3 trends from China retailers should be watching

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We’ll start with a little perspective: Add the populations of the United States and United Kingdom, and you’d still fall significantly short compared with China — as in, almost 1 billion people short.

Imagine collecting that kind of data.

Ask retail experts about trends in Asia, and a few will undoubtedly come to the forefront: unmanned stores, perhaps. Use of creative technologies such as virtual and augmented reality. Crystal-clear inventory visibility.

But there’s also an understanding and application of data intelligence on a grand scale, one that continues to challenge, inspire and impact virtually every other trend.

Consider the 2017 rollout of customer service chatbot Dian Xiaomi by ecommerce behemoth Alibaba. The chatbot, which is powered by artificial intelligence and can understand more than 90 percent of customers’ queries, serves more than 3.5 million users a day.

T.J. Rau, global head of business development at Coresight Research, notes that during Alibaba’s 11.11 Global Shopping Festival on Singles’ Day last November, it used AI and big data analytics to create 6.7 billion personalized shopping pages, with individualized product recommendations, on the Taobao and Tmall platforms.

“Those personalized pages were created based on consumers’ individual data,” he says, “including information on their shopping habits, payment and credit history, demographic profile, search preferences, social networks and personal interests.” The result was a 20 percent higher conversion rate than non-personalized pages.

China’s retail landscape can seem so far out that there’s no hope of catching up. But the numbers are so great — people and otherwise — that what’s happening there is still worth noting here.

Much is made of the fact that the United States spent $453 billion online in 2017. That same year, Chinese retail web sales totaled the equivalent of $1.149 trillion, according to China’s Ministry of Commerce. This August, the National Bureau of Statistics of China reported that the country’s online retail sales had risen 29 percent year-over-year in the first seven months of 2018, reaching $702 billion.

So what should we be watching from our neighbors to the East? A few suggestions:

Online to offline

Imagine a home furnishings store that dramatically changes its assortment every 10-15 days based on the behaviors of consumers within a five-mile radius. Home Times, Alibaba’s first online-to-offline store in the category, does just that. The store offers more than 20,000 items, adjusting them based on their popularity on the Tmall website.

Doug Koontz, research director at PlanetRetail RNG, says the United States is literally “years away” from being able to pull off such a sophisticated feat. Even so, as more products move online, physical stores will carry fewer SKUs, upping the need for inventory visibility. In addition, consumers continue to demand faster and faster delivery; such processes help make it possible.

Some call the melding of online and offline shopping experiences “New Retail” — Rau says it is the top trend Coresight is watching in China.

“Alibaba Founder and Chairman Jack Ma first advocated the concept in 2016, and the company is leading a new wave of retail transformation by enacting this strategy,” Rau says.

As part of its New Retail efforts, Alibaba launched the Hema chain of supermarkets in 2017 to bring a new grocery shopping experience to Chinese consumers. Hema customers can bring fresh food home to cook, or have it prepared by in-store chefs and delivered to their home within 30 minutes.

Also in 2017, Starbucks partnered with Alibaba to unveil its Starbucks Reserve Roastery store in Shanghai. “The store leverages digital transformation, mobile payments and AR to provide a new shopping experience for consumers,” Rau says. More recently, Switzerland-based sports retailer Intersport, hypermarket chain RT-Mart, global fashion brand Guess and K-beauty brand Innisfree have all partnered with Alibaba to transform their bricks-and-mortar stores in order to provide a New Retail experience.

Koontz calls Hema “half warehouse, half store,” one that gives consumers a true sense of moving inventory in a tech-driven, automated way. Products have digital price tags that are scanned by staff with mobile devices; once bagged, items are loaded onto an overhead conveyor system. Only a fraction of the store’s inventory is displayed on the floor, and processes are digitized and streamlined; customers order and pay from their mobile phones.

In most of the developed world, Koontz says phrases like “omnichannel” or references to the integration of online and offline might mean “consideration of online when we’re putting together our in-store plan and vice versa.” Concepts such as these, however, “are truly digitally led and informed by information they have on their online shoppers.”

Who’s minding the store?

When it comes to grabbing headlines and instilling awe, the explosive growth of unmanned stores in China is near the top of the list. Koontz says some companies claim they plan to open as many as 100,000 stores over the next few years, but most are still in the testing stage, far too early to declare expansion plans. With daily revenues as low as $150 to $300 and high upfront costs, these stores will need considerable scale or price markups to become a widespread, sustainable model, but will continue to find niche applications because of their flexibility.

These stores started to proliferate in China following the launch of the staffless Amazon Go format in the United States, Rau says: As of June, there were more than 1,100 such stores in China, with top players including FxBox, BingoBox, EasyGo and Xiaomai.

These stores largely rely on a combination of mobile payment and RFID technologies, along with smart cameras, to operate, although the exact technologies used differ by chain, Rau says. Interestingly, the trend seems to have gained more traction in China than in the United States.

There are some concepts, Koontz says, that aren’t much more than a glorified vending machine. But what is intriguing is the development of technology being used to let people enter or exit unmanned stores.

“There are some where you set up an account and scan a code or punch a code to get in, and others where they’re reading your face, or gathering biometric information like a palm print or even veins,” Koontz says. “There has been a lot of focus on the technology itself, but I think we’re learning … essentially about how convenient or easy it is to get in and out.”

If the process is “big and clunky,” he says, “you might have some success with people who want to buy things after normal operating hours, but it’s not adding a ton of convenience.” In the United States, shoppers using Amazon Go stores still fall mainly in the first adopter category, he says, and a certain level of convenience will have to be reached before they see widespread use.

There’s also the issue of privacy. It’s not necessarily that we’ve become more comfortable with personal data being collected in North America, Koontz says; it’s that we’ve become more aware.

“But we didn’t necessarily raise our hand, and that’s one of the big differences. Because of the way China developed, because of the digital infrastructure, because of the consumer alliance and faith in institutions — and government institutions in particular in China — there’s an inherent trust. We certainly don’t have that in the U.S.”

The United States spent $453 billion online in 2017. That same year, Chinese retail web sales totaled the equivalent of $1.149 trillion, according to China’s Ministry of Commerce.

As a result, he sees options like these growing first with businesses that already have a loyal, captive and trusting audience — such as Amazon Prime members — who are already willing to share personal information in one way or another.

“It will be an uphill customer acquisition battle to try to convince shoppers who have never interacted digitally with your business, or interacted with your retail stores in this way, to voluntarily give a whole bunch of verifiable personal information so you feel comfortable letting them into your stores,” Koontz says. “Existing loyalty programs and existing memberships are a really big advantage here.”

Retailers such as Costco and perhaps even CVS or Walgreens would have a head start over others if they could find a clever way of migrating consumers, he says. He believes Amazon will continue to be a leader in this area, too — and perhaps even offer this technology for other retailers to use in their own stores.

Big and little

Acacia Leroy, Asia head of trends and insights for TrendWatching, considers them “foot soldiers.” In her recent report “The Future of Retail in Asia,” she notes that “giant retailers have found a new way to conquer fragmented Asian markets: by empowering mom-and-pop stores. These small kiosks understand the locals — and the larger retailers understand how to empower them digitally.”

In China, she says, basing her statistics on Boston Consulting Group research, 85 percent of all retail sales still happen in physical stores. Not only that, but there are some 7 million family-run mom-and-pop stores that “dominate retail outside big cities in China.”

Ecommerce sites like Alibaba and JD.com, however, are partnering with them in something akin to a franchise model.

“They are consolidating independent stores onto their platforms,” Koontz says. “Alibaba and JD.com are able to learn a lot about the customers that are in those stores, and they’re often providing them with brands and products to sell. In return, these mom-and-pop stores are getting the support, often tech, branding, marketing investment, that they couldn’t manage on their own.”

The real power of these platforms, however, is highly data-driven.

“In many cases, JD.com and Alibaba know what’s selling, and how shoppers are even moving around the store,” he says. “They can help you execute a better planogram, improve where you put your merchandising and optimize placement of high-margin and high-volume products. They’re empowering these mom-and-pop stores to be much more sophisticated. And in the meantime, they are collecting a simply ridiculous amount of consumer data that they’re turning around and using in all sorts of different ways.”

It is a data arms race; Koontz says Alibaba is in the lead, and “Amazon is getting pretty good at this.”

“But we’re headed toward a global arms race of these digital native ecommerce companies that have all of these intricate ways to collect information from consumers, all of these different touchpoints where they can influence and market and sell, and it’s really hard for store-based retailers to keep up,” he says.

“We call those touchpoints an ecosystem, and these stores are an extension of that ecosystem. What’s happening in China with the traditional trade is really powerful. You can imagine how many people and how many stores that includes.”

Fiona Soltes, a freelancer based near Nashville, Tenn., loves a good bargain almost as much as she loves a good story.

(c) iStock.com/danielvfung

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