Profitable Hema Begins to Find Its Own Path

On April 21, according to 36Kr, Hema Group recently achieved profitability for the full year (from April 2024 to March 2025). This marks Hema’s first-ever full-year profit since its founding in 2015. The profitability milestone coincides with the appointment of the new CEO, Yan Xiaolei, who previously served as the CFO of Hema. Since Alibaba launched the operating responsibility system in 2021, Hema has been required to operate at a profit and bear its own losses. Amidst continuing losses, there were several rumors about Alibaba potentially selling Hema. However, after Yan Xiaolei took office, she repeatedly stated that Hema would not be sold. The turnaround in Hema’s operational performance is closely tied to the series of reforms Yan Xiaolei, a finance expert, implemented after taking the helm.On the last day of 2024, Yan Xiaolei released an internal letter to all employees. In the letter, she reviewed that in the past year, the company focused on Hema Fresh and its hard discount store brand Hema NB. The former successfully replicated its model, while the latter refined its optimal model. The company opened a new store every five days on average and expanded into 21 new cities, achieving a 50% increase in the number of customers. This shift in direction shows a clear difference from the approach of former CEO Hou Yi, the founder of Hema. Under Hou Yi’s leadership, Hema developed a variety of formats, including Hema Mini, Hema Station, and Hema F2, aiming to cover all channels. However, this increased the complexity of supply chain construction, raising costs and error correction expenses, while creating positioning conflicts between different formats, each facing its own competitors. After taking office, Yan Xiaolei chose to focus on just two core formats: Hema Fresh and Hema NB.

Notably, Hema NB has rapidly expanded using the “hard discount + community penetration” model. By March of this year, Hema NB had more than 200 stores nationwide. According to market sources, each store generates annual sales of up to 45 million yuan. Through streamlining its SKU offerings, selling private-label products, and employing dynamic pricing strategies, Hema NB has achieved high gross margins and low loss rates, making it a key step in tapping into lower-tier markets and boosting profitability. In 2024, Hema’s new store openings hit a five-year high. While maintaining its presence in first- and second-tier cities, the brand began expanding into third-tier cities. This strategy seems to have yielded positive results, and it will continue in the company’s plans for this year. According to the strategic plan for the 2025 fiscal year, which was released internally in March, Hema plans to open nearly 100 new stores, with a continued focus on Hema Fresh and expansion into dozens of new cities.Furthermore, Hema’s continued focus on private-label products has enhanced the company’s profitability. Hema began developing its own brands in 2017, and by two years later, private-label products accounted for 10% of total sales. The target set by Hou Yi was 50%. Yan Xiaolei mentioned that in 2024, Hema launched new products centered around “health” and “convenience,” while also increasing the development of local. By the end of last year, private-label sales accounted for 35% of total sales, helping Hema unlock doors to international markets. Last year, Hema entered the U.S. market, partnering with large Chinese-American supermarket chains and e-commerce websites to launch its private-label products.

This approach avoided heavy capital investments while controlling costs and risks associated with international expansion. As of now, it has entered North America, Southeast Asia, and Australia, with plans for markets in South Korea and Japan in the future.In the second half of 2024, Hema plans to restart pilot “pre-stocking” warehouses, which will enhance its service radius and improve customer experience. This model had been previously judged as a non-starter by Hou Yi in 2019. By 2024, Hema’s online transactions have contributed over 63% of total sales. The pre-stocking warehouses are no longer the main business model, but are considered an additional service supplement to the stores, making this much more feasible than it was five years ago.Yan Xiaolei’s ambitions go beyond profitability. In her internal letter, she set a goal — “To step onto the billion-scale platform and become China’s number one retail brand.” In the past year, Hema’s overall GMV exceeded 59 billion yuan, but it is still far from reaching this goal. For reference, Walmart China’s net sales for the 2025 fiscal year are projected to reach 147.3 billion yuan, a 13.2% year-on-year growth, maintaining its position as the industry leader in China for three consecutive years.When Hema’s model was first introduced, it was quite innovative in the market. After the first store opened in early 2016, Jack Ma introduced the concept of “New Retail” at that year’s Alibaba Cloud Summit. Because it was new, it required self-exploration of the path forward, attempting to mimic the successes of traditional retail, leading to some trial and error along the way. Over the past several years, Walmart has been one of Hema’s reference points. Hema X membership stores were considered to be a counterpart to Sam’s Club, but due to supply chain issues and strategic shortcomings, their performance was less than ideal.

In late February of this year, three Hema X membership stores in Shanghai announced they would close on April 1. After adjustments, only five Hema X stores remain across the country. Hema also launched the “Move Mountain Price” in 2023 to compete with Sam’s Club. In this price war, the numbers were merely the outcome, while the real aim for Hema was to prove its capabilities in supply chain management, cost structure, and product planning.After Hou Yi stepped down, in an interview with Caijing magazine, he stated that Sam’s Club and Costco are difficult to imitate and surpass due to their robust procurement systems and top-tier suppliers. These require time to mature and the talent team’s cognitive level to catch up. He argued that in the past 25 years, China’s traditional retail industry was led astray by e-commerce and forgot the essence of retail. While the industry focuses on e-commerce, traffic, and digitization, no company has truly focused on the essence of the products. Now, Hema’s improved profitability seems to indicate that it is on the right path, but the challenges of the past still remain. It cannot avoid competition from other players in the instant retail space, such as JD’s Seven Fresh, Dingdong Maicai, and overseas membership-based supermarkets. Moreover, in newly entered lower-tier markets, Hema must balance quality and affordability, while also managing supply chains in these new regions. Even though the model is no longer imitating Walmart, as Hou Yi mentioned, the experience of the world’s largest retailer remains valuable for Hema to learn from. As an innovator in the consumer space, no matter how it reconstructs the “people, goods, and venue” approach, certain foundational logic must still be followed.