China is a fascinating market to study retail’s evolution. Forty years ago, it introduced major economic reforms lifting hundreds of millions of people out of poverty and leading to it becoming the second-largest economy in the world.
Now with high-tech stores, futuristic drones, sophisticated online-to-offline networks and a huge amount of inexpensive manpower, the retail revolution in China is happening at a faster rate than any other market in the world.
It has the world’s largest e-commerce market which will remain a major driver of economic growth as internet penetration and smartphone ownership continue to increase. Experts calculated that China’s m-commerce sector is more than four times bigger by sales value than that of the US. They are also among the world’s highest consumers of luxury goods.
President Xi Jinping emphasised the growth of China’s economy in his recent speech:
“Grain coupons, cloth coupons, meat coupons, fish coupons, oil coupons, tofu coupons, food ticket books, product coupons and other documents people once could not be without have now been consigned to the museum of history,” he said.
“The torments of hunger, lack of food and clothing, and the hardships which have plagued our people for thousands of years have generally gone and won’t come back.”
China Retail Past
China Retail Present
Here we take a look at how outside retailers might approach this burgeoning marketing with both optimism and trepidation.
The Opportunities for Retailers
Starting from Scratch
A lack of infrastructure was a disadvantage before the rise of technology. Now it’s an advantage which is allowing aggressive companies to quickly create assets that are more adept at meeting current customer needs without worrying about cannibalization or utilization of existing brick and mortar.
Meanwhile, established brick-and-mortar retailers in Europe and the US who are looking to go omni-channel face an uphill climb. They need to create an app for an online channel, link it to their brick-and-mortar inventory and logistics systems, then spend time and money to convince customers to download it and use it. If there’s any lesson to be learned by US retailers from Alibaba’s ‘New Retail’ model, it’s perhaps that the best way to save traditional retail is to simply forget about tradition all together.
Everyone is Online and In-line with the ‘New Retail’ Solutions
Most Chinese people are now online which means there is an easy route to reach and catch new consumers. Leading the way is Alibaba, which operates the country’s largest e-commerce platforms and has more than half a billion consumers shopping on its marketplaces. Alibaba founder Jack Ma unveiled the ‘New Retail’ concept two years ago with the strategic aim to merge the on and off-line shopping experiences.
For nearly 19 years, Alibaba has built the backbone of China’s giant e-commerce machine, essentially creating a “move-in” environment for brands and an engaging discovery and frictionless purchase process for shoppers. For the brands and vendors, customer-acquisition costs go way down, because you don’t need to convince anyone to download your app to implement New Retail solutions.
There is a Hardworking Work Force
Chinese entrepreneurs are following the 996 plan for staff and themselves. They work from 9 in the morning to 9 at night, 6 days a week. It may seem like a recipe for burn-out, but these employees are able to move at speed not seen anywhere else in the world.
The Challenges for Retailers
We-chat, a government subsidised app has a huge control over Chinese people. The app has 902 million daily users and alongside the 38 billion messages that are sent on the platform every day, they can fulfill their everyday needs such as paying their bills, buying products and ordering food and drinks and book online any activities.
It is widely accepted that it is monitored by the Government, but as it becomes more and more used, it is difficult for people to opt-out. Company founder of the app, Tencent, scored a zero out of 100 for WeChat’s lack of freedom of speech protection and lack of end-to-end encryption in a 2016 Amnesty International report on user privacy. It would be impossible for outside retailers to set up their own apps and express their vision in the same way they can in other parts of the world.
…So do Tmall, Taobao and JD
Although we also listed it as an advantage, the fact that everyone is online and in a limited number of retail platforms also brings challenges as it’s very hard to compete with the e-commerce giants. Tmall holds more than 50% of the online retail marketplace and JD is not far behind with 25%. Tmall can be compared to a large “mall” containing many different stores. However, each brand still has control of its store. JD.com is more of a simple store offering a lot of products, as JD takes care of everything wants the products are delivered.
Chinese will not spend their money without having confidence in the product and the website. You are unlikely to have the expected credibility unless you offer your products through one of these websites.
The Chinese retail sales market is highly competitive and diversified, with the 100 leading retail companies taking up the same market share of a comparably low seven percent in 2015. A negative trend can be observed, as market shares of the leading Chinese retail chains have receded over the past few years and new brands have taken over.
A Sensitive Cultural Market
As Chinese consumers have grown richer, they’ve become increasingly influential. It’s a sentiment that Mr Xi also touched on in his speech, when he said:
“China is increasingly approaching the centre of the world stage. No-one is in a position to dictate to the Chinese people what should or should not be done.”
This year Dolce & Gabbana products have been pulled from Chinese e-commerce sites as the backlash against a controversial ad campaign grows. The firm posted videos this week showing a Chinese model struggling to eat pasta and pizza with chopsticks. The campaign was accused of trivialising Chinese culture and promoting unflattering stereotypes.
What’s more, China earlier this year instructed 44 international airlines, plus other companies, not to refer to Taiwan as a non-Chinese territory. Taiwan’s status is sensitive. Beijing considers the island a province China. American Airlines, United and Delta changed their websites so the capital Taipei is not listed as in Taiwan.
Finally, US retailer Gap has apologised for selling T-shirts which it said showed an “incorrect map” of China.The design featured just the mainland and not territories that China also claims, such as Taiwan. A picture of the T-shirt was posted on Chinese social media network, Weibo, generating hundreds of complaints. The company said it respected China’s “sovereignty” and would implement “rigorous reviews” to prevent a repeat of the incident.