(Yicai) May 20 -- Freshippo, the fresh food supermarket chain of Chinese e-commerce giant Alibaba Group Holding, said it will shut one of its two membership stores in Beijing just seven months after a fanfare opening.

The store on Jianguo Road in Beijing’s central business district will close on May 31 in a business adjustment, Freshippo announced recently. But a staffer at the store told Yicai that the main reason was the lack of enough customers.

Surrounded by high-profile high-rises and retail stores, market insiders once believed the store would attract droves of customers with deep pockets. But an occasional shopper at the outlet told Yicai that unlike regular supermarkets, members-only stores sell items in bulk, a practice that is ill-suited to a downtown shop with many office workers nearby.

“Retailers usually close a store because of poor operational performance,” said Zhang Yi, chief executive and chief analyst at iiMedia Research. “We must also look to see if Freshippo's business strategy will also be adjusted accordingly, as the company has just gone through a major management reshuffle.”

Membership-based retailing has been a successful model for brands such as Sam’s Club and Costco, so Freshippo will likely continue to use it as one of its business models, Zhang noted. Freshippo is just following the market leaders at present in terms of products, services, and marketing, but will need to innovate according to its own characteristics in the future, he added.

Freshippo does not have a particularly clear layout and plan for paid membership stores at the moment, Zhuang Shuai, an expert in the retail e-commerce industry and founder of Bailian Consulting, told Yicai.

Freshippo’s members-only stores were opened to compete with Sam’s Club, targeting middle to high-income shoppers, Zhuang said. But such shoppers are similar to those targeted by the its vast non-membership stores, which contribute most of the firm’s revenue. Freshippo needs to explore a better balance of the two models, he said.

Membership stores were once an important growth channel for Freshippo, as the fees once contributed much to revenue growth. At the end of 2022, Freshippo had nearly three million paid members, contributing CNY588 million (USD81.3 million) to annual revenue.

Freshippo has nine membership supermarkets in Beijing, Nanjing, and Shanghai, according to its app. One of the Shanghai stores is being relocated and is expected to reopen in the second half of the year.

Editors: Tang Shihua, Futura Costaglione