New retail in China from an e-commerce perspective

15 May 2017

Scott Li / Programme Leader e-Commerce / China

The ‘new retail’ concept was introduced last October by Chinese retail giant Alibaba’s leader, Jack Ma. And it has become a hot topic of conversation in China’s commerce world ever since.

What is new retail?

It’s something that is still evolving, but in essence, new retail uses big data and innovation to provide a seamless online and offline experience for consumers via their mobiles. This retail transformation will make it even easier and more efficient for brands and retailers to engage with these consumers anywhere, anytime.

This strategy makes the once-clear distinctions between physical and virtual commerce obsolete and is enabled by the ubiquity of smartphones and devices – every part of the value chain is digitised. New retail allows the market players to “tap into the entire US$4.8 trillion retail sector in China by eliminating the distinction between online and offline commerce”, according to Alibaba’s recent statement report.

Evolution of retail

Traditional ‘brick and mortar’ retailing erupted during the industrial revolution due to mass manufacturing and consumption, with the world’s first department store – Harding, Howell & Co – opening in London in 1796. Over the past 200 years, our shopping behaviour and culture has been shaped by evolutions in retail models such as the appearance and spread of department stores, supermarkets, shopping malls, and convenience stores. Every evolution represented challenges and new opportunities for retail companies. The most recent evolution being, of course, the arrival of the internet and the rise of online shopping. 

E-commerce has grown rapidly over the past 20 years and in doing so, has become a traditional retail business of the 21st century. Many pure e-commerce players face tremendous challenges, just like traditional ‘brick and mortar’ retailers before them. 

In today’s economic environment, the future for pure e-commerce retailers is new retail – the merger of online and offline shopping.

Current trends

These are some of the trends we are seeing in China’s retail market.

  • New retail infrastructure has matured in China, including big data, cloud computing, mobile internet and artificial intelligence (AI).
  • The world’s largest market has the biggest population of digitalised consumers, with high adoption of omni-channels and buy-in to value propositions. Consumption is moving from quantity to quality, which is creating huge demand and affecting international trading sharply. 
  • Traditional retail in China is less mature than developed countries, so future growth is likely to be focused on merging offline and online retailing.

 

How new retail works

Simply speaking, new retail is a consumer-experience-centric ecosystem driven by data, for both physical and virtual commodities. New retail experiences are based on consumers’ inner desires. With an emphasis on consumer experience, new retail re-shapes all kinds of business scenarios. By using digital techniques, it penetrates all categories or segments such as logistics, entertainment industry, food & beverage and services, and digitalises every element of the value chain from enterprise to consumers.


Framework of new retail

 

In the foreground, the combination of consumer, commodity and scenario is seamless. Consumers are described more digitally and accurately by profiling and tagging techniques, using big data support. They are easily and automatically classified by gender, age, income or other characteristics. The requirement of commodities has changed from previously price and functionality into customisation, social and engagement, personalised service etc. Finally, the business scenarios, online or offline, consist of digitalised/connected consumers and customised commodities through capable supply chain.

In the middle ground, changes bubble up from marketing, logistics chain and manufacturing models. New marketing uses big data capability to connect enterprises and consumers. Digital marketing is being replaced by omni-channel marketing. Omni-channel is cross-channel marketing but being done really well – a true continuity of customer experience. For example, a mobile app that matches the responsive design of a company’s website, which thematically reflects the look and feel inside a store.

Logistics chain is reshaped by new techniques into a more effective service-based business. Most importantly, a new manufacturing model, called C2B (Consumers to Business) allows key requirements from foreground shopping to be collected and supplied directly to background manufacturing using big data.

In the background, new techniques support the evolution of new retail. Besides digital economic infrastructure (as mentioned above), 3D printing, Virtual Reality (VR) and Artificial Intelligence (AI) will be three of hottest techniques used to improve retail experiences in near future.

3D printing is used to provide customised product shopping experiences for consumers, for example personalised sport shoes. VR devices might replace computers and smartphones as a consumer’s first interaction with a retailer. AI is an integration of big data, cloud computing and new algorithms, i.e. machine learning. Machine learning is already widely used by the likes of Google, Amazon and Alibaba platforms. AI will deeply integrate with all aspects of new retail.

New retail model

Hema China, pronounced in Chinese as “Hippo”, is a pioneer of omni-channel experiences. They are a fresh and grocery supermarket established in 2016. Based on mobile internet and location based technology, Hema reinvented the traditional supermarket model into a one-stop omni-channel fresh food centre via their mobile platform – Hema APP – patented store and inventory management system, and algorithm-driven delivery system. Hema represents a typical new retail model as O+O (Offline + Online) beyond traditional O2O (Offline to Online). 
“Powered by data, we are able to increase the efficiency of delivery and reduce the cost of traditional supermarkets, to build a truly online and offline integrated retail platform, offering seamless experience to local customers … in order to ensure the satisfied service quality, we only deliver within 3km around the store and promise 30-minutes delivery. This is why we are adapting and it's why we strive to play a major role in the advancement of this new economic environment." – Hema founder


As Jack Ma said, new retail is believed to be the next evolution of the retail model.

Our shopping behaviour and retail business models have evolved since the Industrial Age and we are now on the cusp of stepping into the Intelligent Age.

The question is, is your business prepared for the revolution of new retail? 

If you have any questions, please contact me at scott.li@nzte.govt.nz