It's not the rich who squeezed Sam

Golden Horn Finance

2024-06-27 16:38Creators in the field of finance and economics

原创首发 | 金角财经（ID: F-Jinjiao)

Author | Yingbao

Walmart is torn.

On one side is the widespread closure of Walmart hypermarkets. In the past two and a half years, Walmart has closed nearly 60 hypermarkets in China, including 21 in 2022, 26 in 2023, and more than 12 so far in 2024.

On the other hand, Sam's, a membership-based supermarket under Walmart, is growing rapidly. So far, Sam's has 48 stores in China, with 6 more stores to open this year, and it is expected to open 6-7 new stores every year. In 2023, its sales will exceed 80 billion yuan.

Wal-Mart hypermarkets have always taken the route of pro-people, and in January this year, they also "joined the 9.9 price war", and put hundreds of 9.9 yuan and 19.9 yuan products on the shelves of 29 stores in 8 cities across the country.

Sam's is positioned as a high-end membership store, aimed at the middle class, and the pricing is higher than that of ordinary supermarkets, such as 35 yuan for a pound of strawberries, so the unit price of 230 yuan is also higher than the average.

In the context of consumption downgrade, it is surprising that the low-priced Wal-Mart has retreated, while the high-priced Sam has soared.

Is the consumption downgrade an illusion, or is Sam's actually more cost-effective than Walmart?

Wal-Mart hypermarket, photographed to the shore by the tide of the times

Walmart is a grain of sand in the times.

In the summer of 1996, Wal-Mart, already a retail giant in the United States, opened its first hypermarket in Shenzhen, China.

Prior to this, there were very few large-scale retail hypermarkets in China. After the reform and opening up, the retail market transitioned from the "ticket era" to the era of department stores with free trade. Since 1992, China has allowed foreign-funded retail enterprises to enter the market, but only in the clothing and department store industries, and it was not until 1995 that the field of food-grade chain operations was opened.

Wal-Mart hypermarkets have become the first batch of retail entities to eat the dividends of the times, and with the richness of tens of thousands of SKUs, the low-price advantage formed by scale and its own supply chain, and the service details such as providing free shopping shuttles, Wal-Mart hypermarkets have firmly captured the hearts of consumers, and once became a scene of love and family activities - even if there is nothing to buy, people are willing to make an appointment with their lovers after work, and bring their children to chat and walk in the hypermarket on weekends.

At the same time, real estate developers are interested in the crowd gathering effect of hypermarket operators, and in order to persuade hypermarkets to build stores near residential areas, real estate developers often give rent concessions. At the same time that Wal-Mart hypermarkets entered China, with the abolition of the welfare housing system in 1998, China's real estate entered the market, and ushered in prosperity under a series of stimulus policies such as personal loans, interest rate cuts, and public housing listings, and real estate companies such as Kaisa, Times Real Estate, and Shenglong Group were born one after another.

As a result, the demand for supporting commercial buildings around residential communities has increased significantly, driving the rapid development of Wal-Mart hypermarkets in China and becoming a "vegetable basket at the doorstep". According to the Walmart Group's annual report, Walmart hypermarkets had 68 stores in China in 2007, soared to 197 in 2008, and peaked at 424 stores in 2018.

In other words, the success of Wal-Mart hypermarkets in China is based not only on the low-price strategy and the abundance of products, but also on the "scarcity" and real estate effect of China's retail industry in the early stage.

When the e-commerce industry is more abundant, cheaper, more convenient, and breaks the information gap between consumers and the supply side, and the real estate bubble bursts, the retreat of Wal-Mart hypermarkets has become a part of the development law of the times.

From 2014 to 2023, the proportion of online consumption in total retail sales of consumer goods increased from 8.7% to 32.6%; The proportion of offline retail sales in total retail sales of consumer goods decreased from 89.4% to 67.4%.

At the same time, e-commerce platforms such as Alibaba, Pinduoduo and JD.com, as well as Internet giants such as Douyin and Kuaishou, are constantly deepening the layout of local life. In 2022, with the reshuffle of the local life industry, the fresh food field, the "last place for self-cultivation" of traditional supermarkets, will also be squeezed out.

In the same year, Walmart hypermarkets began to close stores significantly.

Sam's Club, rushing into the influencer economy

Wal-Mart's hypermarket is declining, but the performance of the head office is rising.

According to the financial report, in fiscal year 2024, Walmart's total revenue will be $648.1 billion, a year-on-year increase of 6.0%; Operating profit was US$27 billion, a year-on-year increase of 32.2%. The company expects total revenue to increase by 3% to 4% year-over-year and total operating profit to increase by 4% to 6% year-over-year in fiscal 2025.

Walmart's optimism all comes from another child, Sam's Club. Compared with the financial reports of fiscal year 2023 and fiscal year 2024, Sam's share of Walmart's revenue has increased from 12.84% in fiscal year 2023 to 13.8% in fiscal year 2024, and revenue has increased from 73.556 billion yuan to 84.345 billion yuan.

If Wal-Mart's hypermarkets were crushed by Internet consumption, then Sam's Club was on the top of the Internet celebrity economy.

On Xiaohongshu, there are 2.44 million notes of "Sam", 770,000 notes of "Hema", and 320,000 notes of "Fat Donglai".

Looking at the content carefully, people are more focused on Sam's products, "Sam's must-buy list", "Sam's good things recommended" and "Sam's food" are all high-frequency entries, and there are even many Hong Kong people who teach Sam's in Shenzhen to play the strategy. Sam's cultural definition has expanded from "shopping mall" to "Internet celebrity attraction".

If you want to enter Sam's Club, you have to buy a "ticket" first, and you need to apply for a regular membership card of 260 yuan/year, or a premium membership card of 680 yuan/year, but this has not stopped the pace of rushing.

According to public information, Sam's has more than 5 million members in China, and the average consumption of members in 2023 will be 13,000 yuan. Judging by the data, Sam's Club members are all rich people. But in fact, Sam's Internet celebrity attribute has derived from the purchasing industry chain, a high consumption list, may be pieced together by several small order needs, and the consumer object is not necessarily a middle-class family, more ordinary families.

This daigou industry chain is bigger than imagined.

Searching for "Sam's Purchasing Agency" on Taobao, the number of products is as high as 30,000 pieces, and the monthly sales volume of 7,000-8,000 pieces is the norm, and the total sales of more than 100,000 pieces of goods are more. Some stores also support "Sam's on behalf of Sam", that is, the merchant records the shopping process and packages and sends shopping receipts, product pictures and other materials to customers to provide the latter with an immersive shopping experience; On the second-hand trading platform, there are many Sam's Club members who rent their membership cards, and the rent is in the range of 3-9.9 yuan a day; offline, there are even physical stores of Sam's Shopping, similar to the common Hong Kong stores 20 years ago, such as searching on the map of AutoNavi, there are 4 in Shenzhen and 2 in Guangzhou.

Sam's Purchasing consumers are mainly middle-class people in third- and fourth-tier cities. There is no Sam in the area, and the influencer effect has prompted curiosity about its products and the hidden refiner labels. At the same time, third- and fourth-tier cities are more willing to invest in enjoyment-oriented consumption. Released in October 2023, the "Mid-Autumn Festival and National Day Holiday Second Luxury Consumption Popularity Ranking" pointed out that users in second- and third-tier cities have strong purchasing power and are becoming the main force in the consumer market in the future. According to Morgan Stanley China, by 2030, the consumption of residents in third- and fourth-tier cities will reach a staggering 45 trillion yuan.

Sam's Club members in first- and second-tier cities are also happy to do purchasing business and accumulate points for themselves in exchange for more discounts. The Excellence Card has a 2% points rebate benefit, that is, a 10 yuan cash coupon for spending 500 yuan, and a maximum of 500 yuan per card per month, which can be directly deducted when spending in the next month; Accumulate 10,000 points every month to participate in the preferential price lottery of Feitian Moutai, and after winning the lottery, you can buy Feitian Moutai at a price of 1,499 yuan.

Sam's also welcomes the expansion of the daigou industry, as it can bring in large orders to increase revenue and fill the gap in the sinking market. In an interview with the media, a Sam's store employee mentioned that his Sam's store has employees who specialize in connecting with the purchasing group, and will place orders for the purchasing agent one day in advance, and set aside a time period from 8:30 to 9:30 in the morning to pick up the goods for the purchasing agent to avoid "grabbing goods" with ordinary members.

Sam's "high-end consumption" is just the surface, and the third- and fourth-tier middle-class groups hidden behind the members are the key to supporting the rapid expansion of tens of billions of performance.

Why Sam became an Internet celebrity

According to public information, Sam's annual renewal rate is more than 60%, which means that the purchasing industry and ordinary members' shopping intentions are stable.

However, at a time when most pop culture is only a flash in the pan, Sam's ability to become an Internet celebrity and maintain popularity is closely related to its model of "helping consumers choose products" - this is also the main difference between the business logic of membership stores and traditional supermarkets, hypermarkets, and e-commerce platforms.

The latter three SKUs are often 2W-3W, with a rich variety of goods as the selling point, and the consumption focus is on the scene and goods, and little attention is paid to what consumers need, anyway, all the goods are on the shelves, and people can choose by themselves.

Sam's is a member store represented by Sam's, the SKU is controlled at 3000-4000, and the consumption focuses on people and needs, Sam's selects or develops products for consumers from the perspective of product managers, and does not need the latter to waste time on selection and improve the shopping experience, such as refrigerated and stored fresh milk, JD Seven Fresh has more than 40 models on the shelves, and Sam's only has 3 models.

On the other hand, Sam's focuses on the cost-effective card of "high price, large portion, and low average price".

For example, its most popular product "Swiss Volume", a piece is 59.8 yuan, just looking at the price is quite expensive, the same Swiss volume, Yonghui only sells for 23.8 yuan, but Sam has 16 pieces a piece, and the unit price of a single piece is 3.7 yuan, and the unit price of Hema is 4 yuan. According to media statistics, the average price of Swiss rolls in physical bakeries is 10 yuan per piece. Another mochi bread, which is also an Internet celebrity, costs 29.8 yuan, but there are 24 in a box, and the unit price is only 1.2 yuan.

In order to maintain the cost-effective mentality, Sam's has introduced more than 500 private label products into the consumption scene by entrusting the production of well-known brand processing factories or direct purchase from the production area, so as to reduce costs.

At the same time, some categories with high operating costs, such as live seafood, will be abandoned, and only quick-frozen or chilled seafood will be sold, so as to avoid losses caused by death and deterioration and secondary pollution that may occur during transportation. Taking 2-3 kg of king crab as an example, Hema sells live king crab for thousands of yuan, because to share the cost of the above-mentioned loss, Sam will cook and freeze the king crab at the fishing site, and then transport it to the sales place to ensure that it will not deteriorate in the process, so one is only sold for 300-500 yuan. Although the quality of chilled meat is not as good as that of live animals, the price difference is there, and consumers are willing to buy it.

Sam's subsequent establishment of a front-end warehouse distribution network has also further deepened the loyalty of members by improving the convenience of shopping. In major urban areas of several cities in China, Sam's has achieved one-hour home delivery. As early as 2022, Sam's e-commerce delivery orders have grown by more than 300%, and more than half of the average daily orders come from front-end warehouses.

However, the single focus on cost performance and cost control made Sam negligent in quality control.

In the past two years, Sam has been punished at least 20 times by relevant departments for problems such as food mildew, adulteration and adulteration in products.

In April of this year, Sam was reported by CCTV because the plum blossom meat priced at 65 yuan was black and fat. Another highest-selling "American grain-fed upper brain thinly cut 0.9kg" in the meat category has 40,000 consumers rated it on the Sam's app, of which more than 1,000 are negative. A colleague of mine has only visited Sam's twice, but both times he has bought defective products, once in a "leaky disposable cup" and another in a "red wine with a moldy cork".

This also shows that Sam is not omnipotent, and in terms of quality control, it is also necessary to guard against the risk of "losing everything if you are not careful".

However, from another point of view, there are flaws that make Sam's success more real and scarce, breaking the barriers to product selection in traditional supermarkets and hypermarkets, without the traffic anxiety of e-commerce platforms, and the membership system can help merchants screen out accurate customers and needs through the analysis of the renewal rate, and still has great potential to become a new winner in the retail track.

The ebb and flow of Walmart's hypermarkets and the popularity of Sam's Club do not conflict with consumption downgrade, but Sam's has played a more advanced game of "consumption downgrade".

Perhaps, Sam's is another form of Wal-Mart hypermarket.

Resources:

"Walmart China" Series of Research 1: The Rise and Fall of the Hypermarket Format

Peng Cheng Yuzu invests in "New Retail Bloodbath Old Giant"

LatePost "Sam Everyone Learns, No Secrets"

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