Chinese checkout-free store operator Xingbianli has denied rumors that it will exit third- and fourth-tier cities due to failing business, claiming the company is reassessing its store locations in smaller cities for better strategic planning.
Xingbianli’s business sustainability has long been questioned. To expand quickly, Xingbianli reportedly placed snack bars in offices with as few as 30 people, which is much lower than its competitors’ standard of 50 to 100 people, raising questions about profitability. Its competitors Citybox and Xiaoe Weidian only locate their snack bars in offices with more than 100 people, according to local media.
In a statement circulated online, Xingbianli said the company is still expanding in third- and fourth-tier cities, but it has become more careful when assessing the location and market of these cities.
Rumors have been circulating that due to its cash-strapped business, Xingbianli has failed to restock empty shelves in the second and third-tier cities and it had stopped expansion in third- and fourth-tier cities. Also, a large number of staff it recruited just two months ago have reportedly been let go.
The start-up just raised a RMB380 million (US$57 million) series A1 round led by Sequoia Capital China last November, two months after it completed an angel round of over RMB100 million (US$14 million) led by Lightspeed China Partners.
Xingbianli’s investors include China Renaissance Group, Vision Plus Capital, Zhang Tao, founder of Meituan-dianping, and Wang Xing, founder of Chinese social media platform Renren Inc.
"Competition between checkout-free store operators is intense and it is common for the leading players to burn cash to gain market share," an industry analyst told local media. "It is unclear whether Xingbianli is cash-strapped but it is highly possibly if the company did not allocate its funding well."
Currently, few checkout-free stores are profitable. It is estimated that daily costs of replenishment and goods are around RMB400 (US$61) while daily revenue of a shelf is less than RMB100 (US$15), excluding operation costs and rents.
Last year, cashier-free stores attracted millions of dollars of investments in China. Eight start-ups in the space have raised a total US$385 million as of last September. China Money Network has reported on the emerging sector and questioned the sustainability with revenue and cost analysis.