guarantee businesses, and failing to meet performance expectations. In addition, the company has made several adjustments in its operations this year, such as increasing discount levels and expanding new store formats against the trend, which has brought significant cost pressures in the short term.
The growth of large retailers has stagnated.
Darunfa, founded by Taiwan's Ruentex Group in 1996, opened its first large supermarket in Shanghai in 1998 and once had a brilliant past. Its founder, Huang Mingduan, was originally an outsider who knew nothing about retail. After getting to know the owner of Ruentex Group during his studies, he entered Ruentex Textiles and eventually became the general manager.
Later, due to the financial crisis, Ruentex headquarters announced its entry into the large retailer market and established Darunfa. At the age of 41, Huang Mingduan was appointed as the general manager and entered the retail industry. Despite his lack of retail knowledge, under his leadership, Darunfa achieved a record of 19 consecutive years without closing a single store, earning him the title of "Warrior of the Retail Industry."
However, every business format has a certain lifecycle. The growth of large retailers has stagnated, and they have gradually aged. Since 2016, poor performance has led to a series of store closures by Darunfa, a company that had previously created the miracle of "19 years without closing a single store." In 2017, Alibaba invested HKD 22.4 billion in Gaoxin Retail, and Huang Mingduan gradually withdrew from the management, marking the beginning of the Alibaba era for Darunfa.
He also mentioned that Gaoxin Retail is undergoing adjustments. M membership stores and Da Run Fa Super are accelerating store openings, while traditional large supermarkets are following the original plan and will open new stores considering suitable locations and local market demands. "Unlike last year's intensive store closures by Carrefour, Da Run Fa is still continuously adjusting and upgrading old stores." According to reports, Gaoxin Retail started opening stores in several provinces and cities including Sichuan, Hubei, Jiangsu, Shandong, Zhejiang, Guangdong, and Hainan in March this year. It covers three formats: Da Run Fa, Da Run Fa Super, and M membership stores. They are also renovating and upgrading their existing stores. This is another acceleration for Gaoxin Retail after opening 12 new stores in 10 cities nationwide in January this year. Supermarkets have been undergoing a transformation towards offering discounts. In recent years, there have been cases of losses in the supermarket industry. According to data from the National Bureau of Statistics, in 2023, among retail units above a certain limit, the retail sales of department stores, convenience stores, specialty stores, and brand flagship stores all increased compared to the previous year, while supermarket sales decreased by 0.4%. In addition, based on the performance forecasts of listed supermarket companies for the whole year of 2023, only three companies, Jialefu, Liqun Corporation, and Sanjiang Shopping, achieved profits, and more than half of the companies suffered losses. Major supermarkets have timely closed stores. Carrefour China closed 106 stores in the first half of the year, leaving only 41. Lianhua Supermarket closed more than 200 stores in 2022. Yonghui Supermarket's official website data shows that as of February 25, 2024, it has a total of 1,001 stores in 29 provinces nationwide, already closing more than 100 stores compared to its peak period. Every Day Low Price (EDL) has been warned three times for continuous losses. As of the first half of 2023, EDL had 107 stores, with 6 closed during the reporting period and no new stores opened. Under the pressure of performance and the trends of diversified channels and cost-effective consumption, traditional supermarkets caught in the wave of store closures have begun active transformations. After Walmart closed nearly 100 stores in China, its membership-based supermarket, Sam's Club, became the main source of revenue. Currently, membership-based supermarkets have become one of the ways for traditional supermarkets to turn around their performance. Compared to large hypermarkets, Sam's Club and Hema pay more attention to consumer demand and are developing their own brands. According to the Large Retail Enterprise Development Index released by the China General Chamber of Commerce, since 2023, the revenue index of large supermarkets has been continuously declining, and the overall profit of the industry as a whole has been negative. However, the magnitude of losses has narrowed since 2023, showing a slow improvement trend.