此页面尚未翻译

Why China is Ahead in Retail

It comes as no surprise that, as China undergoes a period of rapid urbanisation — with over half of the country’s 1.4 billion people currently living in urban areas — it is leading a global technological revolution in order to serve a ballooning population and burgeoning middle class. According to a 2018 United Nations report, the country is expected to add over 255 million people to its urban population by 2050.

This macroeconomic forecast is powering growth in the retail sector, with China firmly establishing itself as a global powerhouse in retailing practices. Businesses on the mainland cater and adapt to the populations rapid transformation through two key areas: technological innovation and omnichannel commerce.

ORDRE deconstructs four trends shaping retail across the country.

1. Experiential Marketplaces

Marketplaces make up over half of China’s e-commerce market. A 2017 report by professional services firm, PricewaterhouseCoopers (PwC), states that online retail sales are projected to reach US$1.7 trillion by 2020 — more than twice the size it is today – accounting for 25 percent of total retail sales. Moving away from purely transactional, marketplaces are rapidly becoming experiential online destinations for entertainment.

Tmall is China’s most successful marketplace, used by 97 percent of online shoppers according to PwC. The consumer platform is both a search and discovery engine, as well as an e-commerce platform, meaning that consumers can conveniently start and finish their shopping journey in one place. Tmall differentiates itself by enhancing the consumer experience with immersive videos, live streaming, virtual reality, games, competitions, communities, and KOLs.

During China’s Singles Day in 2017 – which PwC says accounted for 35 percent of Tmall’s annual revenue – a number of businesses worked with the platform to explore experiential initiatives. US retailer Macy’s created a virtual shopping space where Chinese consumers could visit the New York flagship store with virtual reality headsets, and then purchase products via Tmall’s cross-border platform.

Live, shoppable runway shows are also an area where Tmall is breaking new ground. In February 2018, the website partnered with Shanghai Fashion Week, offering online consumers and industry professionals the chance to stream brand showcases in a 360 degree, “see-now-buy-now” format. In addition to this, admission to events was gained by using facial recognition, whilst robots in showrooms allowed a number of buyers to view products, speak to designers and place orders in real time.

2. Digitising offline

46 percent of Chinese consumers shop in-store for the sensory and social experience, PwC reports. This is only slightly lower than the 52 percent who shop via mobile, proving there is still a demand for brick-and-mortar. Online and offline synchronisation is therefore crucial in order to cater to the polarising demands of consumers.

Physical retailers are digitally-enhancing their spaces to increase operational efficiency and customer engagement, with the goal of ultimately improving profitability. In order to compete with the convenience of e-commerce, brick-and-mortar must offer clever and unique experiences. “Omnichannel is now a dominant retail strategy in China, outlining one clear shift: physical stores are a lot more than just a distribution channel,” says Deborah Weinswig, founder and chief executive of retail think tank, Coresight Research.

Tmall’s physical showroom, JOOOS Fitting Room in Hangzhou, offers an immersive experience as an extension of its online platform. Featuring the top 100 brands sold on Tmall, the space offers interactive displays for customers to browse and shop the collections. Once inside, the fitting rooms have a make-up and a rest area, while a ‘selfie’ station means a digital element remains present throughout.

In late 2017, Alibaba debuted its artificial intelligence system called FashionAI throughout shopping malls in Shanghai. The technology, used in tandem with smart touchscreen mirrors, is based on the consumer’s in-store picks and can personalise style choices with mix-and-match options and similar item suggestions. It identifies hundreds of millions of clothing items, as well as consumer preferences.

This July, FashionAI was launched at a physical store in Hong Kong. Shoppers check-in using a mobile Taobao ID code for personalised navigation throughout the space. A gyro-sensor, a bluetooth chip, and an RFID (radio-frequency identification) tracking tag, are integrated into each product. Items added to a virtual shopping cart are placed in physical fitting rooms by a sales representative.

3. Retail as entertainment

According to Weinswig, the obvious areas of opportunity for department stores and shopping malls lie in making shopping a leisurely and social experience. “Department stores are changing their approach to store formats, with a tendency toward either big lifestyle centres or small-sized store formats,” she explains. “They will take on the form of large complexes with a theme park-like experience, making physical shopping more fun.” She goes on to add that leveraging the store space to its full potential means it can become a testing ground for new services and experiences. “Retailers see the store as a powerful source of consumer data, a driver of community and brand loyalty, and a fulfilment centre for digital purchases.”

A 2017 report by global real estate services provider, Savills, explains that larger retailers in China are transforming their extensive floor spaces into attraction-driven lifestyle centres. Fashion once occupied the majority of shopping malls and department stores, but now, a greater mix of businesses and brands are occupying the space, giving consumers more leisure and entertainment options. In addition to the usual restaurants, cinemas and amusement zones, interactive pop-ups, creative and wellness areas make the shopping experience more immersive and varied.

China’s leading luxury mall chain, SKP, is positioning itself as a design-led, experiential department store. Its Beijing outpost covers 14,000 square meters of space, developing a variety of interactive amenities and greater digital capacity to enrich the consumer experience. In 2017, it reached record-breaking revenues of RMB12.5 billion.

One driver of SKP’s success is Rendez-Vous, an in-house luxury lifestyle store. Featuring a bookstore, restaurant, café, tea room, artisanal cheese room, and a wine bar with cellar, its luxurious interiors and architecture are carefully designed to create comfort and respite from the outside world. Specialised lighting fixtures create a sense of warmth and intimacy while the concept intends to foster emotive and sensory engagement to create deeper connections with consumers.

4. AI Revolution

Although yet to be employed widely, smart technology and AI are gaining traction in retail. Consumers are beginning to embrace advanced technologies like virtual reality and augmented reality, that increase efficiency and excitement throughout the shopping experience. PwC states that China will see the greatest economic gains from the AI industry, which is expected to be worth $7 trillion by 2030. The retail sector has three areas with the biggest potential for AI: personalised design and production, consumer behaviour analytics, and inventory and delivery management.

In 2017, technology conglomerate Tencent used AI technology to understand the fashion preferences of China’s Gen-Z consumers. It’s research team, Youtu Lab, used the company’s hugely popular social networking app, Qzone, to process billions of photos.

The findings identified the most popular fabric types and colours, as well as strong preferences for patterns like flowers and letters. Youtu Lab's facial recognition algorithm identified a user’s age within three years of accuracy, and it was able to distinguish users clothing with 95 percent accuracy.

In 2018, JD.com will launch AR beauty mirrors in the brick-and-mortar stores of Walmart and Chinese cosmetics brand Carslan. The mirrors enable customers to virtually try on makeup like lipsticks, and test as many products as they wish. Powering the devices is JD.com’s existing AR Styling Station technology, a mobile app which allows customers to virtually try on beauty products — it has already been used by 60 brands on JD.com.

In a 2018 China consumer trends report by market research firm Mintel, it was reported that China’s youngest generation is growing up in an environment obsessed with academic and social success, who are turning to the virtual world as a means of escape. This is driving demand for more informal and playful interactions in both the virtual and physical world — which brands and retailers are starting to tap into. Tmall’s augmented reality game, Catch the Cat, is a national sensation during Singles Day, where families and friends venture to shopping malls to collect virtual cats with their mobile devices.