How is the physical retail industry in China worse than that in the U.S.?
Almost all big dreams extend from small ideas, and all the retail giants expand from small grocery stores.
—— Guofu Ye
Big things have small beginnings.
In a small village in the Shennongjia Mountain Range in Hubei in the 1980s, the family of 7-year-old Guofu Ye built a new house. His father happily bought a few calendars on the street during the Chinese New Year. The calendar showed the dazzling views in Beijing, Shanghai, New York, London and Washington...
Thirty years later, Guofu Ye, who used to yearn to visit the bustling metropolises, described his childhood dreams to iAsk (iask-media.com) at the Harvard Business School by the Charles River. On the day before, he shared his ways and approaches regarding the New Retail as an industry up-and-comer, and the company Miniso that he founded has also gone global.
In 2013, Guofu Ye and his partner co-founded Miniso, which has been scaling up rapidly in the past 6 years. It has expanded to 83 countries, including the United States, Canada, Russia, Singapore, United Arab Emirates, South Korea, Malaysia and so forth. There are 2,300 stores in China and 1300 overseas stores. The revenue in 2018 exceeded US$2.5 billion.
Undoubtedly, under Guofu Ye's management, Miniso has developed into a multinational giant swiftly and become the industry leader of the New Retail.
Giant rides the tide: Did he choose the right track?
Why can Miniso develop so rapidly? Guofu Ye's answer is that they chose a promising sector that catered to the new consumer group.
In 2013, when Guofu Ye and his partner opened their first store in Guangzhou, traditional retail was hit hard by e-commerce. The industry reshuffle of the traditional retail by e-commerce can be traced further back. Since 2011, store rents have been going downhill, with stores closing one after another. Offline retail has entered the ice age. Taobao and JD.com took the dominant market position as pioneers, followed by up-and-comers such as NetEase Kaola and Pinduoduo. Young dragon slayers with swords charged into the battlefield of retail one by one, setting off rounds of price wars and value wars. The inborn advantage of internet enterprises successfully blocked online and offline traffic and overturned bargaining and channeling capabilities. Offline retail could barely fight back.
Some people hit the mark with a single sentence that the fall of the traditional industry giants was not caused by the close combat with e-commerce, but "killed" by the bullet pieces from the battles between e-commerce businesses. The fierceness and isolation were evident. The retail industry couldn't be spared. The journey ahead was unpredictable.
Guofu Ye, who had been in the retail industry for more than a decade, was not confident, either. "China's retail industry was hit hard by e-commerce. I started in physical retail, but had no faith in it." However, the retail market in the United States, Japan, and Germany has been prosperous. Retailers such as Costco in the US, ALDI and DM in Germany, and Uniqlo in Japan, have been able to maintain a constant growth momentum, even during the global economic downturn, which inspired Guofu Ye. "Why can physical retail prosper in other countries? what is the problem in China? I think the problem lies in business models and products."
With models from other countries, Guofu Ye cleared the mist and concentrated back on the commercial nature. China's physical retail took a hard hit due to the root cause of weaknesses in consumers, products and locations. Products in particular were not on point. "They didn't cater to the rising needs of the new generation of consumers in China, i.e. the post-80s and 90s. we should work on the products they desire for. As long as we build our products based on consumers' needs, we should be able to secure some market shares."
The sector of household supplies was selected. Imperceptibly, Guofu Ye rode the tide, waiting to witness the results in three years.
Gloria Ai: Every great cause has a brave start. While Miniso extends its reach globally, do you remember your initial intention when you started?
Guofu Ye: I have worked in the retail industry for over a decade. I have always been in the retail industry, especially in the sector of serving women and children. I do have in-depth insights on it.
Gloria Ai: The three elements of retail are nothing but consumers, products, and locations, namely whom to see to, what to sell, and where to sell. Why do you love retail so much?
Guofu Ye: Retail is the foundation of my career. In the past 10 years, China's retail industry has been severely suppressed by e-commerce. It is commonly acknowledged that lots of people have no faith in retail, especially in physical retail. Me neither. Thus, with the eagerness to learn, I traveled to countries with developed retail markets, such as the United States, Japan, and Germany, to see how they managed to do so well in physical retail. What is the problem in China? I think the problem lies in the business models and products, which other countries do very well on. They share one thing in common, that is, their products are on point, catering to the needs of consumers nowadays. Secondly, their gross profit is pretty low.
Does the core of the New Retail lie in products?
Regarding the concept of the New Retail, Guofu Ye has indirectly argued against Jack Ma in public several times. "When Alibaba's business went downhill, Jack Ma proposed that the New Retail is online and offline combined, aiming at gaining traction for his business." Guofu Ye believes that the New Retail is not simply "online + offline". It centers around the product and utilizes new technologies such as the Internet and artificial intelligence to provide customers with a quality user experience and a cost-effective shopping experience. It also vertically integrates the value chain from research and development, design, production, logistics to the end user, creating greater value and improving operational efficiency.
"In 2016, it became vital to separate the first half and the second half. What is the first half? The first half is to focus on the channel, and the second half is to concentrate on the product." Guofu Ye reached this simple and direct conclusion. Everything has a way and an approach; the way is the product quality, while the rest is the approach. The approach is not the core, but can assist the enterprise.
Gloria Ai: What is the New Retail?
Guofu Ye: I think the New Retail is driven by products. Jack Ma publicly claimed that the combination of online and offline sales is the New Retail, i.e. Omni Channel Retailing. In fact, this pattern has been utilized since over a decade ago when e-commerce just sprung up. We have witnessed that many listed companies invested extensively in the online + offline mode, but they all failed, such as Belle and RT-Mart.
In terms of channels, Jack Ma definitely would be biasedly supportive, in order to prompt those who haven't opened online stores to hurry and join Taobao or Tmall. I believe that the New Retail must be product-driven. What did we rely on in the past? Channels. However, nowadays without product competency, the more stores you open, the faster you will fail.
Low gross profit = halfway successful?
Innovation does not equal business value. Those who have clear strategies can easily make breakthroughs, while the stubborn ones would be blocked by countless obstacles.
To Guofu Ye, cost-effectiveness is the key to making breakthroughs. "Innovation can help you take the lead temporarily, but only with extremely strong cost-effectiveness can you maintain the lead. Companies must transform their innovation advantages into cost-effectiveness advantages in order to obtain sustainable competitive edge."
The reason why Miniso managed to stand out in the battlefield of the household goods retail industry and even created miracles was "the constraint on humanity", according to Guofu Ye. All of the best retail firms in the world avoid making quick bucks and stick to the model of sustainable operation. Only by persisting in low gross profit can we maintain a high threshold and keep competitors off the market. Believe that consumers are right; learn to compromise in the game of buying and selling; and restrain the greed of human nature – "investing more in improving product quality and selling at lower prices" is the secret of retail success.
The low price is the trigger of bestsellers. Miniso voluntarily gives up on high profits and insists on the operating principle that the net profit does not exceed 8%. By controlling the price with product quantity and restraining gross profits, Miniso sells products at a price level that astonishes consumers. "There are two types of businesses in the world that anyone can manage. The first type is to make quality products and sell at high prices. The second type is to sell products with poor quality at low prices. Yet, the most difficult thing in the world is to make quality products and sell at low prices. The majority of people can't make it. Those who can have become extremely wealthy, just like Uniqlo President Tadashi Yanai and Zara Founder Amancio Ortega.
Gloria Ai: It is not a secret anymore to operate the retail business at low costs and low profits. Don't you worry about competitors catching up to you and competing with you with low prices and high cost-effectiveness as well?
Guofu Ye: Whoever uses this rule first will form advantages of monopoly. Those who duplicate the strategy later won't achieve the same effect.
Gloria Ai: What is the reason for not being able to emulate?
Guofu Ye: Firstly, the first-mover advantage, which represents the brand advantage. Consumers acknowledge the low prices of Miniso's high-quality products, which is a highly cost-effective business model. Secondly, with the first-mover advantage, Miniso has already established partnerships with leaders along the supply chain, which strengthens Miniso and raises the competition threshold even higher. With the benefits of the first-mover advantage, brand advantage and monopoly advantage of supply chain resources, Miniso has become stronger and scaled up rapidly. Miniso's revenue of RMB 10 billion yuan within three years is already an exceedingly high threshold.
How to be favored by the whole world?
The rate of the expansion of Miniso has been astounding, with an average of 80-100 new stores per month, presence in 83 countries and regions, and sales revenues in the overseas market in the first half of 2018 of USD$ 380 million.
Guofu Ye realized that expanding and opening new stores is the survival cornerstone of retail enterprises. "The development of retail enterprises relies on the expansion of stores. The impact of a single store is limited to the neighborhoods within three kilometers of radius. Continuously expanding to new markets and scaling up is something that every enterprise in the world pursues."
Intriguingly, how crazy would the schedule of the Chief Experience Officer who extended the reach of the stores to 83 countries and regions be. Guofu Ye shared his itinerary, which showed that he stayed in Boston that day, and then New York the day after, followed by Toronto, Vancouver and California... One city per day does sound crazy.
Miniso has been extensively expanding overseas. Even in overseas countries, such as Israel, India, Nigeria, where the languages, cultures and consumer outlooks are strongly different from that in China, Miniso's accomplishments have been remarkable and impressive. The first store in Israel in 2018 generated sales revenues of RMB 200,000 yuan within two hours of opening, Guofu Ye described that at the grand opening, "people went crazy as if everything was free."
The whole world loves quality products, just as Guofu Ye predicted
At the end of the interview, I asked about the "Hundred, Thousand, Ten Thousand" initiative by 2022, namely, reaching 100 countries, earning hundreds of billions, and opening tens of thousands of stores. "What kind of ambition is this?" Guofu Ye asked me in return, "You think this is ambitious?" In his opinion, it is not an ambition or fantasy; it is a matter of time for it to happen, just as how he envisions that Miniso will reach every country worldwide in a decade with 100,000 stores and will become a global retailer with strengths in technology.
There are a thousand Hamlets in a thousand people's eyes. The retail industry is constantly iterating. There is no ultimate conclusion so far regarding under which mode should the New Retail be presented, and there is no ultimate successful case yet. Guofu Ye defines the New Retail in his convinced and stern way. How the story will pan out in the future is still unknown, but it is certain that he has made his mark in the retail industry.
iAsk Media offers in-depth coverage, distribution, and brand-building services for founders in both China inbound and outbound markets. Over the past five years, iAsk Media has published over 1300 pieces of founder-focused original text and audio content, and produced over 120 premium video dialogues with leading entrepreneurs and investors.
iAsk Capital further supports founders by complementing media, brand-building, and marketing solutions with a wide range of investment and advisory services, from growth capital and direct equity investment to fundraising, asset management, and M&A support. To date, iAsk Capital has completed investments in some of China’s fastest growing ventures, including Bytedance, Himalaya, Movietime, and Horizon Robotics.
Gloria Ai is the founder of iAsk Media and the founding manager of iAsk Capital, and a former venture partner at the Softbank Asia Infrastructure Fund. She serves as the international brand ambassador to her hometown of Huangshan, and was Forbes 30 Under 30 in the Media, Marketing & Advertising category. She is a graduate of Harvard Kennedy School and Peking University. Prior to founding iAsk, she served as a financial news correspondent for China Central Television in New York.