Core Viewpoint - The article discusses the challenges faced by membership stores in China, particularly focusing on the struggles of local brands compared to established foreign players like Sam's Club and Costco. It highlights the need for these stores to adapt to changing consumer demands and improve their product offerings and brand trust. Group 1: Membership Store Challenges - Sam's Club China has faced consumer criticism regarding product quality after introducing brands like Holley and Wangwang, leading to the removal of controversial products from shelves [1] - Hema has closed its last X membership store in several cities, indicating a retreat from the membership model [2] - The rapid expansion of membership stores has not translated into sustainable success, with local brands like Fudi shifting focus to high-end organic supermarkets instead of warehouse membership models [3][4] Group 2: Market Dynamics - The membership store model in China is undergoing a transformation due to deep changes in retail structure and consumer demand, suggesting a potential "value reshaping" for membership stores [5] - The rise of middle-class consumers in China, with a significant increase in GDP and private car ownership, has created a favorable environment for membership stores [30] - However, a trend of consumer downgrading has emerged, with shoppers increasingly prioritizing price and quality, pushing retailers to adapt [31] Group 3: Competitive Landscape - Sam's Club and Costco have established a strong foothold in China, with Sam's Club planning to open 8-10 new stores annually starting in 2025, while Costco faces challenges due to its reliance on imported goods [25][23] - The competition is intensifying, with various retail formats emerging, such as discount community supermarkets and boutique supermarkets, which may replace traditional membership stores [32][35] - Despite challenges, the middle-income group in China remains a solid consumer base for membership stores, with a report indicating that the population of middle-income individuals has reached 109 million [36] Group 4: Operational Insights - Sam's Club has been criticized for quality control issues following rapid expansion, with multiple food safety incidents reported [26][27] - The operational differences between local and foreign membership stores are evident, with foreign brands benefiting from established supply chains and procurement strategies [12][18] - Local membership stores must focus on product quality, service, and brand trust to remain competitive in a rapidly evolving retail landscape [16][37]

Investment Rating - The investment rating for the company is "Accumulate" with a target price of 14.04 RMB [7][8]. Core Views - The company experienced a revenue decline of 11.0% year-on-year in 2024, with total revenue reaching 7.16 billion RMB. The net profit attributable to the parent company was -0.5 million RMB, a significant drop from 1.8 million RMB in 2023. The fourth quarter of 2024 saw a revenue of 1.68 billion RMB, down 18.0% year-on-year, and a net loss of 0.7 million RMB [1][4]. - The company's high-end product positioning is facing pressure from the trend towards cost-effective consumption, leading to a net reduction of 589 stores in 2024. The first quarter of 2025 also saw a decline in revenue of 29.3% year-on-year, indicating ongoing operational challenges [1][2]. - The company is expected to take time to adjust its operations effectively due to a weak recovery in the consumer environment and ongoing competition from bulk retail formats [4]. Summary by Sections Financial Performance - In 2024, the company's gross margin decreased by 1.6 percentage points to 26.1%, primarily due to price reductions impacting profitability. The sales expense ratio increased by 1.5 percentage points to 21.1% as scale effects weakened [3]. - The first quarter of 2025 saw a gross margin of 24.6%, with a net profit margin of -2.1%, reflecting the challenges posed by low pricing strategies and reduced scale effects [3]. Revenue and Store Count - Revenue by product category in 2024 showed declines across most segments, with dried fruits down 6.1%, nuts down 14.0%, and meat snacks down 23.6%. The company also faced a significant reduction in store count, with a net decrease of 123 stores in the first quarter of 2025 [2]. - The e-commerce channel experienced a decline of 30.0% year-on-year in the first quarter of 2025, indicating a shift in consumer purchasing behavior and increased competition [2]. Earnings Forecast - The earnings per share (EPS) forecast for 2025 has been adjusted down to 0.02 RMB, with expectations of a gradual recovery in 2026 to 0.26 RMB and 0.42 RMB in 2027. The target price reflects a price-to-earnings (PE) ratio of 54x for 2026 [4][6].