Sun Art FY2017: growth slowing

Date : 05 March 2018

Sun Art Retail has posted its 2017 annual results, with revenue rising 1.9% to RMB102,320m (US$16,130m) and profit up 2.9%. However, its revenue growth has slowed down compared to previous years, having grown 6.6% (CAGR) between 2012 - 2016. We review the retailer's recent performance and future outlook. 

Reinventing hypermarkets

During the year, the Group opened 18 hypermarkets, of which one was under the Auchan banner and 17 under RT-Mart. As of 31 December 2017, it had a total of 461 hypermarkets in China with a total gross floor area (“GFA”) of approximately 12.46m sq m. The Group has identified and secured 78 sites to open hypermarkets in the coming year. The retailer's smaller and premium supermarket banner, HiAuchan!, continued to show strong progress. Both sales and the number of customers increased by more than 30% compared to 2016. Expansion and more new stores will be seen in lower tier cities thus the Group has improved the standards of site selection.

Developing new formats

Last year, Sun Art launched Auchan Minute, a 18 sq m unstaffed convenience store with 500 SKUs. Having launched the first in September 2017, it rolled-out a further 66 'boxes' in Shanghai, Anhui, Guangdong, Jiangsu, Sichuan and Zhejiang provinces by end of 2017. Further expansion is expected this year, but as it continues to scale-up, profitability will become even more important.

The Group also opened five LLABEAU beauty stores in Shanghai, Suzhou, Kunshan and Ningbo in 2017. Stores operate between 60 to 160 sq m retail space and mainly sell skincare and make-up products. The shift towards smaller formats has been a prevalent trend in many countries in Asia. Sun Art has plans to develop and integrate small-medium sized formats with its online infrastructure in the future.

Improving O2O operations

Last year, Sun Art’s ecommerce site Feiniu, shifted its focus to B2B sales through a standalone app RT-Mart e Lu Fa. The business effectively uses a network of around 400 physical stores as B2B warehouses to provide quick and efficient delivery to, for example, mom-and-pop stores. For 2017, the GMV of Feiniu almost doubled (like 2015 to 2016), reaching RMB4.1 bn (US$646m). The operational loss also continued to reduce in 2017. As part of integrating online and offline, Sun Art also rolled out a standalone RT-Mart Fresh app to all RT-Mart stores. Consumers can order from a range of approximately 6,000 to 7,500 SKUs, with selected stores providing a one-hour delivery service.

Our view

Another key development during 2017 was Sun Art's strategic alliance with Alibaba Group in November. Sun Art aims to combine its supply chain with Alibaba’s technology to make it more convenient for consumers to shop, especially those living in tier four and tier five cities. The alliance continues to help Sun Art optimise its product range, as it seeks to provide more streamlined shopping experiences to customers. Alibaba already has plans to connect Sun Art's hypermarkets to Taobao, allowing customers to order products from Taobao and have them delivered from a Sun Art store. 

Sun Art recognises the increasing pressures to operators of large 'traditional' formats and hopes by reinventing its hypermarkets, developing new formats and delivering its O2O strategy, it will be able to sustain and drive future growth.   

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