Chinese logistics company SF Express is shrinking its new retail business by closing offline stores in a number of Chinese cities, a move that is aimed to cut costs amid an economic slowdown and pressured margins in the logistics sector.
SF’s e-commerce and retail arm, SF Best, will cease operations, Chinese media agency Yiou reported on Friday citing a person familiar with the matter. All of SF’s grocery stores in Shanghai have now been closed, while its shops in the northwestern Chinese city of Xian, central city of Wuhan, and eastern Qingdao city are currently holding clearance sales.
However, the company refuted the news report. A spokesman from SF Express told TechNode that the company is carrying out a round of restructuring in order to be “more focused with better services” (our translation). He added that it plans to increase its market share by expanding its business in the southern region of China, where the Shenzhen-based company is headquartered, as well as the capital city of Beijing.
SF Express did not confirm the number of shops that will close. According to listings on lifestyle services platform Dazhong Dianping, there are 62 stores in Shanghai, while those in Xian, Wuhan, and Qingdao total more than 120.
The company expanded into the online-offline retail market with the launch of online e-commerce platform SF Best in May 2012. Several rounds of offline expansion across the country followed over the next six years.
Prior to this most recent pullback, the company had more than 800 offline stores nationwide, which targeted high-end consumers with costly imported fresh produce and 30-minute delivery times. To compare, Alibaba’s new retail market, Hema, was operating 109 stores as of end-2018.
This breakneck expansion came at a cost. SF Express lost more than RMB 1.6 billion (around $240 million) from 2013 to 2015, according to financial reports from Dingtai Xincai, a Chinese shell company which it bought to go public in 2017. The delivery giant said on Friday that its SF Best division has been trending upward, growing sales revenue 30% year-on-year in 2018, with a fair number of its stores in the Chinese southern area already profitable. The company did not disclose any losses.
Growth rates in the privately held express delivery segment has slowed in the past five years, halving to 26.6% in 2018 compared with 2014, according to the State Post Bureau. In the meantime, heavy labor costs and fierce competition have squeezed profit margins to a scant 5% in 2018 from 30% in 2007, Yiou reported, cited research figures from local investment bank China International Capital Corporation.