Step by Step, has applied for bankruptcy.

Not all "Bu Bu Gao" products can reach higher levels.

On October 11th, Bestore Investment Group added a bankruptcy review case. The applicant Dongxing Construction applied to the Xiangtan Intermediate People's Court for a bankruptcy review of Bestore Investment Group, stating that the group "cannot repay its maturing debts and clearly lacks the ability to repay."

步步高投资集团 (Step-by-Step High Investment Group) is the former parent company of Step-by-Step High Commercial Chain Co., Ltd. (referred to as Step-by-Step High Corporation in the following). According to the August review announcement of Step-by-Step High Corporation, Step-by-Step High Investment Group currently holds 7.41% of the shares of *ST Bugao and remains independent from the company.

On August 2nd, *ST Bugao announced in the evening that the restructuring plan of Bubugao Corporation had been completed, and the asset-liability structure had been fundamentally improved. They have submitted an application to the exchange to withdraw the delisting risk warning. Therefore, the restructuring of Bubugao Investment Group has been applied for, which does not affect the company's operations and financial indicators.

On September 28th, *ST Bugao announced that the company and its fourteen subsidiaries have successfully completed the restructuring plan and have applied for the removal of delisting risk warning. It is necessary to explain here that bankruptcy reorganization is different from bankruptcy liquidation, which is a judicial procedure aimed at rescuing the debtor company and restoring the company's ability to operate profitably.

Therefore, the above announcement is filled with positive implications and has been interpreted by the public as a sign that *ST Bugao has successfully resolved its debt crisis, and is about to break free from the risk of delisting.

As a well-known enterprise in the retail industry, due to factors such as the difficulty of traditional retail transformation, large debt scale, "short loan long investment," as well as the impact of the pandemic and real estate policies, Step High Group has been caught in a dual crisis of debt and operations in recent years. It's not just Step High, but also a batch of traditional retailers such as Gome, Yonghui Superstores, Carrefour China, and Red Star Macalline have faced varying degrees of crisis in the past year, with some even being rumored for change of ownership. At present, the survival and development of chain supermarkets are indeed challenging. Improving debt is just the first step. Whether Step High can pave its own path in the future like Pinduoduo is the more worth noting issue.

01

The first privately owned supermarket listed on the stock market, even state-owned assets cannot save it.

Bubugao Group was founded by Wang Tian in 1995, with its headquarters located in Hunan province. In 2001, Bubugao Group completed the reform of employee stock ownership plan and began strategic adjustments, entering the department store industry. Three years later, it had established 47 holding subsidiaries in Hunan and Jiangxi provinces, with 87 stores and a revenue exceeding 4 billion RMB. In 2008, Bubugao Group went public on the Shenzhen Stock Exchange, becoming the first listed company of domestic private chain supermarkets. At that time, the couple Wang Tian and Zhang Haixia entered the Hurun China Rich List with a wealth of 3.2 billion RMB, ranking third among the wealthy in Hunan and becoming the richest in Xiangtan.

Starting from Hunan, in 2013, Step High Group initiated the "Greater Southwest Strategy", entering regions such as Sichuan, Chongqing and Guangxi, accelerating its layout in the southwestern region. Soon after, it completed the acquisition of Nancheng Department Store with 1.576 billion yuan, further accelerating its presence in Guangxi. At its peak, the company even embarked on a globalization strategy, establishing six major global procurement centers in North America, Europe, Asia, and Oceania, and building a complete supply chain system in terms of commodities, logistics, warehousing, and distribution.

However, with the strong rise of e-commerce and new retail formats, traditional retailers are facing challenges. Gome Retail Holdings has also begun its journey of digital transformation. In 2017, they formed a strategic partnership with Tencent and JD.com to explore "smart retail" and "boundaryless retail." In 2018, Gome's Meixi New World officially launched the "Tencent-Gome Smart Retail" pilot project, which is an important step in its digital transformation. However, due to the lack of a clear transformation direction and strategy, these digital attempts have not brought the expected business performance growth.

A bigger strategic mistake lies in Bu Bu Gao's discontentment with retail operations and their leveraged investment in real estate, even benchmarking against Wanda at one point. In responding to the inquiry letter on the 2022 annual report, Bu Bu Gao acknowledged this error - the heavy investment in fixed assets led to an unreasonable asset-liability structure, with a low proportion of current assets and a high proportion of current liabilities.

Since 2021, Bubugao Group has been incurring losses. In 2022, the company incurred a loss of 2.544 billion yuan, a year-on-year increase of 1281.40%. At the same time, its store business has been continuously shrinking, facing tight cash flow, and was once rumored to be on the verge of bankruptcy. The following year, Bubugao Group received assistance from Xiangtan State-owned Assets. After the equity changes were completed, Xiangtan State-owned Assets Investment would become the controlling shareholder of Bubugao Group, and Xiangtan State-owned Assets Supervision and Administration Commission would become the actual controller of Bubugao Group. At that time, Bubugao stated that bringing in a controlling shareholder with state-owned assets and industrial background would fully leverage the complementary and synergistic effects between the listed company and state-owned enterprises, empowering the listed company with the industrial resource background of state-owned enterprises.

However, the losses are still continuing. In 2023, the total annual operating income of Bubugao was 3.087 billion yuan, a year-on-year decrease of 64.46%. The net loss attributable to the shareholders of the listed company was 1.889 billion yuan, marking the third consecutive year of losses. In 2023, Bubugao was ruled by the court to be unable to repay its due debts, and its lack of solvency was evident, leading to a bankruptcy restructuring.

"02" translates to "02" in English, as it refers to a numerical value.

Reorganize for self-rescue, bring Fat Dong into the team.

In 2024, the reorganization plan of Step by Step Group was approved by the Xiangtan Intermediate People's Court and officially entered the reorganization implementation stage. The reorganization process involves various aspects, including financial restructuring, adjustments to business strategies, and the introduction of a new management team.

First is the financial restructuring. Faced with a liquidity crisis, Step High Group started looking for investors for restructuring and signed a "Restructuring Investment Agreement" with 17 investors on April 25, 2024. These investors subscribed to Step High's shares increased through capital reserves in cash, with a total estimated investment amount of up to 2.5 billion yuan. The funds will mainly be used to repay various debts and improve the company's liquidity.

This includes 4 industrial investors and 13 financial investors. The 4 industrial investors are distinctive, namely: White Rabbit Group, Foreign Trade Trust (joint with Sinochem Agriculture), Xiangtan Electronic Chemical Industry Investment, Wumart Group + Boya Chunya.

In addition to the aforementioned industry investors, the supermarket under the organization also brought in the management team from Pang Donglai by the end of the first quarter of 2024. They are learning the management philosophy of Pang Donglai to upgrade and transform the supermarket business. The transformation measures include adjusting employee salaries, reducing business hours, enhancing employee benefits, optimizing store layout and product structure.

These measures significantly improved the operational efficiency and performance of the stores. Starting with the Changsha Meixi Lake store as the flagship store, the daily sales after the adjustments have stabilized at over 1.2 million yuan. In addition, the daily sales of the Jiuhua store in Xiangtan also reached around 1.06 million yuan. BBK Corporation plans to implement similar adjustments to more stores.

Introducing strategic investments, optimizing asset-liability structure, and flexibly adjusting operating strategies, it can be seen that Step High Group is actively exploring new development paths. In the first quarter of 2024, Step High Group achieved a total revenue of 928 million yuan. After significantly reducing costs such as rent, water, electricity, and labor, the net profit for the first quarter was 202.303 million yuan, with a year-on-year increase of as high as 120.28%, achieving a turnaround from loss to profit.

It is worth mentioning that, after the introduction of restructuring investors and the dilution of equity, there have been significant changes in the shareholder structure of Step by Step High. Among them, the largest shareholder, Step by Step High Investment Group, and its concerted action person, Zhang Haixia, saw their shareholding decrease from 29.90% to 9.34%; the second largest shareholder, Xiangtan Chan Tou, saw their shareholding decrease from 10.28% to 3.21%.

In other words, after the equity change was completed, BBK no longer has a controlling shareholder and actual controller. Therefore, with BBK Investment Group now undergoing bankruptcy examination, in theory, it should not affect the operation and financial indicators of BBK shares.

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