New concept delivery service struggles

(Ecns.cn) -- After opening more than 20 convenience stores providing express delivery service in south China's Guangdong Province, leading domestic logistic provider SF Express now plans to register more such self-run stores that differ from its traditional outlets in the country, according to Southern Weekly.

The domestic logistic provider, through its storefront operations, carries a variety of products for daily use, as well as services like magazine and newspaper subscriptions. By providing express delivery services to nearby communities, SF Express encourages the residents to send and pick up packages there in person, a move seen to effectively cut costs on both deliveries and products.

In China, a Consumer Value Store (CVS) is a new concept, and one perceived to have enormous business potential. As the first company to pioneer in this new growth area, what awaits SF Express remains hazy for now.

Innovative push forward

Stepping into the Keyuan Neighborhood in Shenzhen, south China's Guangdong Province, one can easily find a convenience store named "SF Express,"; outside a host of bicycles bearing the store's name are set to begin deliveries.

The style of the brand's décor does not distinguish it much from other convenience stores, but between the product shelves and the cashier there is an area for the express delivery service.

Beginning in 2007, SF Express established cooperation with convenience stores such as 7-Eleven and FamilyMart. In Taiwan, there are over 4,900 designated convenience stores where people can enjoy round-the-clock pickup service. Such services are also available in more than 100 7-Eleven stores in Shenzhen and all 8-Mart stores in Guangzhou.

However, the idea of franchising convenience stores was never put into practice until this year, which makes SF Express the first logistic provider to move into CVS territory.

In fact, the combination of convenience store and courier can be found in many countries, and the conventional practice is that a retailer expands into an express delivery service after other franchise owners have roughly covered the whole market in their area. The 7-Eleven brand in Japan adopted this mode.

In the US, acquisition is a more popular approach. In 2011, UPS acquired Mail Boxes Etc. and later re-branded it as the UPS Store. FedEx acquired Kinko's in 2004 and made it the FedEx Office, a chain of outlets that provide storefront for FedEx.

SF Express by comparison has just taken its first step and the question remains whether the risk is worth it or not.

Deeper involvement in e-commerce

While pushing forward its CVS penetration in China, SF Express is also trying to get more deeply involved in e-commerce.

Six years ago, SF Express began research on the feasibility of setting up its own e-commerce platform. The motivation was that its express delivery business from e-commerce platforms was only about 8 percent of the total volume of business, attributable to having higher price points than other domestic logistic providers such as ZTO Express and Shentong Delivery.

Though the e-commerce market was lucrative, enjoying an annual growth rate of 200% to 300%, express companies all felt increasing pressure from e-commerce giants such as Taobao.com and 360buy.com.

Now due to the price appreciation of oil and labor at the end of last year, most express companies are suffering declines in their profit margins. It was under this industry cloud that SF Express marched into the B2C field, wedging itself into the upstream of the industry chain.

The trend was set and e-commerce giants like Taobao.com and 360buy.com also began to see the importance of logistics. They followed with their own services.

Facing fierce competition, the e-commerce business of express companies has not gone as well as expected. E-commerce platforms owned by express companies such as SF Express or ZJS Express all reported weak earnings in 2011.

In March 2012, SF Express launched a new B2C platform that caters to the needs of business people, in particular to send gifts for different occasions and purposes.

Uncertain future

Though SF Express is strong on logistics and storage, it still needs professional sales representatives and accurate market analysis to survive in the overheated retail market, point out market observers.

It is true that convenience stores seem to be the most efficient way to absorb customers as the convenience plus delivery center concept is likely a viable integration. With its own e-commerce platforms, SF Express could also have some other business models to test.

Currently SF Express is short of knowledge about gift selection variety, retailing and inventory management, but backed by the express service, it should be able to leverage its knowledge of cost reduction tactics.

Obviously, the company couldn't expect to turn quick profits from new sources of growth. However, with good management and lessons drawn from the subsequent years of experience, its potential to succeed remains impressive.

Although SF Express is struggling to find more growth room, and efforts to that end should never stop, its first duty is to get past what is hindering its further development and master the provision of high-quality services to consumers.