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New Retail: how chinese user-centrism transforms retail

The new retailer puts the user at the center of the experience and promises to transform the entire industry with technology

New Retail is a mix between logistics, supply chains, payment systems, automation and technologies such as Artificial Intelligence. It is the meeting of different business fronts to create new consumer possibilities.

At the heart of this process is the concern on offering greater convenience to the user during their purchase journey. This Chinese-style user-centered method is already dictating the rhythm of global retail.

Understand how the integration between technology, data, digital payments and omnichannel experiences form the foundations of new retail.

New Retail & O2O: the bet for the future of e-commerce

Penned by Jack Ma, founder and  former CEO of Alibaba Group, the term New Retail  is part of the Five New strategy —the five different business strands that will guide the conglomerate in the coming years.

One of the concepts employed in new retail is O2O. The acronym means “online to offline” and represents the convergence of shopping experiences in physical and virtual environments, integrating e-commerce into physical stores.

This combination builds a hybrid experience, which allows for more possibilities for consumers, such as buying over the internet and withdrawing in the store — or even buying in the store itself and requesting delivery of the product.

So, new retail recreates shopping journeys and eliminates friction during the experience, such as queues, poor service and, mainly, the check-out feeling in the cashiers. 

The highlights are the chinese companies Alibaba and JD, which apply the principles of O2O, omnichannel, frictionless experiences and payment methods without physical money on “thematic islands” within their stores.

Why now?

For retailers, O2O promises to be the main catalyst for global e-commerce, which is still crawling. No, you didn’t read it wrong.

We know that the costs of physical stores are much higher than in virtual stores. Even so, research indicates that about 80% of sales will still happen at physical stores in 2020.

To make this transition, consumers need to be accustomed. And this is already happening.

E-wallets and QR codes boost e-commerce

About a third of the world’s population is not an account holder of any bank —they are the so-called debanked. According to IBGE, in Brazil this number reached 60 million people, half of the country’s economically active population.

In China, the difference is even greater: only 20% of China’s population has access to banking services. This is because most banks still do not consider it profitable to have financial products focused on the low purchasing power public. Innovating risk management is part of the financial system evolution – but this is a subject for another post. 

Alibaba and Tencent go down in history

Watch out for this scenario: there was a broad audience, eager to consume and neglected by the banking system, even with evidence such as the Shanzhai economy, which spread across China.

In this gap, the duo invested in e-wallets, digital wallets, which offer financial services dissociated from banking institutions.

Currently, Alibaba Group’s Alipay and Tencent Holdings’ WeChat account for 80% of the mobile payment market, with a user base of 1.5 billion users.

Hema supermarket: the ultimate omnichannel experience

Omnichannel is a multichannel and integrated strategy designed to cover the communication of a brand at all contact points. It differentiates itself from O2O because it is a strategy and not a business model itself.

The fusion of omnichannel and O2O has transformed the way the chinese consume. Hema Supermarket in Shanghai is the greatest example of this.

Alibaba Group network is a large convenience store, which uses omnichannel, integrated data and artificial intelligence to reinvent the shopping experience.

It works like this: you open Alipay on your phone, read the code on the packaging and take the product. No queues, no physical money. The maximum delivery time is 30 minutes, no additional fees. But you can eat right there if you want: there are chefs ready to cook with the ingredients you choose. There is no doubt that everything is about customer success.

It is also possible to buy the old-fashioned way in Hema, taking your purchases to a cashier. Even then, only electronic payments are accepted.

In addition to the high sales volume, supermarket employees say they notice a difference in customer satisfaction. According to them, consumers live the experience at the location rather than just filling their bags and leaving.

With the huge number of daily consumers in China, New Retail requires very high efficiency and productivity.  To put itself ahead of the competition in the sector, Alibaba had to invest heavily: They have already invested $10billion in automated stores since 2015.

Amazon GO: good enough response ?

In 2017, Amazon invested $13.7 billion to acquire Whole Foods, the largest organic food chain in the U.S. According to John Mackey, CEO of the network, the incorporation would intensify the mission of “bringing more quality, experience, convenience and innovation to consumers.” It was an announcement about what was coming.

The following year, after more than 12 months of testing, Amazon opened Amazon Go, its first store without attendants, queues and cashiers, in Seattle. The experience promised less friction during shopping but could not control the crowds formed outside the store of the future, such was the public’s curiosity.

The store works similarly to Hema. To buy, simply open the Amazon app, scan the QR code of the product and put it in the bag. When leaving the store, sensors record the purchase on the credit card registered in the app.

A revolution is underway: who is prepared?

China came out ahead in that race. Alibaba and JD have managed to create large business platforms integrating e-commerces, marketplaces, means of payment, supply chains, logistics and experience.

Amazon has acknowledged its casualties in the first battle but is reinforcing the front in this battle for global retail leadership. Owner of one of the largest marketplaces in the world, the company has effectively made the O2O transition.

Even a step behind, Jeff Bezos’ company has a card up its sleeve that can dramatically impact the industry. This is the case of Prime Air, an Amazon drone delivery service, still in the testing phases. 

With a world of possibilities to explore, New Retail will not be a closed model, but something that will evolve fluidly, gradually and incrementally.

We should be aware of the upcoming movements of major retailers, who promise to move the market a lot in the years to come and deeply transform the way we consume —online and offline.

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