Special analysis report on offline retail: offline retail has passed the darkest hour

Basic conclusion

At present, the retail industry, whether online or offline, will enter the era of stock competition. In the early stage, the low cost / huge amount of information flow of Internet e-commerce, high rent of offline shops, physical / psychological restrictions caused by covid-19 epidemic, community group purchase and other factors jointly led to the plight of the traditional retail industry. We believe that the dark hour of the current offline retail business has passed, the offline consumption will be repaired from the bottom, and the retail channel structure is expected to change to some extent, The people and goods yard is expected to be adjusted or rebuilt again.

First, online retail has transitioned from high growth to platform stage, from increment to stock competition: the pattern of online retail has changed, and the total amount tends to be stable. Internet streaming slowed down. The number of Internet users in China reached 1.011 billion in June 2021, and the Internet penetration rate accelerated to 72% driven by covid-19 epidemic prevention and control measures. The growth rate of online retail slows down. Although there are more and more online retail channels, based on the Internet’s demand for focusing on the main business, fresh e-commerce profits and survival, the scuffle will tend to be rational, the expansion scale of online retail will slow down or shrink, and more will turn to the competition of categories and brands.

Second, offline retail is still irreplaceable. Offline retail has the advantages of three-dimensional, multi-dimensional, credible and high availability, which is valued by the brand and is still the top priority of the brand layout. According to the official announcement of Yintai department store, 31 major cosmetics counters in Yintai department store will be sold first in China in 2021.

Third, the offline retail industry has been continuously adjusted under the significant diversion of passenger flow, focusing on community convenience stores, large warehouse member stores and professional branded stores, and reconstructing the “people and goods yard” through a series of measures. (1) From 2011 to 2020, the number of stores in each retail channel has changed significantly. Especially after the outbreak of the epidemic, the number of professional stores and community-based convenience stores increased rapidly, the number of supermarkets, home building materials and manufacturer direct sales centers decreased, and the number of department stores and warehouse member stores was relatively stable. (2) Digital empowerment and Wuxi Online Offline Communication Information Technology Co.Ltd(300959) integration combine online drainage with offline physical stores to give full play to their advantages. (3) Transformation and upgrading of department stores / business districts, and win-win between brands and regions. By transforming the overall environment of business districts and commercial entities, seizing the return of luxury consumption to China after the epidemic and the renewed attention of major brands to offline investment, as well as the “first store economy”, we will upgrade the brand and its own body, drain the region, and achieve a win-win situation between the brand and the region.

Fourth, the operation of offline retail industry began to improve. Benefiting from the decline of high offline costs / the rise of online operating costs, the easing of competition caused by the tide of store closure, and the promotion of the reform of offline retail industry itself, the operation of offline retail industry began to improve marginally. According to the data released by the National Bureau of statistics, in 2021, the retail sales of supermarkets, convenience stores, department stores, specialty stores and specialty stores in retail units above designated size increased by 6.0%, 16.9%, 11.7%, 12.8% and 12.0% respectively over the previous year, and the sales of many department stores increased significantly.

Investment suggestions:

The urgent demand for offline activities brought about by the epidemic prevention and control two years later, coupled with the difficult transformation of online and offline retail industry, we believe that offline formats are expected to usher in vitality again. In the short term, the intensity of population migration before the Spring Festival is greater than that of last year. The local consumption intensity brought by the Spring Festival is expected to be better than that of last year. Department stores and shopping centers, warehouse membership stores and professional stores with high-quality brands, high-quality business districts and drainage means are expected to make a good start. In the long run, from the perspective of the need to revitalize consumption and superimpose the change trend of consumer categories in the medium and long term, we suggest paying attention to: (1) professional store chains Vats Liquor Chain Store Management Joint Stock Co.Ltd(300755) , Shenzhen Aisidi Co.Ltd(002416) with significant channel advantages, smooth category expansion and rapid performance growth; (2) The influence of community group buying gradually decreases, and supermarket chains that actively adjust the structure and reduce inventory, and improve the inventory turnover rate, such as Yonghui Superstores Co.Ltd(601933) ; (3) And department store retail enterprises that embrace new retail, benefit from brand upgrading and improve the margin of offline consumption, such as Wangfujing Group Co.Ltd(600859) , Chongqing Department Store Co.Ltd(600729) .

Risk tips:

The risk that the strategic adjustment can not keep up with the development and changes of the retail industry, the risk that the covid-19 epidemic continues to be serious or a new epidemic virus occurs, and the macro-economy has declined sharply.

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