Hema Xiansheng (Image Credit: TechNode)

A version of this article originally appeared on Daxue Consulting’s blog. Daxue Consulting is a market research and management consulting firm focusing on the Chinese market. 

The retail world is evolving at a dizzying pace, and this transformation goes far beyond online shopping. The Chinese e-commerce giant Alibaba has announced a “new retail” strategy—but what does new retail mean?

For Ali founder Jack Ma, the future of retail is not about new retail channels, but about new experiences. His new retail idea is to offer a new shopping experience without boundaries: combining the best of both online and offline commerce. In China, the established marketing strategy of Online to Offline may be overtaken by OMO—“Online Merge Offline.”

The one-dimensional purchasing tunnel as it existed a few years ago is no longer relevant. The entire customer journey is being redesigned. Chinese consumers will no longer think in terms of separate purchasing channels, but use them at the same time for various purposes: product research, comparison, Click and Collect, Store To Home, delivery or customer service.

However, for years, physical network and digital sales networks were managed separately by companies, each with its own databases, customer relationships, loyalty program and KPIs. Alibaba’s OMO model has made this differentiated management obsolete. The retail giant understands that the real challenge is to succeed in following customers through the multiplicity of contact points and devices.

Key innovations

  • Digitalization: In China, consumers are already used to digital commerce: they use their phones for everything and scan dozens of QR Codes every week. For instance, New Retail stores allow users to try on clothes virtually, fill a virtual cart that will then be delivered to their home, or pay via facial recognition without going to a checkout counter.
  • Data hunger: But such a strategy is essentially based on personal data collection. New Retail makes stores all but omniscient, collecting phone numbers, purchase history, payment activities, financial transactions and addresses for their customers.
  • Immediate shopping: See Now Buy Now is an innovative practice in the fashion industry that allows consumers to immediately buy the clothes they see during a fashion show. Alibaba tested this technique during the annual Singles Day (11.11) shopping extravaganza in 2016, but it is now implementing immediate shopping in stores: You see a product, you scan it, you leave and it arrives at your home. Or even more agile, while watching a showcase of products, you can directly choose to have one on your plate or shopping cart.
  • Traceable quality: The youngest Chinese consumers are becoming more selective in the choice of their products, and are willing to pay more for quality. Thus, new retail stores offer 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.

The giants race

Alibaba/Hema Xiansheng: Launched in January 2016 in Shanghai, Ali’s Hema Xiansheng has opened over 100 stores across China. Hema supermarkets allow customers to purchase products by scanning a QR Code. Using the Hema app, customers fill a virtual shopping cart. Once the customer has paid using Alipay, the customer can opt to have all or some purchases delivered to straight to their house.

This store reviews the entire traditional distribution chain: when an order is taken in-store or online, Hema teams pick the products in-store and hang the basket on a high rail that runs through the store to transport it in reserve.

In addition, Hema emphasizes freshness, particularly seafood; stores display many large water tanks containing live crustaceans.

JD.COM/7 Fresh: JD.com, the second largest e-commerce platform in China has announced a retail strategy similar to Alibaba’s New Retail, called “Unbounded Retail.”

To implement its Unbounded Retail strategy and to compete with Hema supermarkets, JD.com has opened stores in Beijing, called 7 Fresh. 7 Fresh sells only food products, 75% of which are fresh. Like Hema, 7Fresh offers a fast delivery service (in 30 minutes within a five-kilometer radius compared to 3 km for its rival Hema) and a kitchen/restaurant area. The greatest innovation is robotic smart carts, which guide customers through the aisles and can even follow them.

Tencent/Carrefour le Marché: Last year, Carrefour China and Tencent launched their first smart store in Shanghai, Carrefour’s first global initiative in intelligent distribution. Carrefour is trying to reposition itself on the Chinese market from the classic hypermarket model to more flexible retail models. Indeed, last year, Carrefour saw turnover fall by 6.6%.

According to Fung Business Intelligence, the store has more than 25,000 different references, and food represents about 80%. In partnership with the giant Tencent, which provides Wechat Pay authorizations, Carrefour le Marché offers a Scan & Go system to pay without going through the checkouts. Carrefour Le Marché looks like the other smart supermarkets riding the New Retail wave, focusing on technology, fluidity, quality and an omni-channel approach.

Grocery market disrupted

The grocery retail landscape in China is traditionally composed of three different types of stores: huge hypermarkets often located on the outskirts of cities, more traditional supermarkets within towns and ubiquitous convenience stores. Hypermarkets and supermarkets appear to be in decline, with stores closures a constant theme, while convenience stores have remained popular. Traditional hypermarkets and supermarkets are likely to suffer in a new retail environment, to the benefit of convenience stores.

As Alibaba pushes for physical omnipresence in China, has announced that it wants to connect with 6 million local stores in China. The strategic idea is to bring its new retail management technology, the Ling Shou Tong system, to these physical stores to strengthen its bricks-and-mortar presence.

LST is an app developed by Alibaba that helps stores optimize product supply and increase sales. This “one-stop solution for digital transformation” provides recommendations to stores, helps them analyze their sales and expenses, manage promotions and improve the presentation of their products in stores.

Alibaba began to deploy this solution free of charge in strategic stores; in exchange, stores must let Alibaba use their storefronts and provide all their customer data. At the end of 2018, at the Alibaba LST Retail Conference, Lin Xiaohai, general manager of the LST Retail business, announced that the number of retail outlets covered by Ling Shou Tong had exceeded 1 million.

According to Alibaba, New Retail will allow convenience stores to remain competitive on the market: “We share a common goal with millions of small shop owners, which is to turn every one of them into a smart store that blurs the boundaries of online and offline retail to bring together the power of both retail spaces,” said Ali CEO Daniel Zhang.

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Daxue Consulting

Daxue Consulting is a China-focused market research company dedicated to providing the best specially tailored, high-quality, customer specific data in one of the most challenging markets in the world,...

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