China is one of the few countries in the world where innovative ideas and strategies change people’s everyday lives in a very short time. This development also has had a considerable impact on the retail industry, as there is a clear shift away from online-to-offline commerce towards “New Retail”. What do we understand by this term and why are UK retailers hesitate to follow this strategy?
Is “New Retail” really new?
In order to be able to assess the development of “New Retail”, it is necessary to identify the common strategies of European retailers. UK companies, to name one example, often operate with online-to-offline commerce (O2O). This business strategy draws potential customers from online channels to make purchases in physical stores. Customers are identified in the online space, such as through emails and internet advertising, and then many companies use a variety of tools and approaches to entice the customers to leave the online space. Why is China moving away from this concept?
“New Retail” was coined by Alibaba’s founder Jack Ma in 2016, which generally refers to make use of big data, artificial intelligence and other advanced technologies to upgrade and transform the production, distribution, and sales to serve consumers more accurately and efficiently. The main difference is that retail stores are now also experience centres, consumption centres and logistics centres, but to illustrate this point further, it is worth looking at the advanced customer journey. “New Retail” enables customers to interact with a brand, make use of apps on the phone, shop traditionally in store, benefit from “click and collect” or a product delivery in 30 minutes or less within 3 kilometres.
With this strategy, Alibaba hopes to achieve its growth objectives: to reach 2 billion consumers by the end of 2036 and in the opinion of many technology and market experts, “New Retail” (OMO, Online Merge Offline) could replace the traditional e-commerce in the medium or long term, as online and offline are not the only options for customers any longer. This means that the mentioned brands enable their customers to make use of their mobile devices and the related online features in physical retail spaces, but why is it so difficult to convince European retailers of this strategy?
A question of cost
Alibaba CEO Daniel Zhang summed up the unfolding challenge in a letter to investors when he said companies must use Big Data analytics to redefine the traditional core elements of retailing, consumers, merchandise and stores, and the relationship among those elements to upgrade current formats and create new retail occasions. This process takes time and brands that thrive will acknowledge that the changes they make today, the new capabilities they develop and the operating models they devise, won’t necessarily help them a year from now, as customers may go in-store for inspiration rather than the weekly shop. Chinese start-ups benefit from the huge market opportunities and can therefore participate this revolution. Alibaba, to name one example, invested US$2.9 billion in Sun Art Retail Group in 2017.
As mentioned in this blog, China is moving away from e-commerce and toward a new type of retail that merges offline experience with online touch points and as evidence and customer satisfaction show, “New Retail” has an important role in the Chinese retail market and it is certainly only a question of time, until UK retailers make use of this concept of an upgraded physical store as well, but “New Retail” is a work in progress, requiring brands to constantly refine and reinvent themselves for new occasions, new formats and the steady flow of new ideas that will define retailing tomorrow.
How will “New Retail” affect UK retailers and is it really useful to move away from omnichannel retail?
The example of China shows that the conditions are given to improve the in-store shopping experience and that companies can succeed with the upgrade of their physical retail spaces, but what UK retailers and customers think about this progress and is a change of their mindset essential to implement those technologies? Learn more about the mistreatment of data in this blog