(Chinese Version)

Editor’s Note:

On September, 22nd, Xu Xin, founding partner of Capital Today and a renowned investor in China’s investment circle, delivered a speech on the topic “When winter comes, it’s already a great victory to survive”.

According to Xu, this is the first time she ever felt winter was coming in the first half of 2016 after twenty-one years of investment experience. It’s not necessarily a capital winter, but for sure, it has become harder and harder to do business. Growth is slowing down, and price is also falling.

How come? Retail industry stops growing because their business model has already been subverted by the internet. In the past, a typical business model in the retail industry was to attract traffic through fresh produce, gain net profit through clothes and consumer electronics stores and collect rent through renting the rest space to fast food restaurants such as KFC and McDonald. However, when the internet comes in play, few people would buy food, clothes or consumer electronics in shopping malls, thus traffic dropped. As a result, McDonald and KFC began to ask for lower rent.

Large-scale shopping malls also no longer work. For one thing, there are just so many of them; for another, as consumers are increasingly turning to online shopping platforms, many restaurants are added to shopping malls to maintain the traffic. In the past, restaurants usually took up 20 per cent to 30 per cent area of a shopping mall; today, however, they usually take up 40 per cent to 50 per cent, an almost double increase.

At the same time, sales performance of food companies such as P&G, L’Oreal, Wahaha and Master Kong are all dropping. Pharmacies are the only exception due to government controls on selling medicine on online platforms. According to Xu, internet industry is one of the few industries whose sales is still rising, and the annual growth rate of the industry could still reach around 30 per cent. At this point, Xu said, feeling a little bit helpless, that internet is so overwhelming that it would beat offline retailing one area after another. At first, the internet industry beat offline clothes retailing through Taobao, offline consumer electronics through JD. Moving forwards, the goal of Tmall, JD and other major platforms’ online supermarket is to partly replace offline supermarkets. As a matter of fact, Chinese consumers have become quite accustomed to buying products online this year, especially some very special product such as food, personal care products as well as mother and infant products.

Xu warned entrepreneurs that since Chinese online shopping had already accounted for 20 per cent of the market, a turning point known in the Davis Double Play effect theory, offline retailers would no longer dare to open new stores, and service quality would also drop significantly at the same time.

So how should entrepreneurs cope with such situation? Xu gave a few suggestions:

First of all, you have to survive. To do so, you have to lower cost significantly and make sure you have enough money to keep running your company for 18 months, because it usually takes 18 months to raise another round of financing.

Secondly, you have to adjust your business model to gain regular customers’ trust so that they would love to buy your products again.

Thirdly, you should raise any money you could and not care too much about equity and shares, and make sure you get the money you raised in time.

In addition, Xu stressed the importance of Frequency and Rigid Demand, and maintained that “Good business equals to consumption monopoly”. She also pointed out that entrepreneurs should be focused enough and could secure market position when their business take up 30 per cent of the market offline and 70 to 80 per cent online.

At last, Xu pointed out that business owners and entrepreneurs should keep up with the time, be good at studying and be able to weather all kinds of challenges. Besides, they should attach high importance to talents and corporate philosophy, treat well loyal and competent employees, while firing disloyal and incompetent ones.

"As long as you can survive, there is still hope even in winter," she concluded.

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[The article is published and edited with authorization from the author @Jiayin, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.