Integration of online, offline, data, and logistics signals new era
On Singles Day, China’s annual shopping holiday in November, around 90 percent of Alibaba’s transactions happened on mobile devices. That statistic illustrates the mobile transformation happening in Chinese retail, and in part it explains the robust 47 percent increase in category value, following a 22 percent rise a year ago.
But the Singles Day statistic tells only part of the story. Simultaneously, Chinese consumers are purchasing online and offline, and shopping at both at the largest retail brands and some of the smallest. In a sense, Chinese retail is both consolidating and fragmenting. And O2O, the shorthand for describing online and offline coordination, does not fully describe the seamless integration of online, offline, data, and logistics, which Alibaba CEO Jack Ma calls New Retail.
To provide seamless integration, Alibaba purchased a recently-launched grocery chain named Hema Xiansheng, whose locations operate both as retail stores and delivery centers for online orders. Customers can shop the store with an app that assists in gaining product details and ordering. In a similar way, JD.com coordinates online-offline activities with its JD Daojia grocery stores.
With Hema, Alibaba aligned with a brand that differentiates from most traditional supermarkets with its emphasis on freshness. Customers can shop for products in physical stores or on mobile devices. They can have fresh food prepared and eat it at a restaurant area in a Hema store or have it delivered to their home. The shopper experience is intended to erase the normal borders of retail and contain the shopper in the Alibaba ecosystem, checking out using Alipay.
Alibaba purchased a major stake in Sun Art Retail Group, a hypermarket company that operates Auchan and RT-mark stores in China. Alibaba also holds stakes in Suning, known for its consumer electronics stores; the Bailan Group, which operates almost 5,000 stores across food and non-food sectors; and Sanjiang Shopping Club Co., a regional food discounter. Along with enhancing the customer experience, these partnerships yield data to increase understanding of the consumer’s shopping behavior, which can now be tracked category-by-category, offline as well as online.
Analysis of the data not only helps retailers improve their merchandising and operations, its trove of customer intelligence can be monetized in sales of services and advertising to vendors. In addition, for JD.com, acquisitions of physical locations enable the brand to leverage a key strength, logistics, to become China’s largest infrastructure provider. JD.com owns its distribution centers, which bestow a strong advantage when trying to tap the major growth opportunities in lower tier cities. JD.com is making the distribution centers available smaller brands.
Suning, China’s largest retail chain of home electronics, illustrates the impact of O2O partnerships. Just a few years ago, in the early days of e-commerce, the brand’s more than 1,000 physical stores seemed like expensive and underperforming assets. Suning expanded its range, leveraging its retail space to include fast moving consumer goods (FMCG) that drive more frequent customer traffic. And Suning entered a strategic partnership with Alibaba. Suning gained access to Alibaba’s online audience. Alibaba strengthened its association with home electronics and gained more data about customer O2O shopping habits. On Singles Day 2017, Suning was the top-selling store on Alibaba’s Tmall site, and Suning’s Singles Day online and offline sales increased 163 percent year-on-year.
The other major online retailer, Vip.com, differentiates from its larger competitor by focusing more on lower tier markets. The brand originally offered mostly apparel for women, and developed a low-price reputation for fashion, particularly items that might be off-season. Time-limited deals incentivized customers to buy before the merchandise disappeared. The brand has leveraged this reputation for sharp pricing and unexpected deals as it has expanded into more categories, including personal care. JD.com, along with internet giant Tencent, invested $863 million in Vip.com in an alliance to strengthen the three brands competitively, especially against Alibaba.
Not all of China’s leading retailers originated in e-commerce. Yonghui Superstore has opened around 100 physical stores per year. It is known for its emphasis on freshness. Last year, JD.com invested in Yonghui to help it advance its O2O strength. Yonghui is constantly innovating and now is developing several distinct formats. Bravo is a premium hypermarket filled with quality imported products and positioned to serve middle class consumers in Tier 1 and 2 cities. In some larger cities Yonghui is opening convenience stores with at least two distinctions: an emphasis on freshness; and pick-up and delivery. The final format is more of a restaurant where diners can also be shoppers for groceries or take-away food.