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China: Hema’s Strategic Transformation: From "New Retail Experiment" to Market Leader

Discount Retail Chain Hema NB as part of Alibaba`s HEMA group is growing strong in a highly competitive markets field here some data on the format.

1. Financial Performance & Ambitious Targets

  • The 200B Goal: 2025 is a landmark year for Hema, with year-over-year growth exceeding 40%. GMV is expected to surpass 100 billion RMB, with a firm target to break the 200 billion RMB revenue mark within three years.

  • Scale Comparison: A 200 billion RMB revenue would place Hema's volume on par with JD.com’s entire supermarket and fresh food business unit.

  • Profitability: The company achieved full-year profitability between April 2024 and March 2025.


2. The "Dual-Core" Growth Engine

Hema has streamlined its focus into two primary business models:

Feature

Hema Fresh (Large Format)

Hema NB (Hard Discount)

Target Audience

Middle-class "lifestyle" consumers

Price-sensitive community shoppers

Avg. Order Value

60–70 RMB

~40 RMB

Net Profit Margin

2% – 3% (Mature regions)

1.6% – 4%+

Private Label %

Part of the 35% overall average

50% – 60% of SKU & Sales

2026 Expansion

Target: 700 stores (Tier 3/4 cities)

Target: 1,000 stores (Tier 5/6/Counties)

3. The Private Label Powerhouse

  • Growth: Private label sales rose from 10% in 2019 to over 35% in 2025.

  • High-Margin Heroes: The Bakery category is a standout performer, boasting gross margins of 55%–60%.

  • Efficiency: Hema NB achieves lower prices by limiting SKUs to ~1,500 high-turnover items and utilizing "extreme subtraction" in store operations (e.g., using transport crates instead of shelves).


4. Lessons from Failure: The Exit of X Member Stores

The attempt to compete directly with Costco and Sam’s Club ended in a total retreat.

  • The Issue: Homogenized products (often just repackaged items from standard stores) and a high cost structure.

  • The Loss: Average store losses were approximately 10% due to high labor (12%) and logistics (5%) costs.

  • Outcome: All Hema X Member Stores were officially closed by August 2025.


The Evolution of Leadership:

Since CFO Yan Xiaolei took over as CEO in March 2024, the strategy shifted from the "Scale at all costs" mindset of founder Hou Yi to "精益管理" (Lean Management). By cutting underperforming formats like "Neighbour" and "X Member Stores," Hema has stabilized its bottom line.


The Alibaba Ecosystem:

While Alibaba has divested from other "New Retail" assets (like Sun Art and Intime), Hema remains the "sole survivor." It is now integrating deeper into the Alibaba ecosystem, such as linking with 88VIP and Taobao Flash Purchase, which saw a 70% increase in online orders.


The Road Ahead: Challenges for 2026

  1. Supply Chain Pressure: Expanding hard discount (NB) stores into Southern China and lower-tier cities tests cold-chain logistics and regional sourcing.

  2. Franchise Risks: Opening the NB model to franchisees requires strict quality control to prevent brand dilution.

  3. Intense Competition: Rivals like Meituan (Little Elephant), JD, and Aldi are all vying for the same "Hard Discount" territory.


Summary:

Hema has transformed from a "hyped concept" into a battle-hardened retail giant. While the 200 billion RMB target is mathematically feasible at current growth rates, its success depends on whether it can master the "unforgiving" economics of the hard-discount supply chain as it moves into China’s smaller towns.


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