The Future of Chinese Retail – Entering the Chinese e-Merging Market

The Future of Chinese Retail

The New Retail Strategy was first introduced by Alibaba in 2016. At Alibaba’s Computing Conference, Jack Ma’s speech focuses on five main areas that are being transformed by technology and that are set to impact profoundly the industry in the foreseeable future. These areas include manufacturing, new energy, new finance, new technology with new retail at the center. New retail is Alibaba’s strategy to redefine commerce by enabling seamless engagement between the online and offline worlds. The goal is not to convert online customers into offline customers. It goes far beyond. With new retail, Alibaba aims to use their technology capabilities to digitally transform offline retail in China, which currently accounts for 82 percent of the total retail volume. New retail is about building a retail ecosystem that blends online and offline channels in a unified way, featuring the consumer at the center.

The concept of a uni-channel plays a key role in this strategy. The term used to refer to companies that offered products only through one outlet, usually a standard, physical store with limited advertising options (mainly radio, local press, and so on). Recently, the meaning of this term has changed to catch up with the rapid market changes that are taking place. Multi- and uni-channel marketing are now making use of both online and offline marketing opportunities. The ultimate goal is to be ever-present. Many brands give their customers inconsistent experiences across the different channels they use. The aim is to place the customer at the center of these interactions and create a uniform experience. Therefore, a uni-channel strategy, as Alibaba defines it, refers to a unified channel with the customer at its center, offering a global, tailored shopping experience. This strategy blurs the line between online and offline, thus redefining the role of a brand’s online presence.

This enables merchants to stay relevant in China’s dynamic digital economy landscape and offers brand-building and sales growth opportunities. New retail is about to transform every aspect of the retail value chain, from merchandising to logistics, without the need for expertise and in-depth tech knowledge. To showcase their vision, Alibaba used the 2017 Singles’ Day Festival as a way to transform retail, by being 18 times bigger than Amazon Prime Day and three times bigger than Black Friday and Cyber Monday combined.

Retail sales are a lynchpin in China’s national strategy for economic growth. Many believe this will rewrite the future of retail in China and beyond. It is not only Alibaba that shapes the commercial landscape in China though. Other companies, like Tencent and JD, are supporting this strategy. This is leading to rapid change, as well as growing competition. The core rivalry in China’s digital space is between Alibaba and Tencent. Retail and payment systems are at the heart of their rivalry.

Based on these trends, this is what the future of e-tail in China looks like:

Smart Stores

In the era of smartphones and digital shopping, the emergence of smart stores is no surprise. The major features of smart stores include:

A connection to an online payment system is required for customers to be able to enter the store.

Facial recognition technology is used to track customers. Discounts are offered on items they smile at or on items that they have searched online.

Customer’s purchasing behavior data, facial recognition information, memberships, and customer service history are all stored and tracked.

Price tags are electronic and prices vary in real time based on certain factors.

Home delivery details do not need to be provided by the customer, as the system has already on record their address information.

Delivery in major Chinese cities takes from 15 minutes to three hours maximum.

Customers can try on apparel and make up products virtually, using what Alibaba calls a magic mirror. With the help of radiofrequency identification and augmented reality technology, items are displayed on an accurately measured avatar of you. This technology can also be used to see what a piece of furniture looks like in one’s home or to tour overseas properties.

Innovative technologies, such as the Cloud Shelf, a screen that replaces shelves in a store, use radiofrequency identification technology to identify product tags, display the item’s availability, color and size options, and customer reviews. The customer can buy the item by simply scanning its QR code.

Many of these features are already being integrated to non-commercial spaces such as smart nursing rooms that are connected online so that parents can find them more easily. These rooms are equipped with screens that can be used to look for childcare items such as diapers, which can be purchased while mothers use the room. The aim of these innovations and data collection is to personalize the shopping experience. Each customer’s experience from advertising to pricing will be determined by data on an individual level, and no two people will experience the same journey. All aspects of the consumer experience will be intertwined and operate in concert for the ultimate convenience and excitement of the consumer.

Blurring of the Line Between Consumer and Advertiser

This is already taking place in China, as many companies reward customers for posting their purchases on social media, but it is going to happen in a more sophisticated and embedded fashion offline in the future. For instance, one of the brands that were part of the 2017 Singles’ Day Festival, after a customer bought an item, a photo studio in the store had staff to quickly put on professional make up and take their picture with the item using sophisticated lighting in a studio settings. The resulting photo was stylish, ad quality, and campaign-ready. Hence, the consumer now becomes a mini-influencer and an active partner in social selling. In late 2017, Tencent officially announced its Smart + strategy using its cloud platform establishing a smart ecosystem covering retail, marketing, logistics, finance, communication, and more. Tencent also aims to execute Smart + Retail with the latest Big Data, AI technology, and cloud computing. Meanwhile, existing WeChat features, such as mini programs, official accounts, and WeChat Pay, already support retail sellers and brands. Big Data analysis and WeChat Pay allow merchants to better understand their target consumers and customize messages and promotions quite precisely. With mini programs, merchants can merge shopping experiences and output services of both online and offline retail in a smooth manner.

Retail as Entertainment

Modern Chinese consumers are predominantly young and mobile-savvy, so shopping is not just about passively adding items to their virtual shopping art. Shopping has evolved into a social activity, a means of consuming content, and ultimately, a form of entertainment. For example, cloth shopping can be done virtually in the—virtual—company of one’s friends. Clothes can be chosen specifically for users, based on their data and shopping history. Users can try them on virtually, compare items with their friends, and get their opinions about the clothes. Then, they can purchase the items they like and have them delivered so that they arrive at their address before they return home that day. After that, pictures of the customers wearing the new items can be sent to the brand to enter a contest and later be used in advertising campaigns.

Tmall Neighborhood Convenience Stores

Alibaba is developing new retail models that are transforming many retail experiences from the local grocery store, the shopping mall, and the car dealership. The company is working closely with merchants and brands to incubate the available technology, so that it can be leveraged by the whole retail industry. Alibaba’s LST system is different from Amazon’s physical store push, in that it can be leveraged for use by millions of local convenience stores to digitize their businesses, rather than only be used in Alibaba-owned stores. For instance, this system can help the owner of a physical retail store to measure the demographics and purchasing behaviors of surrounding customers, then predict and recommend the most in-demand products for sales in that store. Their technology capabilities can be leveraged for logistics, merchandising, as well as inventory management to enhance their business operations.

Major See Now, Buy Now online fashion shows have already taken place in 2016 and 2017 and organized by brands like Pandora, Guerlain, MAC, and so on. During these shows, customers are invited to do more than just watch. They can buy their preferred outfits using a purchase link that is displayed on the left side of the screen on Taobao or Tmall. Alternatively, viewers can shake their phones to go to the product page, in case they are watching the show on TV.

Gamification

Alibaba launched a gaming campaign called Catch the Cat in 2016, after witnessing the popularity of location-based, augmented reality game Pokemon Go. The cat people were trying to catch was Tmall’s mascot. In 2017, 65 established brands like P&G, MAC, Pizza Hut, Disneyworld, and KFC participated in this gaming campaign that encourages Chinese consumers to visit their retail stores. Alibaba continued the Catch the Cat in 2017. Users were invited to access the game interface on the Taobao or Tmall application on their smartphone to catch 170 different types of virtual cats that appeared randomly. Each cat was related to a designated brand. Once caught, users could get a game card with a special discount or prize that they could use when they made purchases in the brand’s Tmall store. Tmall’s cat mascot was also featured in thousands of brand stores across China, such as Starbucks, where users could catch these virtual cats.

China’s 2020 Social Ranking System

It seems that Big Brother is coming to town! China is about to develop its social credit system, a system that is highly integrated with Big Data and technology. In mid-2017, the Chinese government began generating an 18-digit personal identification number for everyone in the country. This number is associated with what is essentially an economic and reputational identity card. Credit scores are no new. They were introduced about 70 years ago in the United States, while FICO scores are still used to determine a person’s loan eligibility. China did not use similar ratings and credit systems until very recently and very few people in the country had access to them. In the search for a system to fill this void, authorities have opted for a system that takes into account more criteria. This new score takes into account a wide variety of offline and online behavior and amounts to a background check, credit score, Internet activity history, Google deep dive, reference check, and family interview, all in one. The government’s stated goal is to enhance safety and trust, especially in regard to food production and to help enforce integrity in business.

By 2020 all Chinese citizens will be enrolled in this vast national database. This will apply to both individuals and businesses. So far, it is not clear whether foreign companies operating in China will be subject to this rating system or not.

Information will be stored on the country’s unified credit information platform and will collect financial information (bank account, loan and mortgage data), business registration information, tax reports, social security payment statistics, traffic violation statistics, commercial activities, social behavior, lawful and unlawful behavior, as well as online activities. The program has already been implemented in 12 Chinese cities. The database has collected information from 44 government departments, including provinces and cities, as well as from 60 private organizations. Two companies were licensed to assist in the development of this system: Ant Financial’s Sesame Credit and China Rapid Finance. The former rates users based partly on their purchases through Alipay, while the latter is an online consumer-lending platform and Tencent partner. Sesame Credit has also worked with Didi Chuxing, a taxi hailing service, and Baihe, China’s largest online matchmaking service. So, it has access to a very wide selection of data.

The question is how this rating system is going to impact people’s everyday lives? For those with high social credit scores, rewards may range from pre-approved loans of RMB 5,000 to RMB 50,000, to deposit-less car rentals, faster hotel check-ins, or fast-tracked applications for EU Schengen visas. High scores are about to become a status symbol is some circles, with some users boasting about their high scores online. What happens then to those with lower or low scores? Low scores may, in fact, result in slower Internet speeds, restricted access to restaurants, private schools, golf courses, the removal of one’s right to travel freely abroad. It can even lead to restricted access to social security benefits. Certain jobs in law, civil service, or journalism may be off limits. The principle is that, if trust is broken in one place, restrictions will be imposed everywhere.

People have, naturally, raised concerns about this and require that the system takes certain circumstances into consideration, so that, if, for instance, a person misses or delays a bill payment because they are ill in the hospital, it will not affect their general score and punishments will not ensue. The close collaboration between the Chinese government and digital giants for social data provision initially raised concerns about consumer privacy. Many fear that a close monitoring of their daily activities on social media platforms and e-commerce sites, such as purchasing a product or posting a comment, will restrict their freedom of digital expression. This rating system takes on a new dimension when considered along with the fact that China has the world’s largest genome database: the China National GeneBank, which has more than 500 million genetic sequences and the computational power and AI to deal with them.

Many feel, however, that the establishment of a more complete credit system will be ultimately beneficial to Chinese citizens, especially in terms of financial security. By leveraging the advantages of China’s most successful tech companies, China will be able to reinforce profitable behavior, improve its social mechanisms, and better integrate with emerging global trends.