New Retail is replacing traditional retail. Pioneered by Alibaba, the blending of online and offline commerce is introducing experience in the equation, thus changing the whole game
A recent report released by eMarketer has made it clear: China’s $1.94 trillion e-commerce market is the largest in the world. It is three times larger than the US one, contributing to 54.7% of the $3.5 trillion global e-commerce market expected in 2019.
These are stunning figures, which are driven by innovation and China’s growing purchasing power. But there is a concept that is changing the whole game in the Middle Kingdom and that is now ready to inspire innovations in retail across the globe. It is the New Retail, the blending of online and offline commerce to drive higher levels of engagement between brands and consumers.
In the western world, it is called omnichannel strategy. However, the New Retail concept goes far beyond the multi-channel approach, introducing the customer’s experience in the equation.
© 123rf. O2O – “Online To Offline” and vice versa – indicates the two-way flow between the online and the physical world. Alibaba’s Hema stores enforce O2O business model.
The New Retail model was introduced by Alibaba’s founder three years ago. In October 2016, Jack Ma wrote a letter to the shareholders stating that “in the future, e-commerce alone will become a mature business and will fade away being replaced by the concept of New Retail, which is positioned at the convergence of four forces: online, offline, logistics platforms, and big data.”
At that time, Ma’s message came as a surprise. During Alibaba’s highest growth momentum, the president of one of the world’s largest e-commerce companies was saying that the only way to give online retail a future was to introduce a model completely different from the current.
For Jack Ma, the future of retail is not a question of channels, but of experiences. New Retail, therefore, consists of offering a new shopping experience, which blends online and offline commerce. This way, the entire customer journey is completely redesigned.
For years, in-store sales and digital commerce were managed separately by companies, each with its own databases, customer relationships, loyalty program, transactions, and logistics. Therefore, three years ago, the challenge was to create contact points between the online and the offline world.
New Retail is a phrase coined by global icon, Jack Ma. Ma started advocating for the concept in 2016, which he outlined as “the integration of online, offline, logistics and data across a single value chain.”
To implement the New Retail model, Alibaba acquired the supermarket chain Hema. Here, consumers can buy online via the mobile app and pick up the purchase in the store or have it sent home in half an hour if they live within a 3km radius from the point of sale. However, the Hema app is also central to the traditional in-store experience. Customers can use their mobile to scan the products and receive the related info or add the groceries to a virtual cart in order to receive them home.
On one hand, online and offline experiences become one for the consumer, who chooses and alternates them according to the time available, the mood or the arrangements for the day. On the other hand, Hema supermarkets double their role and act as both physical stores and logistics platforms.
The results of the first two years of the Hema experiment are extraordinary. Hema customers buy more than 50 times a year on average and online orders represent 50% of transactions, with peaks of 70% in the big cities. In the last three years, Alibaba’s Hema opened over 100 stores in China, driving the trend that is revolutionizing the entire retail industry.
Following Jack Ma’s innovation, in January 2018, China’s second e-commerce giant JD.com opened its grocery store chain called 7Fresh. Just like Hema supermarkets, 7Fresh provides fresh produce and 30-minutes delivery service. In addition, these stores also host robotic smart carts that guide and follow customers through the aisles.
© Unsplash. Wuhan. Alibaba has opened new Hema supermarkets all around the country. The chain now also serves consumers in Xi’an, Nanjing, Wuhan, and Guangzhou.
The one-dimensional purchasing tunnel as it existed a few years ago is no longer relevant. With the New Retail model, Chinese consumers will no longer think in terms of separate purchasing channels but use all of them at the same time for various purposes such as product research, delivery or customer service.
Accordingly, brands also have more ways to interact with targeted consumers and thus ensure deeper brand engagement. This next-generation retail, in fact, provides customers with a personalized and interactive experience, leveraging new technologies and data science.
China is a mobile-driven society, therefore, digital commerce is already well established. Chinese consumers use their smartphones for almost everything, including payment. Thanks to the New Retail model, customers now can try on clothes virtually or pay via facial recognition without even going to a physical store or a checkout counter.
For example, during Alibaba’s Singles Day in 2018, the company partnered with brands to bring pop-up stores to its consumers, where artificial reality mirrors and smart speakers were connected to personal shopping accounts on retail websites Tmall and Taobao.
China’s increasing digitalization, the emergence of data science, and the consumers’ need for immediacy and traceable quality are the key factors in the success of New Retail.
However, this system is essentially based on personal data collection. Through the collection of consumers’ data, New Retail makes stores omniscient. With big data, brands can use artificial intelligence to customize product catalogs and experiences according to consumers’ demands, thus increasing both engagement and loyalty.
New Retail also turned shopping into an immediate purchasing experience. It means that while watching a showcase of products, the customer can directly choose to have one on the shopping cart. It was the “See Now, Buy Now” fashion show that has allowed consumers to immediately buy the clothes they were seeing during the show for the first time. Alibaba tested this technique during the annual Global Shopping Festival event in 2016, but it is now implementing immediate shopping in stores as well.
Nevertheless, in addition to speed, Chinese consumers also ask for quality today. Healthier products, higher food safety, and more precise tracking are now part of consumers’ demand. Therefore, New Retail stores have introduced product tracking. For example, at Hema, customers can scan a QR code to watch short reports on the origins of items, including, pictures of the distributor’s operating permits and food safety certificates.
Moreover, given that retail is consumer-centric, in-store technology has now become part of the strategy to attract customers and help them make purchasing decisions quickly. New Retail in China has made static stores obsolete. The in-store experience is lively now and leverages “sensory marketing” to influence the behavior of customers.
© 123rf. The New Retail trend that has emerged in China paves the way for retailers worldwide to profit from the digital economy.
China’s mobile-driven society and mobile payments are two crucial factors in the spread of New Retail across the country. Chinese consumers rely on apps for both online shopping and payments at physical stores. About 81% of smartphone users in the Middle Kingdom will use mobile payments this year, compared to just 27% in the US.
Therefore, we could say that the New Retail is built on China’s digital-first approach to commerce because it largely leapfrogged the brick-and-mortar expansion seen in the West and went quickly to online. In the West, instead, an omnichannel strategy is still trying to introduce digital services into the brick-and-mortar infrastructure to deliver to consumers the shopping efficiencies proper of the online world.
Here is what differentiates Alibaba’s model from the others tried so far: integration. Integrating data is a crucial evolution to understand everything about the consumer buying process. This means being an open book so that the system could know what the consumer needs before he actually needs it.
New Retail thus puts the customer at the center of the retail process. Given that China is home to over 600 million online shoppers, Alibaba’s system is, therefore, targeting an estimated $2 trillion market. No wonder why it is influencing retail across the entire globe.