The department store of the future. Shopping in Beijing.
China's new middle class, numbering some 400 million people, will fundamentally change global trade. What are these people buying? How do they approach consumption? We accompany a young Chinese woman as she goes shopping – and catch a glimpse of our own future.
Mao Yueweng can't decide: Should she buy the pink Nike top, the red Adidas pullover, or perhaps the black Asics t-shirt? Shopping for clothes usually means running back and forth between racks of merchandise, the mirror and the fitting room. But here, at the Beijing store of the Swiss sporting goods manufacturer Intersport, things are quite different. With its 1,300 square meters of retail space, the store is dominated by the internet, artificial intelligence and augmented reality.
Yueweng, 32, stands in front of a full-length interactive screen showing her face and body. With a casual movement of her hand, another outfit appears on her digital image. The top she is considering is first pink, then black, then red; its sleeves are long, then short. At first it is fitted, then looser. Coordinating shorts and pants are displayed on the right side of the screen. Yueweng could use her white iPhone to scan the tiny QR code beneath the images to learn more about each item of clothing. But she's already finding it difficult to make up her mind.
Yueweng is part of China's much-cited middle class, the roughly 400 million people who, thanks to China's rapid ascent, are becoming increasingly wealthy and thus have more and more opportunities for consumption. Over the coming years, their purchasing behavior will transform the world's retail trade. About ten years ago, according to McKinsey, China accounted for less than 1 percent of the world's online business. Today that share has increased to 42 percent. The US market research firm Forrester expects e-commerce in China to grow by approximately 8.5 percent every year. Experts are predicting a volume of about 1.8 trillion dollars for 2022 – as much as the markets in the United States, Europe and Japan combined. Foreign products are particularly popular among Chinese customers. In 2017, 67 percent of online shoppers in China ordered US or European goods. Yueweng's iPhone was among them.
An iPhone and good coffee
Yueweng comes from China's southeastern province of Fujian, and moved to the nation's capital after completing her schooling. She is an only child, a reflection of China's decades-long one-child policy. Her parents, whom she visits once a year, wouldn't understand her new life, she says. After working at a number of odd jobs, Yueweng is now a barista at a trendy café near Wangfujing, a well-known shopping street. She shares an apartment with four other young women. "I don't need much," says Yueweng. "My iPhone and good coffee." And today she needs a new casual top.
Yueweng is still standing in front of the interactive screen, but instead of switching back and forth between various articles of clothing, she is trying out new hairdos on her digital image. After she is finished, she walks up the stairs to the store's second floor, where the next interactive attraction awaits. An enormous video screen, equipped with a camera and sensors, invites Yueweng to act the part of a basketball player. Wearing her Chinese-made Feiyue sneakers, she immediately jumps in the air and simulates a layup, then raises an imaginary trophy in the air.
Just as she leaves the virtual basketball court her iPhone beeps, notifying her that a short animated video about her two-minute career as a basketball player has arrived. "In our store, shopping is supposed to be about more than just finding and paying for merchandise," says Robin Trebbe, head of Intersport's business in China and Asia. The idea is for customers to relax and have an experience. It's an effective approach for Yueweng, who eventually chooses the pink top.
The response to Intersport's strategy of merging online and offline (O2O) has been very positive, says Trebbe. "For China and the Chinese, it's all about digital technology." E-commerce accounts for approximately half of all sales revenues in China, as compared with just 10 percent in Europe. Payment is different, too. While cash and credit cards are still the most common methods of payment in Europe, Yueweng and her compatriots are more likely to pull out their smartphones and use services like Alipay or WePay to pay online. "Considerably less than 10 percent of customers in our stores still pay in cash," says Trebbe.
Share of global consumption
Merging online and offline
After her basketball interlude, Yueweng needs to hurry. Her shift at the café starts at 2:00 p.m., and friends are coming for dinner later on. There's no time to cook. "But we Chinese attach great importance to food," says Yueweng. "Everything has to be fresh."
She heads straight for the nearby Hema supermarket. At first, it all seems quite ordinary. The market is very clean and well organized; there are counters with fresh meat and fish as well as shelves displaying products from all over the world. However, Hema is in fact something special.
The chain is backed by the Chinese internet giant Alibaba – whose founder, Jack Ma, is seeking to do nothing less than revolutionize everyday consumption. The things that the Intersport store is cautiously introducing are part of Hema's fundamental business model: O2O – a complete merger of the online and offline worlds.
You will search in vain for traditional checkout counters at a Hema store. Customers scan the items' barcodes, then pay using their smartphones. If you have the Hema app on your smartphone – that is, if you are a registered customer – you also have the option of paying via a facial scan at a terminal near the exit, using a service called "Smile to Pay." Whether bookstores, cafés or supermarkets, more and more stores in China are offering this technology. It saves time, an advantage that Yueweng, too, appreciates. Even going to the store is something she finds inconvenient. But Hema has an answer for that as well. An app allows customers to order any of Hema's products online for delivery to their homes within 30 minutes.
"The O2O business model will transform the retail trade," Jeffrey Towson believes. "Not only in China, but worldwide. But here things are moving ahead at warp speed." Towson, an e-commerce expert, refers to China's customers as "digital-first consumers" – consumers who do everything online. The first thing they do in the morning, and the last at night, is to reach for their smartphones. There are about 800 million internet users in the People's Republic, and every day 455 million of them pay for something online. In 2016, the Chinese were already using their smartphones to make transactions worth 5.5 trillion dollars – roughly 50 times the volume of such transactions in the United States, according to the Shanghai consulting firm iResearch.
Nearly everything now happens online in China. Whether it's shopping, ordering a taxi, renting a bicycle, learning a language, buying tickets – it is all handled by smartphone. And in contrast to the US and Europe, topics such as data protection and privacy are hardly an issue here. Everything is registered, from personal information, preferences and hobbies, to purchasing and eating habits, to information about friends, acquaintances and work colleagues. And China has simply skipped certain stages of development. The Chinese have smartphones rather than PCs, and they pay online rather than using a credit card.
"All of this makes it much easier to communicate mobile offers to customers," Towson explains. The companies' strategies are simple: "Use your smartphone." The Chinese start-up Luckin Coffee is a good example.
As Yueweng strolls through the aisles of the supermarket, she decides that she would like a cup of coffee, so she opens the Luckin Coffee app.
"I really like hand-brewed coffee, but that's not an option right now, at the supermarket," she says. Coffee, unlike tea, is quite new in China, a fashionable trend. It's a steadily growing industry that has so far been dominated by the US coffee chain Starbucks. With more than 3,300 locations throughout China and about five million customers every week, Starbucks controls nearly 75 percent of the Chinese coffee market.
But now there is also the Chinese start-up Luckin Coffee, and it is growing at a breathtaking rate of speed, opening 525 locations within just four months – two or three new cafés every day. The company raised over 200 million dollars in an initial round of investments. Experts note that Luckin achieved the status of a "unicorn" – a start-up company worth more than a billion dollars – some time ago. Whereas Starbucks emphasizes prestigious locations, Luckin Coffee focuses on digital convenience, offering mobile payment options and delivering orders in a matter of minutes.
Luckin Coffee is also benefiting from another trend: More and more Chinese people prefer to buy domestic brands, and new start-ups are being created nearly every day. Nike and Adidas are competing against Li-Ning and Anta in the sporting goods sector; it's Apple versus Huawei and Xiaomi in smartphones; and there was a lengthy period of competition between Uber and Didi Chuxing in the transportation sector before Uber announced that it was pulling out of China.
Western manufacturers need to prepare for a more competitive environment. The time is long past when a label like "Made in Switzerland" and brand names like Apple and Starbucks were enough to attract Chinese customers. Fortunately, at the National People's Congress in May the Chinese government introduced a new investment law that will make it easier for foreign companies to gain access to the Chinese market.
From a luxury good to a product for the masses
Yueweng has ordered a Luckin flat white. A message tells her that her coffee will arrive in 20 minutes. And instead of the 35 Yuan (CHF 5.20) she would have to pay at Starbucks, Luckin Coffee charges just 22 Yuan (CHF 3.30) – to be paid virtually, of course, via Alipay or the Luckin "coffee wallet," the company's own online payment service. The company's online presence, rapid delivery service and lower prices are attracting its own customer base, Towson explains. "Luckin is transforming what was perceived to be a luxury product into a product for the masses, thereby expanding the sales market." Several years ago, the Chinese electronics manufacturers Huawei and Xiaomi took a similar approach to compete against Apple's iPhone.
Meanwhile, Yueweng is selecting the ingredients for the dinner with her friends. In the fruit and vegetable section, the products are already precut and packaged. Occasionally she scans a barcode with her smartphone to learn more about the product's manufacturer and for recipe suggestions. Once she has chosen the side dishes, she moves on to the fish counter. Lobsters, shrimp and various kinds of fish are swimming in dozens of water tanks. Just as Yueweng is about to order, a young man wearing a motorcycle helmet suddenly approaches and hands her a tan bag displaying the Luckin Coffee logo. Only 17 minutes after placing her order, she is sipping her hot flat white. Then she turns her attention back to the shrimp tank. Here, too, everything goes very quickly. Her order: enough for six people, seared, delivery to her home address at a specific time tonight.
Back on the street, Yueweng is once again preoccupied with her smartphone. Her shift is about to begin, and it will take her 10 minutes to get to work. All she needs now is a bicycle. Bicycles, too, are an O2O business sector with fierce competition on the provider side. The orange and silver bikes belong to Mobike, the bright yellow ones are from OfO, and the blue bikes belong to the transportation company Didi Chuxing. Millions of these bicycles can be found on China's streets. Yueweng finds a blue one. What she does next comes as no surprise: She pulls out her smartphone and scans the QR code on the rear fender. The lock springs open and Yueweng jumps on the saddle, then disappears into Beijing's traffic.