From earning billions annually to suffering losses year after year, can SUNART RETAIL win this turnaround battle?

The parent company of RT-Mart, SUNART RETAIL, has experienced unstable performance in recent years, with two losses in three years. Even with the entry of a private equity king, there is still no sign of dawn.

Key Points:

• The company warns of a loss of 140 million yuan in the first half of the fiscal year.
• A series of structural and personnel adjustments are currently underway.

Liu Zhiheng

"I have defeated all my opponents, but lost to the times; when the times abandon you, they won't even say goodbye." This statement by Huang Mingduan, the former chairman of SUNART RETAIL LIMITED (6068.HK), reflects the hardships faced by hypermarkets today.

In the era of e-commerce, the operating model of traditional hypermarkets appears outdated and shows signs of aging. By the end of last year, the industry leader Carrefour had only 4 stores left in mainland China, while another giant, Walmart, closed over 20 stores in mainland China last year and has shifted its focus to Sam's Club-style membership warehouse stores.

Unable to Compete with the Times

The structural changes in the supermarket industry, combined with the decline of the company itself, have rendered RT-Mart, once the king of supermarkets with annual profits in the billions, unable to recover. Its parent company, SUNART RETAIL, has just issued a mid-term profit warning, forecasting a loss of 140 million yuan for the period ending September this year, compared to a profit of 206 million yuan last year.

The company explained that the loss was mainly due to intensified market competition and weak consumer demand, which dragged down the average selling price of goods. Additionally, the combined "Mid-Autumn Festival and National Day" holiday also affected consumption. Furthermore, one-time impacts included revenue declines due to adjustments in shopping streets, expenses for optimizing the Central China region, and reduced interest income during the period.

It is worth noting that SUNART's peak moments saw annual revenues exceeding 100 billion yuan, with profits reaching as high as 3 billion yuan in 2017. However, as online shopping became more prevalent, SUNART's business gradually faced pressure, leading to a decline in performance. In 2022, it recorded a loss of 730 million yuan, and although it returned to profitability in 2023, it only earned 78 million yuan, with losses expected to reach 1.6 billion yuan in 2024.

The ability to turn a profit of 386 million yuan in the 2025 fiscal year relied entirely on significant store closures and drastic cost reductions, including the closure of eight RT-Mart hypermarkets and one medium-sized supermarket. This means that cost-cutting was the only way to slightly halt the losses, rather than any significant improvement in business.

Private Equity King Takes Over

Alibaba acquired shares in SUNART in 2017 and 2020, ultimately obtaining over 70% of the equity, with a total investment of 50.2 billion Hong Kong dollars. It was initially believed that with Alibaba as a backing, SUNART could navigate the challenges of the changing supermarket ecosystem. However, the market reversed, and even with Alibaba's substantial financial resources and high technology, it ultimately retreated, leading to the takeover by DCP Capital for 13.14 billion Hong Kong dollars, resulting in a loss of 37.1 billion Hong Kong dollars for Alibaba.

What capabilities does DCP Capital possess that even Alibaba could not handle this hot potato? Can they turn the tide?

DCP was founded in 2017, and one of its founders is Liu Haifeng, the husband of mainland artist Chen Hao, who is known in the industry as China's "PE King." He has held senior positions at KKR and Morgan Stanley, and past investments in major Chinese companies include Haier, Ping An Insurance, Mengniu, Nanfu Battery, Hengan Group, and Belle International, with an impressive track record Taking over GaoXin, which has also suffered significant losses like Alibaba, is indeed a major challenge in the investment career.

Transforming the model and closing stores

After Dehong took over GaoXin, immediate and drastic restructuring was implemented. In terms of "cost-cutting," the first step was to restructure the five operational areas into four. Then came a large-scale store closure initiative, where continuously losing branches were cut off to achieve the goal of stopping losses.

Management and staff were also reorganized, with even the founder of RT-Mart, Huang Mingduan, resigning as chairman of the board, and several senior executives leaving one after another. Dehong further initiated an anti-corruption campaign; in September of this year, RT-Mart's Chief Operating Officer, Guan Mingwu, was taken away by the police, with the company stating it was due to suspected job-related crimes, and the case is currently under investigation.

In terms of "revenue generation," while closing large hypermarkets and reducing staff, resources were redirected to medium-sized supermarkets, RT-Mart Super and M membership stores. In the fiscal year 2025, the company plans to open 4 new RT-Mart Super stores, primarily targeting community needs, focusing on selling 5,000 to 8,000 types of products, with store areas ranging from 1,500 to 3,000 square meters, some featuring cafeterias or children's playgrounds, deeply integrating consumption scenarios.

As for the M membership stores, the model operates similarly to Sam's Club, using a warehouse membership model to reduce product variety and adopt a high turnover approach, attracting customers with high cost-performance or private label products. In the fiscal year 2025, GaoXin Retail plans to open a total of 4 M membership stores.

For now, it seems that Dehong's restructuring and development direction for GaoXin are on the right track. Closing loss-making stores can reduce expenses, thereby concentrating resources on expanding RT-Mart Super and M membership stores, while the warehouse membership model is currently in demand in the market, allowing GaoXin, as a latecomer, to seize a position in the market