The Future of Global Retail

Learning from China's Retail Revolution

Winter Nie, Mark Greeven, Yunfei Feng, James Wang

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000435757
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce de détail

China's new retail revolution will completely transform how the world thinks about retail and digital innovation. But is the world ready yet? In this book, the authors share an insider's perspective on what is happening in China to reveal the future for global retail, and a clear framework to help you prepare.

The book presents a number of real-world cases, based on interviews and first-hand consumer experience, to decode China's retail revolution so that you can understand what is happening and why, and what it means for the rest of the world. Crucially, the book identifies five critical stages in the development of new retail that global retail executives need to grasp now: lifestyle commerce, Online-Merge-Offline retail, social retail, livestream retail and invisible retail. To help the industry get ready for this new, China-inspired paradigm in retail, the authors present a practical and simple framework – a ten-year strategic roadmap for global retail executives, which we call the "Beyond" the Value Chain Model.

China's new retail is not just about fashion, cosmetics, snacks, data-driven convenient stores and commercial live streaming. At a time when the world of retail is being upended, it offers inspirational lessons in innovation, purpose and agility for global executives across the entire retail spectrum.

1

Introduction

The new world of disruption

DOI: 10.4324/9781003205074-1

Carrefour, Europe’s largest retailer, was among the first foreign retailers to enter China. That was in 1995, Carrefour, together with Walmart, brought the concept of one-stop shopping to the world’s most populous country and expanded quickly. Enjoying “first mover” competitive advantage, it remained the fastest growing foreign retailer in China for many years, and its aggressive expansion was largely considered to be a success. By 2019, Carrefour had 233 stores, 30,000 employees and annual revenues of RMB31 billion (US$4.5 billion).¹ In the world of bricks-and-mortar retail, it seemed improbable that a competitor could achieve the same sales figures with a fraction of the workforce, and inconceivable that one individual could take on a global, corporate giant. But in today’s era of “new retail”, the rules of the game have changed, and one woman with her support team of 500 – just 2% of the number of Carrefour employees – did just that. Her name is Viya.

Born in 1985 to a business family in the province of Anhui, Viya became a singer and model. She travelled to Beijing and, at the age of 17, set up her own small clothing shop in a wholesale market. The shop was so successful – and Viya so adept at selling – that she went on to open up a dozen clothing stores. She continued to enjoy success until an incident occurred that made her rethink her business model and start anew. A customer came into one of her shops and tried on several outfits. Instead of making her purchases at the counter, however, she turned to her phone and opened up the Taobao app (a digital shopping platform owned by Alibaba) and placed an order online so she could get a better deal. Viya was furious. It was a rude awakening. In 2012, she decided to close all her offline stores and move entirely online.

The online business proved hard, however, and the early days were, she said, “the darkest period of my life”. She lost hundreds of thousands of dollars from overstocking. Although her online traffic gradually began to grow and sales volumes slowly increased, she was still losing money due to the high merchandise return rate caused by lack of quality control. She had to sell a house to pay her debts. But she persevered.

In 2016, Taobao launched a new live-streaming service, Taobao Live. They telephoned Viya and invited her on board. In one of her 2017 live-streaming events, she sold RMB70 million (US$11 million) of Haining fur clothing in just five hours and became Taobao’s top seller.² To this day, Viya remains Taobao’s number one live streamer, and it seems there is nothing she can’t sell, whether it’s 430,000 kilograms of rice in 1 minute, 814 houses in 20 minutes or, even more astonishingly, a rocket-launching service worth RMB40 million (US$5.7 million).

In the United States, there is a Black Friday. Not to be outdone, China created the Singles’ Day. The date, November 11, was chosen because the number “1” resembles a “bare stick” – Chinese slang for an unmarried man – and “11/11” resembles a row of four single people. The event, also known as the Double 11 sale, is now the world’s largest online shopping festival. Although the original idea was to celebrate singlehood, the discounts were soon extended to anyone looking for a good deal. Vendors compete against each other with aggressive discounting, and the whole nation goes into frantic shopping mode for the day.

On Singles’ Day in 2019, Viya sold more than RMB3 billion (US$435 million) worth of products³ – more than 1% of Taobao’s total sales of RMB268 billion (US$38 billion). By the end of 2019, she had reached an annual revenue of RMB30 billion (US$4.35 billion)⁴ – almost on a par with Carrefour. Although Carrefour was on the wane by this point, for one person to achieve US$4.35 billion in annual revenue is staggering. In 2020, Alibaba extended its Single’s Day sale period to 11 days and Viya’s takings increased to US$1 billion.⁵

So how does Viya do it? Does she have a magic wand that Carrefour can borrow?

Viya is not the only one generating vast revenues. In 2019, a snack company called Three Squirrels – founded in 2012, the same year Viya moved her business online – sold RMB1 billion (US$150 million) of snack products on Singles’ Day,⁶ including a bewildering US$14 million worth of fruit and nut packs in just 20 minutes. In 2020, Three Squirrels ranked number one snack group across nine major e-commerce platforms, including Tmall, JD and VIP.com.

An internet-based company from its inception, Three Squirrels targeted health-conscious millennials that are used to shopping online. With a simple customer value proposition of quality products, affordability and user experience, by 2019 the business was reporting an annual revenue over RMB10 billion (US$1.4 billion).⁷ It went public in July of that year and in November 2020 was valued at RMB23 billion (US$3.4 billion).⁸ How can a retailer without owning a single manufacturing facility grow so fast? We all understand the value of quality products and affordability but what kind of user experience leads you to spend RMB27 (US$4) on a 185g packet of nuts? To find out, we bought a packet of Three Squirrels’ California pistachios. We were pleasantly surprised to find it came with a tasting bag, wet wipes (presumably to clean our hands before and after consumption), sealing clips, disposal bags and bag openers. So does a “pleasant surprise” experience translate into sufficient repeat business? The more important question is whether there is a growth limit for a single-category online retailer?

Bianlifeng (便利蜂) opened its first store in Beijing in 2017, when convenience stores in China’s largest cities were dominated by Lawson, 7-Eleven, Family Mart and Yonghui, all of which had been operating successfully for many years. Both Walmart and Carrefour had their own convenience stores as well. As a newcomer, Bianlifeng knew that the me-too strategy would not work.

The traditional convenience store model requires store managers to make hundreds of decisions every day with regard to product selection, pricing, discounts and layout. Bianlifeng, on the other hand, placed its bets on developing a “central brain” system, using smart, customer-centric algorithms and AI to make data-based decisions (for example, instantaneously alerting price-sensitive consumers of price changes), thereby maximising revenue and reducing dependence on the intuition of store managers. Can convenience stores be fully automated using AI? Can AI compete with humans? By May 2020, Bianlifeng had increased its number of stores to more than 1500, but the battle is far from over.

Glimpsing the future of retail

New retail in China is not only about fashion, cosmetics, snacks, data-driven convenient stores and live streaming, however. Meituan (see Chapter 6) started out as a group-buying business but has evolved into a super-platform providing a wide variety of location-based services. Hema Fresh (see Chapter 7), which established its first store in 2016 in Shanghai, offers a new retail format that is a combination of physical stores, online app, eat-in food court and fresh-food deliveries. Pinduoduo (see Chapter 8), having acquired over 700 million active users within five years, pioneered a social e-commerce platform. If Hema built the fresh-food supply chain, then it was Pinduoduo that revolutionised the link between the underserved, low-income populace and multiple small and medium-sized manufacturers.

And it is not just Viya who has benefitted from livestream selling. There is another ubiquitous live-streaming phenomenon (see Chapter 9) changing the retail landscape of China. Known mostly in the Western world for her artistic short videos on YouTube, Li Ziqi (see Chapter 10) generates more than RMB1 billion (US$140 million) a year through her online Tmall store.

New retail formats are continually emerging, and disruption to the old paradigm is the new norm.

China’s new retail landscape is all about innovation. In 2019, Nestlé launched its first fruit-flavoured Nescafé. Sold in three different flavours: peach, pineapple and green apple, the coffee can be brewed with iced or sparkling water. Oriented entirely towards young consumers, the Nescafé fruity iced coffee was a result of a collaboration between Nestlé and the Tmall Innovation Centre, which invited online consumers to participate in the R&D process right from the initial concept stage. The lab simulated a real online shopping environment, and the experiment mimicked real consumption scenarios. According to the Nestlé Tmall flagship store, the new product received an overwhelming response and sold 100,000 boxes on its first day.⁹

This book is not just about the practices of domestic and international companies in China. It is about emerging consumer trends and how China’s new retail co-creates the trends. It is about how the companies that leverage the trends survive and thrive. It is about business model innovation and the dynamics of China’s digital e-commerce space, and the power struggle among existing giants and emerging new players. It is about products, variety, prices, supply chain and logistics powered with big data and smart algorithms. It is about new retailing disrupting the old paradigm. It is about the future of China’s retail market, valued at almost six trillion dollars.

China’s new dawn: lessons from China’s new retail for the rest of the world

It has been almost four years since Jack Ma, the founder of Alibaba, proposed the concept of new retail in 2016. In that short time, we have witnessed rapid development, great changes and many innovations in the digital retail space. These new innovations are now gaining a global foothold, with business magazines such as Fortune, Forbes, Economist and The Wall Street Journal starting to...