Tech is Fueling the New Retail Era and China is Mastering It
April 27th, 2019 | Cattleya
Today, retailers in China and the West face the same challenge: how to achieve profitable long-term growth (or at least not to lose existing market shares)? In other words, how to stay relevant in the fast-changing environment growingly influenced by technology? Many of the costly big-box stores and shopping malls are losing customers and profits to online sales. Yet online retailers have barely been making money due to heavy investments in user acquisition and logistics. It appears China has the answer to this dead-end: New Retail.
At Alibaba’s 2016 Computing Conference, Jack Ma introduced the concept of New Retail, using data and technology to transform retail, including offline retail, which still accounts for 82% of the total sales. It is stated as Smart Retail by Tencent or Retail As A Service by JD.com.
It’s not about converting online users to offline customers or vice versa, but building a retail ecosystem that blends online and offline channels. Retailers focus on engaging the customer through personalized content and featuring the consumer at the center in new and unexpected ways. To do so, retailers must develop technical and human capabilities across product design, marketing, innovation, and logistics to adapt to ever-evolving customer needs.
Facial recognition, location-based, AR, RFID (radio-frequency identification), 5G, big data… It’s not about picking one new technology but making them all serve New Retail.
From a consumer’s point of view, both online and offline have to offer the same convenience and experiences. From a business perspective, when everything is connected and data is plentiful, efficiency and productivity can be maximized if correctly leveraged.
That is to say, for physical stores in New Retail era, the key is to digitalize every aspect of their businesses which means digitalizing the customers, transactions, marketing and merchandising. The following four approaches can help and have already been used in China.
1. Facial Payment
China is miles ahead when it comes to digital payments, and the latest leap is facial recognition technology.
With it, Alipay users can pay offline simply through a combination of facial scanning and inputting their mobile phone numbers. That means they won’t need to take out their wallets, or even smart phones, anymore. Currently, this service is already offered at a KFC’s new, healthy-food concept restaurant, called KPRO, in Hangzhou and is progressively extended to many retail chains in China.
As we all can see, Chinese logistics management is incredibly awesome.
Freshippo (also known as Hema Supermarket), as a good example of the ‘New Retail’ model, showing dramatically how fast the delivery is.
When a Freshippo user cooks at home and realizes he is out of garlic, it’s not a problem, he can order on the supermarket’s mobile APP and get the ingredient delivered in less than 30min. Freshippo aims at providing the unparalleled service for fresh food deliveries, so the proximity to a Freshippo store is starting to be taken into account when people make real estate choices.
Freshippo is not only a supermarket but also the warehouse where order-fulfillment specialists can be seen moving up and down the aisles with a scanner, shopping bag and a special bar code for each order which can be used to track the delivery. They scan and pack up goods, putting the bags on a conveyor belt that carries orders to a delivery center adjacent to the store. Among users who open the Freshippo app, the conversion rate for purchase is as high as 35%. Even more impressive is the fact that over 50% of the store revenue comes from app orders.
Other competitors are using existing stores to use their armies of delivery men to offer similar services: Ele.me, Meituan and JD Daojia are the main players. For instance, JD Daojia connects more than 70,000 offline retail outlets in 22 Chinese cities including supermarket chains such as Auchan, Walmart and Yonghui, offering one-hour delivery.
3. Augmented Reality
The Shanghai Roastery, the largest Starbucks in the world, is an unprecedented feast for the senses of coffee roasting and brewing, Italian baking and exquisite local craftsmanship, using Augmented Reality (AR) as discovery and information tool.
The AR technology allows visitors to scan main areas and understand about the coffee culture. By pointing their phones at various locations around the Shanghai Roastery, the visitor can get the digital look as he or she is an insider, including peeking inside the massive copper roasting cask, find out about various brewing methods and much more immersive experiences.
Tapping into the recent Chinese hunger for coffee, Starbucks allows visitors to know better about the process of roasting, brewing and extracting a perfect cup of coffee. Since time is money, visitors staying much longer in store than before means their basket is also growing.
In fact, AR is not the first time for Starbucks. Earlier in 2011, the company has launched an APP to activate unique Augmented Reality experiences triggered by their famous red Christmas cups, but the technology wasn’t good enough to maintain is as a permanent feature.
4. Location-based Recommendations
Location-based marketing is the process of optimizing the website, online advertising or coupon to help drive foot traffic and awareness in localized places. For example, Google algorithm uses a searcher’s location to serve up relevant local businesses.
Location-based recommendation or discount notifications will jump out on shoppers’ phones according to where they are. It provides the tools, tactics and strategies to make it easier to convert the local traffic into sales, either online or in person. Every main Chinese platform has already integrated those technologies. Next step is to improve the accuracy of location-based recommendations and information and only one sensor is capable of doing so: the camera. We will dig into the power of the camera (with AR being its user interface) in another post.
In most cases, the mobile App is the main channel to digitalize their customers, offering functions like Scan-to-pay, AR experience, discount notification or delivery service. If no APP, Wechat mini-program can do the job to offer scan-to-buy, currently being rolled out in most supermarkets.
Some shops have already developed their own apps, where shoppers can get more information about the product in store, check out faster or buy at home and get goods delivered. Today in China, even for physical retail, everything is driven by the mobile. When you scan a code on the product tag, it tells you all you need to know about the item’s origins and journey from farm or factory to shelf, plus you can access product details, ratings and reviews, just like online.
By offering those services, retailers are gathering data about consumers’ purchasing behaviors to know better about their needs, budgets, preference and so on, in order to provide a truly personalized shopping experience.
China is leading the retail revolution by applying, at scale, many of those new technologies. It won’t stop here, so if you are considering gaining a technological edge over your competitors, welcome to team up with us to digitalize your business and jump into the New Retail era!