SF Express’s “retail protracted war”: Why does it keep fighting despite repeated failures?

Over the past decade, SF Express has made many attempts in the fields of online e-commerce and offline retail, but with little success. Since last year, SF Express has started to get involved in unmanned retail, and recently its offline global selected store for cross-border e-commerce opened. Why does the logistics giant SF Express keep fighting in the retail field despite repeated failures?

SF Express has recently made new moves in the retail sector.

On June 8, SF Express's cross-border e-commerce platform Fengqu Haitao opened its first global selected store in Jiefangbei, Chongqing.

It is reported that this global selected store named "Wow" covers an area of ​​more than 3,000 square meters and has four floors. The products in the store are selected by a team of overseas professional buyers. Consumers can choose the products and scan the code to pay by themselves, or they can choose the products in the mini program mall and pay, and then pick them up from the shelves.

The opening of the "Wow" global selected store is another move by SF Express in the new retail field following the launch of the unmanned smart convenience store and unmanned shelves "Feng e Zu Shi" at the end of last year.

For more than 10 years, SF has continued to explore the retail sector. In terms of offline retail, from the earliest "Heyke" to "SF Home", SF's two attempts ended in failure. Today, most of these stores have been transformed into "SF Best Selection" stores with the "express delivery + convenience store" model and are back in business.

In terms of e-commerce, the earliest "SF E-Commerce Circle" has long been shut down. Now only the fresh food e-commerce platform "SF Best Selection" and the cross-border e-commerce platform "SF Overseas Shopping" are still in operation, but the performance of both is not impressive.

Will SF Express’ attempt in the retail sector be successful this time?

Those unsuccessful retail experiments

SF Express’s exploration of retail can be traced back to about 10 years ago.

During the Dragon Boat Festival in 2009, couriers from SF Express in Jiaxing, Zhejiang Province took advantage of the Dragon Boat Festival to promote and sell more than 1 million Wufangzhai rice dumplings. This unexpected sales result gave SF Express the confidence to build an e-commerce platform.

In 2010, SF Express officially launched its own e-commerce platform "SF E-Commerce Circle", which mainly sells food. At the same time, SF Express launched its own payment platform "SF Bao". However, the e-commerce and payment attempts were not smooth and eventually came to nothing.

In 2012, SF Express adjusted its business direction, identified cold chain technology as its core competitiveness, and launched the fresh food e-commerce platform "SF Best Selection", which has relatively high requirements for cold chain technology. According to media reports, before the launch of the "SF Best Selection" e-commerce platform in 2012, SF Express's head Wang Wei flew from Shenzhen to Beijing to hold a meeting with senior executives, repeatedly emphasizing that "SF Best Selection is a project that cannot fail."

In the subsequent development, SF Best had achieved good results. On November 11, 2014, its single-day sales reached 70 million yuan. However, it ultimately failed to become an e-commerce platform that attracts customers to make high-frequency purchases.

In 2014, SF Express will begin to seek offline retail opportunities.

On May 18, 2014, SF Express launched the "Heyke" online service community store, which focuses on four major services, including pre-order of goods, offline experience of online shopping, convenience services, and self-send and pick-up of express parcels, in an attempt to solve the "logistics problem" of the last mile and seize the entrance to the community.

"Heyke" opened more than 2,000 stores in a short period of time. After the rapid expansion, problems began to emerge. As a retail store, it functions more like a courier collection point. The model that the goods in the store are only for display and customers need to place orders online has been widely criticized.

"The main reason for the failure of 'Heyke' is that it used the express delivery mindset to do business," said Yang Daqing, a special researcher at the China Logistics Society. "SF Express did not understand the community economy. The biggest advantage of the community economy is convenience, speed and a strong sense of experience, but in this regard, 'Heyke' is just the opposite."

In the view of He Wen, partner of Chunxiao Capital, Heke's approach at the time completely violated the essence of community retail, namely efficiency, experience and cost. "For offline stores, the most important thing is experience. There is no physical product that can be purchased and experienced. This is not in line with the rules of community retail." He Wen said.

In 2015, most of the "Heyke" stores were closed, and the remaining stores were renamed "SF Home". In the same year, in preparation for its IPO, SF Holdings officially divested the SF Commercial Division, which was responsible for online and offline retail businesses.

The loss of SF Express's offline business can be seen from the financial report data disclosed by Dingtai New Materials, which was listed by SF Express through a backdoor listing in 2017. The data shows that from 2013 to 2015, SF Express's "stripped business business segment" lost 126 million yuan, 614 million yuan, and 866 million yuan respectively, with a total loss of 1.606 billion yuan. The reason for the loss, the report said, "is mainly due to SF Express's concentrated deployment of offline stores since 2014."

Fighting again and again

Despite a series of failed attempts, SF Express has not given up exploring the retail business.

In 2015, Wang Wei personally took on the role of CEO of SF Business (including SF Best Choice, Heyke and other businesses). “In the future, we will enter many industries and go deep into many industries, rather than the ‘last mile’ warehouse delivery. If we do that, we will never go deep into one industry.”

In many previous performance communication meetings, SF Express CEO Wang Wei emphasized that SF Express would not simply engage in express delivery. They needed to explore new profit sources and expand new business branches based on the express delivery business.

In addition to continuing to maintain the business of SF Express's preferred e-commerce platform and offline retail stores, in 2015, SF Express launched the overseas shopping e-commerce "SF Overseas Shopping" (now renamed "Fengqu Overseas Shopping"), positioning itself as a supply chain cross-border e-commerce platform, and was the first to explore non-standard products and personalized direct mail models, attempting to share a share of the cross-border e-commerce field through its advantages in logistics and supply chain. The "Wow" global selected store mentioned at the beginning is the implementation of Fengqu Overseas Shopping in new retail.

However, like many cross-border e-commerce companies, Fengqu Haitao has been repeatedly exposed by the media for "selling fakes", false advertising, unauthorized cancellation of orders, and difficulty in returning goods during its development. Under the siege of giants such as Tmall Global, JD Global Shopping, and NetEase Kaola, Fengqu Haitao's market share is negligible.

According to the "China Cross-border Import Retail E-commerce Market Quarterly Monitoring Report" released by iResearch International, in the first quarter of 2018, Fengqu Haitao's market share was only 1.1%, ranking 9th among all its competitors.

When cross-border e-commerce was finding it difficult to break through, SF Express began to transform into offline stores.

In September 2016, as convenience stores became increasingly popular, SF Express renamed its offline store "SF Home" to "SF Best". From then on, SF Express's online e-commerce platform and offline retail stores had a unified name, and its positioning became "express delivery + convenience store".

In today's "SF Best" stores, it is no longer an offline experience and online ordering, but physical retail. SF has also expanded its product categories, focusing on fresh food, and added cross-border imported goods.

At the same time, SF Express has integrated online platform sales with offline physical sales. Consumers can choose to pay on the SF Express online platform and have SF Express deliver the goods to their door, or they can go directly to SF Express offline stores to make purchases and pay, and then pick up the goods at the store.

The service of SF Express is quite similar to the current JD.com Home Delivery. However, compared with JD.com Home Delivery, which started providing home delivery service in 2015, SF Express entered the market almost two years later.

From direct sales to franchise

It is worth mentioning that this time "SF Express Best Selection" changed from the original direct operation model to a franchise model.

The franchisee is responsible for the rent and labor costs, SF Express is responsible for the store decoration and merchandise supply, and the franchisee needs to pay a performance guarantee deposit of 300,000 yuan, which will be fully refunded upon expiration of the contract unless there is a breach of contract.

According to data provided by SF Express internally, the "SF Best" plan is to reach 4,500 offline stores in the next year and establish tens of thousands of offline stores within 2 to 3 years.

So, can the “franchise model” business model support SF Express’s retail ambitions?

Luo Dan, a logistics analyst at Northeast Securities, believes that "SF Express's preferred investment promotion method has greatly reduced SF Express's own operating risks, but how to do a good job of quality control is a test of SF Express's ability."

At present, SF Express's Premium area is not large, and its product categories are about 200, including snacks, foreign liquor, red wine, mineral water, seafood, frozen staple foods, rice, flour, grain and oil products, and 80% of the goods are foreign brands.

Cao Lei, director of the China E-Commerce Research Center, believes that SF Express's positioning is undoubtedly aimed at high-end customers. "It targets high-end people, so stores can only be opened in high-end communities, where rents are not cheap. High-end communities are determined by the ability to buy houses, not by the flow of people. This is a huge test for SF Express." He believes that without the support of online traffic, it will be extremely difficult for SF Express to obtain offline traffic.

So far, SF Express has made many retail attempts, but it has not achieved very impressive results whether in offline stores, fresh food e-commerce or cross-border e-commerce.

"Although SF Express can connect large, medium and small businesses in the industrial chain through its own channel advantages, SF Express's logistics advantage mainly lies in its long-distance delivery method, and its delivery capabilities for daily retail goods are still poor." In the view of Luo Dan, a logistics analyst at Northeast Securities, SF Express's strength lies in its delivery capabilities, while e-commerce and retail emphasize warehousing and distribution capabilities, and the warehousing link is SF Express's weakness.

Li Chengdong, an e-commerce analyst, said, "Logistics is a service capability, not a retail capability. Retail requires supply chain capabilities and consumer insights. SF Express does not have core retail capabilities, which is the main reason why SF Express's retail business has not been successful."

Prior to this, SF Express CEO Wang Wei had always stressed that logistics and business flows should be closely integrated. "This is why SF Express has always been committed to e-commerce retail," Luo Dan said, "First establish a channel brand, then shape the product brand, and endorse the brand through its own channels." This is what SF Express wants to achieve, but the actual results are not ideal.

With the advent of the convenience store boom, SF Express's offline retail journey has not been easy as it faces multiple challenges from foreign convenience store chains such as 7-11 and domestic regional convenience store chain brands.

SF Express’s Anxiety

Although the commercial segment was divested before the listing and repeated attempts have not produced good results, for SF Express, business exploration is something it has to try.

"We need to explore new profit sources and extend new business branches based on the express delivery business," Wang Wei said at SF Holding's 2016 annual performance briefing.

Judging from the financial report, SF Express’s main express delivery business is facing challenges.

After experiencing a frenzy of rising prices at the beginning of its listing, SF Holding (002352.SZ), China's most valuable express delivery company, has gradually "fallen out of favor" in the capital market. After reaching a peak of 73.34 yuan in the first quarter of 2017, SF's stock price has fallen significantly over the past year. As of press time, SF's stock price has fallen to 46.32 yuan, a 36.8% drop from its peak, and its total market value has evaporated by more than 90 billion yuan.

According to SF Express's 2017 financial report, SF Holdings achieved a total express delivery volume of 3.052 billion pieces in 2017, a year-on-year increase of 18.29%. According to the "2017 Postal Industry Development Statistical Bulletin" released by the State Post Bureau, in 2017, the national express delivery industry's business volume was 40.06 billion pieces, a year-on-year increase of 28%. SF Express's year-on-year growth is still 10% lower than the industry level.

In terms of market share, according to statistics from All Weather Technology, SF Holding's share of express delivery business volume last year was only about 7.62% (down 0.6% from 8.25% in 2016), lagging behind ZTO's 15.5%, YTO's 12.6%, Yunda's 11.8%, STO's 9.73% and BEST's 9.4%, ranking only 6th among China's express delivery companies.

With the successive listing of 3T Express, 10ZTO Express, and 2SD Logistics and the rise of Cainiao and JD Logistics, competition in the express delivery industry has become increasingly fierce.

On the evening of June 6, STO Express issued an announcement that it would acquire transit assets in Shenzhen for approximately RMB 240 million, Guangzhou transit assets for approximately RMB 350 million, and Changsha transit assets for approximately RMB 60 million. This move also means that STO is gradually advancing the direct operation process of transfer centers in key cities.

Prior to this, express delivery companies including "Three Links and One Reach" only adopted the franchise model. Except for the "receiving" link, they did the "transfer, dispatch and delivery" links all by franchisees. SF Express has always insisted on direct operation, and now, "Three Links and One Reach" are also increasing the proportion of direct operation.

JD Logistics is another strong rival of SF Express. Last year, Liu Qiangdong, chairman and CEO of JD Group, made a bold statement in an interview with CCTV that "in the future, only JD and SF Express may be able to gain a foothold in China's logistics industry."

(Photo source: Tianxia.com)

In addition, the direct sales model is also causing SF Express’s operating costs to rise steadily.

In 2017, the operating costs of SF Holding's express logistics sector reached 56.507 billion yuan, a year-on-year increase of 22.93% over 2016. Human resource costs are still one of its largest expenses. According to the nature of the expenses, SF Holding's human resource costs are divided into outsourcing costs and employee salaries. In 2017, these two expenses were 27.921 billion yuan and 10.073 billion yuan respectively, accounting for more than 60% in total.

In the view of Yang Daqing, a special researcher of the China Logistics Association, "As technology reshapes express delivery, the labor-intensive express delivery industry will shift to capital-intensive and technology-intensive, and unmanned technology will gradually become popular. If SF Express does not make timely adjustments to its intelligence, its more than 400,000 employees (SF Express's financial report shows that SF Express has more than 400,000 employees, including its own, dispatched and outsourced employees) may become a huge burden for SF Express."

In the face of pressure, SF Express has continued to explore new retail businesses while increasing its investment in heavy cargo express, same-city delivery and other businesses.

On May 12, SF Express and Xinbang Logistics held a "Brand Launch Conference and Partner Recruitment Conference" in Guangzhou, officially entering the LTL express market through the franchise system.

According to Sun Yan, a logistics analyst at Northeast Securities, the current capacity of the heavy-duty express market is 1.1 trillion yuan, which is much larger than the 500 billion yuan scale of the express delivery business. "Although Deppon has always been the industry leader in the express delivery field, the concentration of this industry is very low (the largest Deppon has a market share of less than 2%), which is an opportunity for SF Express."

"The express delivery market is still a red ocean as it is going downhill. SF Express still needs to move up and outward on the brand high ground," Yang Daqing emphasized. "We need to strengthen the construction of intelligent warehouse and distribution networks and seek new space in the logistics market serving new retail and new manufacturing. In addition, acquiring high-quality service resources is also an important option for SF Express to achieve growth breakthroughs."

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.