The Age of New Retail in China

People who have heard a lot about China but haven’t traveled there can be excused for thinking most Chinese retail takes place online. In fact, a recent Ministry of Commerce report showed that online activity in China makes up less than one-fifth of total retail sales. That’s because most Chinese consumers continue to shop at brick-and-mortar stores — which is why New Retail has much more in common with traditional retail than most people understand.

The two supermarket chains that have become the poster children for New Retail are Alibaba-owned Hema (Fresh Hippo in English) and 7-Fresh, launched by Alibaba’s chief e-commerce rival, JD. Hema and 7-Fresh have much in common and it’s their overlap that really defines New Retail. Both chains were founded so that their parent companies could leverage their existing digital technologies to make them important players in the physical retail space where most Chinese still shop. Offline thus becomes the new online.

Alibaba has gone all-in on its new play. The idea behind Hema, headquartered in Hangzhou, was to take the online shopping experience that Alibaba’s customers already enjoy and transpose it from the virtual space into the physical world. Hema chief executive office, Hou Yi, sees no reason why his customers can’t have the same digitized shopping experience in-store as they have online. To that end, shopping at a Hema store is similar to shopping online at Alibaba, except that in-store customers can actually inspect the food they are buying.

Hema accomplishes this by labeling all of its offerings with bar codes. After installing the Hema app, customers can use their smartphones to scan the codes, giving them access to the same information they would find on Alibaba’s e-retail site. The code on a carton of eggs, for example, displays details of the supply chain that carried the eggs from farm to store, as well as nutritional information and reviews of the eggs by customers who have purchased them. The app even displays relevant government inspection certificates.

Unlike the typical American supermarket, which is primarily organized by aisles, Hema stores make use of a new design concept that individualizes each department with separate counters, similar to how some U.S. groceries highlight their fish and meat departments. Filling the store with counters slows down the process of shopping, but in a way that encourages customers to engage more with the products they are buying.

Hema stores also double as distribution facilities, unlike American markets. Anything that can be purchased in-store can also be ordered online; if a customer lives within a three-kilometer radius of a store, delivery is guaranteed within 30 minutes. Commuters are thus incentivized to order groceries on their way home, confident that their order will arrive before they do. For this reason, according to an Alibaba survey, home prices within each Hema delivery radius have soared.

The Beijing-based 7-Fresh stores also function as both offline markets and online distribution hubs. Much like Hema, they integrate online digital technologies extensively into the shopping process. 7-Fresh’s most remarkable innovation, the RoboCart, is a souped-up shopping cart that customers link to their smartphones while in-store. Usually, the cart follows a shopper around the store without having to be pushed. But if the shopper can’t find an item, it can also lead the way. As customers find what they want and place those items in its basket, the RoboCart automatically registers products, obviating the need for scanning. When the shopper is finished, the Robocart makes its way to the checkout. 7-Fresh charges the cost of the items to the customer’s digital wallet and JD’s fleet of delivery vehicles takes care of the rest. As with Hema, 7-Fresh guarantees delivery in thirty minutes within a three-kilometer radius.

Some aspects of New Retail have already made their way into the American marketplace. The new Amazon Go stores, for example, have also done away with checkout. Shoppers use the Amazon Go app to enter the store, take what they want from the shelves, and simply walk out. Amazon’s technology identifies what has been taken and charges the cost of those items to the customer’s Amazon account. No scanning, no checkout. Shoppers can also use the Amazon Go app to find out remotely what items a particular store has in stock.

The business implications of New Retail are profound and far-reaching. Because both Hema and 7-Fresh require customers to download apps and open accounts, they essentially bind these customers — and their data, including shopping preferences — to Alibaba and JD, respectively. In terms of new customer acquisition, if nothing else, New Retail is clearly the winning play.

Despite all the doomsayers prophesying the coming retail apocalypse, the demonstrated success of New Retail in China shows us conclusively that a future does exist for legacy brick-and-mortar establishments willing to embrace new digital technologies.

Photo credit: Kevin Grieve- Unsplash

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