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China: Discount Retail in China not a Downgrade, but a Power Shift

Discount Retail Industry Report over the First Half 2026 shows more than 12,000 new discount stores opened across China, roughly 67 per day. Total sector sales reached around RMB 260 billion in 2025, with 2026 projected to top RMB 280 billion, an 8.3% year-on-year increase. The first-half 2026 numbers on China's discount retail sector all point in the same direction.


Offline, Chao Hesuan NB added a net 141 stores in H1, doubling its city footprint from 12 to 24. JD Discount Supermarket opened 11 new locations over the past year. Online, Vipshop crossed 10 million SVIP members, posting Q2 GMV of RMB 50.6 billion across 182 million orders. Add Shanshan Outlets' 22 stores, and it's clear both channels, physical and digital, are scaling at once.


Reading these figures as evidence of "consumption downgrading" misreads what's actually happening. This is Chinese retail's first large-scale attack on redundant channel costs.


Why Products Used to Cost More Than They Should

Historically, a product's journey from factory to shopper passed through brand owner, distributor, regional warehouse, and store shelf and at every stop, someone took a cut simply for handling the goods. I call this stacked cost the "handling tax." What discount retail does is strip out those intermediate layers so the price better reflects what the product is actually worth. Shoppers have already done this math themselves: they'll pay fairly for genuine quality, but they're no longer willing to subsidize store décor, advertising, and middleman margins. As the sector tips into a buyer's market, pricing power is flowing back to the product itself.


Discount retail isn't a symptom of a weakening consumer. It's a redistribution of who controls channel pricing.


The Old Model: A Toll Booth at Every Stage

To understand the shift, it helps to see where the money used to go. Goods moved from brand owner to distributor, then cascaded through regional tiers before reaching warehouses, shelves, and finally the consumer and each layer held back a margin that had nothing to do with product quality or customer value. It was purely a toll for moving goods along the chain.


Less visible was the leverage channels held over brands. As I've written elsewhere, retailers have long used private-label development as a lever to extract better terms, pitting suppliers against one another in what I describe as a "fisherman effect", the better the shelf placement, the more brands competed to pay for it, and retailers were happy to let that bidding war run. Whoever controlled shelf access controlled pricing. That's exactly the dynamic discount retail is dismantling.


Costco is the model case here: it caps overall gross margin near 14%, and any product that exceeds that threshold typically gets a Kirkland private-label equivalent to undercut it. Costco also runs a lean SKU count, around 3,700 in-store, because fewer categories at higher volume means more supplier leverage and lower unit costs. Cutting SKUs was never about narrowing choice; it was about taking pricing power back from suppliers.


China's discount players are now running the same playbook, at scale. ALDI China's private-label share now exceeds 90%, with under 2,000 SKUs per store and more than 80% local sourcing. JD Discount Supermarket's flagship in Zhuozhou, 5,000 square meters, over 5,000 SKUs, pulled in more than 100,000 shoppers in its first two days, anchored by private labels like Jingxianfang, JD Made, and 7Fresh, which cut out two to three layers of wholesale distribution entirely.


Where every tier once collected its toll, the discount model removes those tiers and lets price track actual product value.


The New Model: Surviving Without a Markup

The real determinant of who wins this expansion race isn't the lowest price tag, it's who can operate profitably without relying on markup at all. Chao Hesuan NB, ALDI, and JD Discount Supermarket share the same foundation: vertically integrated supply chains, tight SKU counts, and private-label pricing leverage.


Chao Hesuan NB's 141 net new stores in H1 came with private label approaching 60% of assortment. JD Discount Supermarket's 11 openings included a Huainan location that drew 350,000 visits in its opening week, selling Fenjiu liquor at RMB 39.9 and pork shoulder at RMB 3.99 per jin, prices that read as below wholesale not because of a promotion, but because middleman margin was handed straight back to the product.


This is reshaping the brand-channel relationship as much as it's reshaping price. As channels take control of their own supply chains, the old arrangement, brands paying for shelf space, is ending. When ALDI's CEO Chen Jia announced plans for 50-plus new stores this year, that confidence rested on the same 90% private-label base: full control from raw material to shelf means every pricing node can be scrutinized and compressed.


Online Mirrors Offline

The same redistribution is happening digitally. Vipshop hit 9.8 million SVIP members by end-2025 (+11% YoY), contributing 52% of online sales, and has since crossed 10 million. More significant is the shift underway: Vipshop is moving from liquidating brands' excess inventory to co-developing products with them. Vipshop Custom partnered with 180 major brands on exclusive lines, pushing custom-product sales up more than 40% YoY in 2025.

Once a retailer commands a stable base of high-value shoppers, it stops being a mere clearance channel and becomes a genuine negotiating partner. Pricing power migrates from brand to channel and from channel to consumer.


Offline, Shanshan Outlets, acquired by Vipshop in 2019, has grown from 5 to 22 locations, making it China's largest outlet operator, with H1 2026 sales up over 20%. Whether online or off, the pattern is identical: whoever strips out the excess wins the customer.


The Shakeout: Clearance-Dependent Players Are Losing Ground

Not everyone is keeping pace. At HitGoo, a bottle of Evian sells for RMB 3.5 and a five-sheet mask pack for RMB 11.5, low prices built on near-expiry stock and factory overruns. Its co-founder has said openly that their core skill was sourcing clearance inventory, essentially taken from brands for free.


The catch: once brands stop offloading excess stock, the shelves empty out. One industry veteran described these "soft discount" retailers as a brand's drainpipe, useful for clearing surplus, but no foundation for a durable moat, since supply depends entirely on someone else's overstock. As upstream inventory pressure has eased, that supply has dried up fast.

The result: a business built over three years collapsed within one. HitGoo shrank from nearly 500 stores to under 40, including the closure of its flagship Xidan location, even as Chao Hesuan NB and ALDI kept opening stores under the same market conditions. The difference wasn't luck. It was supply chain control.


Discount retail was never a marketing exercise. It's a supply chain business.

What's unfolding is a liquidation of China's old retail cost structure. For two decades, channels profited from layered markups and slotting fees, and consumers absorbed the cost of every intermediary in between. Now that a buyer's market has arrived, price is realigning with actual product value.


Retail's core purpose has always been to shorten the distance between product and customer, channels need to move closer to consumers and compress their own internal costs. Discount retail is putting that principle into practice. The direction is set; the open question is who manages to strip out the markup while still protecting quality.


 
 
 

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