As we step into 2024, China's retail landscape is undergoing significant transformations, particularly in the realm of low-cost retail outlets inspired by Japan's well-established 100-yen shopsThis shift offers exciting prospects for the future evolution of China’s dollar stores, focusing on enhancing customers' in-store experience to prolong their shopping duration, boosting average transaction values, and increasing cross-selling ratesIntegrating efficient e-commerce channels could also play a pivotal role, capitalizing on the advantages of Chinese manufacturing to establish compelling online brands.

The trends set to characterize the retail sector in China this year will likely be dominated by mergers and acquisitions, particularly among traditional supermarketsWhile some established players struggle, evidenced by shrinking operations and closures, foreign investment in membership-based supermarkets continues to thrive, exemplified by the growth of brands like Sam's Club and Costco

Furthermore, unique regional brands like Fat Dong Lai have recently surged in popularity, indicating a dynamic change in consumer preferences.

One of the most intriguing developments in 2024 is Miniso's acquisition of Yonghui SuperstoresThis partnership represents a fascinating blending of a value-focused chain with a large national supermarket brand amid shifting retail dynamicsThis move mirrors Japan's 100-yen shop evolution where adaptability in business models has been crucial to survival and growth.

The narrative of Japan's "Lost Decade" starting in the 1990s provides an essential backdrop to understand these changesEconomic stagnation during this period led to the emergence of practical consumerism, coining what economist Miwa Noboru termed the "fourth consumption era." A notable consumer trend emerging from this era was the rise of 100-yen shops such as Daiso and Seria, which offered high-quality, cost-effective products resonating with consumers' demands for sensible spending.

Daiso stands out as Japan’s leading 100-yen retailer, but given its unlisted status, accessible data is scarce

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Instead, we can delve into the development trajectory of Seria, Japan's second-largest 100-yen chain, and explore the implications it holds for similar businesses in China today.

Seria: A Feminine Touch to High-Margin Stylish Goods

Founded in 1987, Seria quickly earned a reputation for high-quality, design-oriented merchandise and went public in 2003. Its name, derived from the Italian word "Serio," connotes seriousness and dedication to quality—values that resonate well with its target demographic.

Unlike its counterparts, Seria distinguishes itself by catering primarily to female audiences with a more stylish and refined product mixThe brand slogan, "Color the days," encapsulates the emotional connection it seeks to foster with customers by enhancing their daily lives, particularly appealing to women who appreciate aesthetics

Its store layouts are designed to be visually pleasing, prioritizing a warm and inviting shopping atmosphere, a significant deviation from the more utilitarian spaces of traditional dollar stores.

Product offerings at Seria extend beyond mere transactions; customers are encouraged to embrace a lifestyle choiceAnalysis of product categories reveals a marked evolution towards fashion and lifestyle goodsIn 2007, over half of Seria's revenue stemmed from food items, whereas by 2023, nearly 90% of its revenue was generated from household goods, with food contributing less than 10%.

By 2023, stores under the "Color the days" banner reached 1,516 outlets, a significant increase from 42.5% in 2015 to 77.3%. This strategic shift underscores a focus on a more curated selection of high-margin products, with Seria stocking approximately 20,000 unique SKUs compared to Daiso’s 70,000.

Additionally, the management of stock and consumer trends at Seria is facilitated through advanced POS systems that analyze sales data in real-time, providing insights into inventory performance and consumer preferences—a stark contrast to many retailers relying solely on online data.

Seria’s operational efficiency sets a benchmark in the industry, with management costs accounting for just 33% of revenue and net profit margins nearing 6%—noteworthy metrics in the realm of 100-yen stores

The company's stock has appreciated over 40 times since its listing, with revenues soaring from ¥13.9 billion in 2001 to ¥212.4 billion in 2023, reflecting a compound annual growth rate of over 16.84%. As of the end of 2023, Seria operated 1,961 outlets in Japan, trailing only Daiso in market presence.

The Success and Uniqueness of Miniso

The triumph of 100-yen retail stores in Japan is not merely a function of low pricing; rather, it emanates from an intricate balance of design, quality, and operational efficiency that engenders a robust and sustainable business model.

In China, Miniso has emerged as a significant player in this sector, outpacing several Japanese 100-yen retailers in revenue through its unique merchandising strategy

It offers products priced from ¥9.9 to ¥49.9, which positions its product offering slightly higher than traditional Japanese one-yen stores.

Miniso has managed to leverage speed and innovation to achieve rapid market entryThe focus on product design and aesthetics surpassed traditional retail norms, evidenced by the collaboration with Japanese designer Junya Watanabe during its inceptionFounders have strategically curated their brand identity to cater to contemporary consumer demands.

Moreover, Miniso has significantly improved product quality compared to cheaper alternativesIts commitment to consistent quality control leads to better consumer experiences, which significantly improved from previous low-cost retailersAlthough 80% underperformance isn’t ideal in comparisons to premium brands, it far surpasses the inconsistent quality of lesser-known two-yuan shops.

The incorporation of popular IP collaborations further signifies Miniso’s innovation

Through adept marketing work, they have enriched their product offerings, transforming the same inventory dynamics into something refreshed and trendy.

However, Miniso's financial reports do not explicitly disclose the revenue contributions from e-commerce versus physical outlets, prompting the question: why hasn't their e-commerce sector thrived? It seems that the core franchise model leads to resistance against e-commerce rollouts which could potentially undermine franchiseesFurthermore, if products are sold online, the risk of price competition rises, making the physical stores less appealing due to the higher search costs for consumers.

In essence, Miniso thrives as a brand fundamentally anchored in its physical store network, bringing a fresh interpretation of merchandise to the market while relying predominately on its traditional retail model.

Potential Directions for Innovation in China's Retail Sector

A pressing question remains—why haven’t two-yuan stores managed to establish national brands in China? Since their inception over two decades ago, these stores primarily operate as small family-run businesses or franchises.

From a supply-side perspective, two-yuan stores seem outdated, with the majority of their products sourced from Yiwu’s small goods market failing to adapt or upgrade consistently over the years

While Chinese manufacturing and goods have seen significant advancements, these lower-tier stores still operate under principles established decades ago—what was originally a balanced equation of price and quality has devolved into a compromise on quality.

The evolution of two-yuan shops could take several forms moving forward:

First, enhancing the customer shopping experience is essentialTraditional two-yuan items often lead consumers to shop with a sense of urgency, buying precisely what they need without browsing longerIn contrast, Miniso capitalizes on its appealing product arrangement and pricing strategy, encouraging customers to explore and engage with the environmentIt’s reasonable to suggest that Miniso's average transaction size is larger than that of a typical two-yuan store, promoting longer visits, enhancing customer satisfaction, and driving higher sales volumes.

Both Miniso’s physical locations and potential online expansions underscore the importance of creating an inviting shopping atmosphere, which could foster customer loyalty and drive higher conversion rates

Consumers are likely to engage more with brands that provide multifaceted shopping experiences.

Moreover, the efficiency of China's e-commerce landscape remains underestimatedIn Japan, the growth of 100-yen stores was largely attributed to aggressive physical expansion strategies, whereas e-commerce played a negligible role, representing less than 20% of total revenue for these storesIn stark contrast, China's e-commerce platforms such as Taobao, Douyin, and Pinduoduo possess user bases exceeding 800 million monthly active users each, offering substantial opportunities for brands resembling Miniso to thrive online.

Lastly, leveraging China's manufacturing prowess can cultivate online brands from scratchCross-border brands like SHEIN have shown that substantial supply capabilities can be sourced directly from platforms like 1688, despite shifts in purchasing patterns as the company scaled up.

Even Japan’s leading 100-yen retailer, Daiso, relies heavily on Chinese suppliers for over 40% of its products