As of the end of March, Hailin Retail Limited Company, a subsidiary of Alibaba Group and operating chain supermarkets under the brand “Darunfa” in mainland China, is deeply in the red in its annual performance, further signaling weak consumer demand in China.
On May 21st (Tuesday), Hailin Retail, listed in Hong Kong, released its annual financial report for the fiscal year ending March 31, 2024. The company recorded a net loss of 1.6 billion Chinese yuan (approximately 223 million US dollars), a significant drop from a net profit of 109 million yuan in the same period last year. The company achieved revenue of 72.567 billion yuan, a 13.3% decrease from the previous year’s 83.662 billion yuan. Impairment losses on store assets and goodwill exceeded 1.3 billion yuan, inflicting a heavy blow to the company’s performance.
Chief Financial Officer Wan Yiwen stated that the double-digit decrease in revenue was mainly attributed to the closure of loss-making stores, contraction of supply chain operations, and a decrease in average customer spending in offline businesses. This is reflected in a 6.6% year-on-year decline in same-store sales, a key indicator for the industry.
These challenges are to some extent industry-wide. According to data from the Chinese National Bureau of Statistics, supermarket retail sales for the full year of 2023 fell by 0.4%, while the GDP growth rate exceeded 5% (the credibility of official Chinese government data is widely doubted).
Yonghui Superstores, a competitor of Darunfa supermarkets under Hailin Retail, operates over 1,000 stores in 530 cities with its largest shareholder being Yihai Holdings. Yonghui also reported a 12.7% decrease in revenue in 2023, dropping to 78.64 billion yuan, with a net loss of 1.32 billion yuan. The Shanghai-listed retailer achieved a net profit of 736 million yuan in the first quarter, but its year-on-year revenue decreased by 9.0%.
In addition, state-owned enterprise Shanghai Bailian Group (which operates department stores, shopping centers, and convenience stores) experienced a revenue decrease of around 5.5% in 2023, along with a sharp decline in net profit of over 40%. Revenue and profits continued to slide in the first three months of this year.
Shen Hui, the newly appointed CEO of Hailin Retail, admitted that their pricing lacks competitiveness. When asked about the sharp drop in profits on Wednesday, he answered, “My friends told me that Darunfa’s prices are too high.” He believed that the previous management “rarely cared about the prices of other competing stores in the same commercial area.”
Darunfa is the core brand of Hailin Retail, which owned 507 stores as of the end of March.
Reportedly, less than two months ago, Shen Hui took over the CEO position from Lin Xiaohai. Lin Xiaohai was replaced due to “being transferred to other businesses within Alibaba.” Lin Xiaohai became an executive director of Hailin Retail in December 2020 and took on the CEO role in May 2021. Alibaba acquired over 70% of Hailin Retail’s controlling stake in October 2020.
The listing price of Hailin Retail in Hong Kong rose over 9% on March 27th, closing at 1.54 Hong Kong dollars. The stock has performed poorly since 2020, with its price even falling below the 1 Hong Kong dollar mark in January, becoming a “penny stock.” When Alibaba acquired the company in 2020, the stock price reached as high as 13 Hong Kong dollars.
Originally a joint venture between Taiwan’s RT-Mart Group and France’s Auchan Group, Hailin Retail has successfully operated retail business in mainland China for about twenty years.
Shen Hui is a seasoned professional with over twenty years of experience in the industry and previously worked at Auchan Group. When he joined Auchan Group in 1999, he was involved in the early stages of this French retail brand’s operations in China. He knows how things worked in the past and emphasized on Wednesday the need to return to the essence of retail, which is to “sell more high-quality products to more and more customers at lower and lower prices.”
He stated that since he took over in April, the company’s revenue has already begun to grow positively again. However, considering the overall demand in China, he acknowledged that his task might be easier said than done. He reiterated the need to take cost-cutting measures, believing that so far these measures have been “very, very insufficient.”