Is China’s new retail a new model?

To observe the latest developments in the retail sector, we shouldn’t be looking to the USA any longer. Today, the latest trends come from China. One of these is “new retail”. But what is it exactly?

Around five years ago, the term “new retail” first appeared when Jack Ma, founder and long-time CEO of Alibaba, described his vision for the retail sector of the future. The Alibaba Group is one of the biggest drivers of a (technological) revolution that enables a digitized shopping experience in bricks-and-mortar retail and blurs the boundaries between online and offline. JD.com, Alibaba's major competitor, is pursuing a similar strategy with its concept of “borderless retail”. To implement their vision, both groups started by taking over a number of traditional retail companies, which they then rebuilt based on their own ideas.

New retail in short

New retail seamlessly integrates online, offline, logistics and (retail) technology into a single value chain in order to offer customers a completely new shopping experience.

Anyone who has followed interviews and background discussions on the subject in recent years will recognize significant differences compared with the strategies of large retailers in Europe. New retail is not multichannel or omnichannel – separation into channels plays no role in this concept.

Example: Freshippo (Hema)

We can see what new retail looks like in practice, by taking a look at the example of the former Hema supermarkets, now Freshippo. Here, Alibaba has created its very own retail format that has little to do with the traditional supermarkets that we are familiar with.

The clue is in the name: Freshippo is a food retail format that focuses on fresh goods. The aquariums in the shops are particularly photogenic: this is where customers can choose the fish they want to buy freshly caught. Customers can decide whether they want the fish to be sent to their homes later as part of their grocery delivery, or whether they want to eat some at the adjoining restaurant. In this case, the fish are transferred to the restaurant kitchen using robotic systems.

For each item in the supermarket range, customers can access more information using the QR codes on products or electronic shelf labels (ESLs). ESLs can be used to adjust prices in real time, depending on various factors. The additional product information includes the origin, list of ingredients, additives and manufacturer. The system also uses them as a way to provide product recommendations.

Customers can choose to place products directly in their physical shopping cart, or they may already have decided that they would rather have the goods delivered to their home. The products are then placed in a digital shopping cart. Payment is made at a self-check-out terminal – cash is not used. Alipay is the preferred means of payment and the transactions are authorized using biometrics.

And if you choose home delivery, the products are delivered within half an hour (at least in the immediate vicinity of the supermarket).

The pricing has another special feature: the system recognizes products that customers have already searched for online and, if needed, provides further incentive to purchase by offering a discount. It isn’t necessary to specify an address for the order, because the master data is already known due to the payment made via Alipay.

You don’t need to be an experienced retail or IT manager to recognize the enormous technological and logistical effort behind such a concept. What’s also clear is how closely networked the different components are and how much data they exchange with each other.

Alibaba and JD use RFID technology in their stores. In their fashion and department stores, automatic recognition of the products will make it possible to try on their clothes virtually using augmented reality.

And there’s one other factor that we shouldn’t overlook: entertainment. “Singles’ Day”, a huge sales show and discount battle, is now legendary. Alibaba always pulls out all the stops and broadcasts its fashion shows live online. The slogan of the event is “See now, buy now”, so customers can do more than just watch. They order products directly from well-known (preferably western) brands.

The foundation for success

Apart from technology, new retail rests on four main pillars. And this concept could actually serve as a model for European retailers:

• Customer orientation: the entire range is conceived not from the retailer's point of view, but from that of the customers and their needs.
• Convenience: each system component makes it easy and convenient for customers to fulfil their needs. This includes easy product searches, advice at the POS, discovery of new offers and the check-out experience.
• Customization: from offers to discounts – the shopping experience is designed as if it has been created exclusively for the person concerned.
• Customer feedback: customers can participate via social media or other communication channels with reviews, ratings or their own posts – on any channel.

The common feature in this interplay between technology and service is the smartphone, which is even more important in everyday life in China than it is in Europe. We’ve already discussed this in our article on “super apps”. At this point, critics assert that the concept of new retail cannot be implemented in this country.

It is true that there’s no WeChat-style super app in Switzerland and other European countries. However, everything that Alibaba and JD bundle in their apps would also be possible from a technical perspective in a retailer app.

And with so many benefits, customers would be willing to install such a solution.