Controversial New Retail: A New Business Opportunity in 2018?

7 min read 

2017 was a year of great changes in China’s retail industry. New retail methods, new industry definitions, new categories and new technologies emerged.

But the trend brought with it a wave of questions. Some industry watchers rejected the notion of a “pure e-commerce era.” Neither warehousing, logistics nor distribution can be independent from traditional industries. To pretend so is just a gimmick to draw attention to e-commerce giants establishing offline stores and traditional retail stores moving online, they said.

But the retail industry really is changing. In the past year, the retail industry has found new ways to understand retail. Some practitioners said new retail is an integration of online and offline business, but others believe it just connects data with a marketing system. Most practitioners recognize that behind new retail is a transformation of the retail industry driven by new technologies.

Tencent, Alibaba, JD.com and other giants all entered new retail. Will the field become a new business opportunity in 2018?

Online Drives Offline

In recent years, Alibaba and JD.com have invested in or acquired offline stores. Some people think offline retail may regain its strength, but the fact is that it is still struggling.

In the 2017 fiscal year, Alibaba’s revenue was 158.3 billion yuan, a third of which was net profit. As for the revenue of several well-known Chinese supermarkets, in the first half of 2017, Yonghui Superstore reached 28.3 billion yuan, with a net profit ratio of 3.6 percent; Sanjiang Shopping had 1.9 billion yuan, with a net profit of 4 percent; while Renrenle and Lianhua were unprofitable. Carrefour China performed worst among all markets, falling 5 percent in China although its global operations were profitable.

Such numbers mean potential for improvement. “No matter the initial offline-selling era, the later e-commerce era or the current integration age, the methods of corporate revenue haven’t changed fundamentally. Profits are still dependent on price differences. Our survey data showed that users do not care about the source of their goods – they only value the quality and the price,” said a Carrefour sales manager, “In essence, the previous impact made by e-commerce on offline retail was due to the price advantage and customer experience. When the two sides have no essential differences, the competition moves to channels, customer experience and operational efficiency.”

Zhang Yong, Alibaba CEO

Alibaba CEO Zhang Yong once told Tencent Technology that traditional retails establishing e-commerce stores is only the first stage. In Zhang Yong’s view, new retail is the third stage of the e-commerce. “The next step of new retail is integrated operations both online and offline. And the Internet will no longer be simply regarded as a sales channel. The whole channel is an integral part of new retail. In marketing, we should explore Uni Marketing and entertainment marketing. In logistics, we should not only pursue speed, but also consider how to enhance delivery efficiency with big data,” he said.

JD.com also said online sales can save time and money for consumers. The Internet platform allows consumers to buy their favorite products conveniently, and to meet their demands for quality and convenience. The cooperation between online and offline stores could reach consumers more accurately. Consumers could have a better user experience in offline stores. Online and offline stores can complement each other in goods categories and customer groups, which can attract new users and enhance brand influence.

Unmanned Vehicles, Big Data the Future of Logistics

In 2017, new retail also produced the new term “Hema House” for any house located within a 3 kilometer delivery radius of a Fresh Hema store.

Fresh Hema

Fresh Hema said it could control the delivery time to within 30 minutes using its stores’ storage and distribution functions. It has unique smart logistics sorting system, which enables the stores to spend only 10 minutes from taking orders to starting the delivery. Each Fresh Hema store is a small-to-medium-sized warehouse distribution center. Central warehouses only need to deliver goods to stores.

“With AI, Caidiao could predict users’ needs quite accurately. Therefore, Cainiao could select popular goods in advance and deliver these goods to offline stores. In this way, the goods are actually only a few kilometers from the consumers. The efficiency is calculated in minutes,” a spokesperson for Cainiao Logistics said.

According to its forecast, Cainiao logistics will match the goods and delivery in real time through AT. Based on comprehensive factors, such as cost and efficiency, Cainiao can figure out the optimal path to deliver goods and reduce the cost in transportation. In this way, logistics is fast and cheap.

JD unmanned warehouse

JD.com is embracing the next generation of logistics and advanced technologies such as self-driving vehicles and unmanned warehouses. In 2014, JD.com set up Asia’s No.1 Automated Logistics Center, realizing automated operation in most links and improving operating efficiency. After it became independent from JD.com, JD Logistics set up its Intelligent Logistics Laboratory, which presents a fully-automated storage scenario built by robots, AI algorithms and data sensors.

At the same time, JD.com is also making continuous efforts in data analysis. JD.com’s smart logistics has an increasingly clear analysis and prediction of people’s purchasing behavior and ordering frequency in different regions of China. This helps JD Logistics to allocate its delivery force. On the premise of ensuring the user experience, JD.com reduces the waste of resources in its warehouses.

Fresh to Department Stores, High to Low Frequency

In 2017, the first year of new retail, supermarkets and convenience stores attracted Internet giants. These companies have completed their investment in the Top 10 supermarkets in China. At the end of 2017, they turned to department stores.

Supermarkets mainly sell fresh goods and FMCG, at relatively low prices and in high volume frequency. Popular goods could easily help stores to attract customers, just as how lobsters help Fresh Hema and cherries help Daily Fresh to attract users. Unlike department stores, which require franchises, most supermarkets are self-operated with strong advantages in the supply chain. They can produce a synergistic effect with Internet giants.

And the star of new retail in 2018 is fresh goods. In China, the representatives are Daily Fresh, Yiguo and JD Daojia, which focus on delivery, Fresh Hema, Dmall and Super Species, which combine supermarkets and catering, as well as some start-ups focusing on convenience stores, and self-service shelves. Overseas, Amazon purchased Whole Foods Market, the largest US natural and organic food retailer, for $13.7 billion.

Essence of New Retail is Technology

The retail industry has developed from department stores to super stores, and then to chain stores. Retail products are more and more abundant, and retail efficiency is also increasing. With the telephone, television, Internet and other technology, retail is also changing from traditional offline stores, to telephone shopping, TV shopping and e-commerce. And e-commerce evolved to replace traditional retail, to integrate with it and now to become new retail.

It is obvious that the essence of every upgrade in the retail industry is an improvement in sales efficiency and a leap in technology.

In the past, when facing big data, it was impossible to understand the essence of things or to utilize it. In the era of big data, this problem could be solved. Big data can analyze massive, dynamic and continuous data by exploring new systems, new tools and new models, so that we can get new insights.

New retail applies numerous new technologies apart from big data. With the development and application of new technology, China’s retail industry will develop in innovative ways.

In 2018, new retail may be tied to some technology improvements:

  • First, we must really focus on data prediction and artificial intelligence to achieve consumer-to-business reverse customization: that is, consumption-oriented production. It is possible to create an e-commerce platform that can really connect the whole industry chain from the design to the delivery.
  • Second, realize the borderless retail scenario. It is likely to develop improved sales strategies and to form seamless coordination with channels by further studying consumption characteristics and shopping preferences.
  • Third, the offline service will get rid of the group purchase model and truly become a commodity that can be sold in retail.

In fact, because of the huge gap in technical ability – rather than the ability of the supply chain, Internet giants must become leaders or followers of new retail. Offline retail enterprises can only have active – or passive) followers.

This article originally appeared in qqshenwang and was translated by Pandaily.
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