China’s New Retails
In retail trade, China is becoming the front-runner in innovative technologies, new sales channels and changing consumer behavior. No fewer than 20% of all retail purchases are already made online. Growth is driven by the generation of Chinese born after 1990, who demonstrate an above-average willingness to spend.
“New Retail” has been a hot topic in the last couple of years. We believe that the “New Retail” concept will revolutionize the sector and change the future of the retail sector in China and the world.
New Retail – New concept
“New Retail” means the seamless connection between the online and offline world. China’s online retail giants plan to transform the retail industry by building a retail ecosystem that integrates online and offline strengths. In this new world there will be no difference between online and offline commerce, consumers will be the center of the new omnichannel retail world; consumer behavior, preferences and feedback will be the main drivers of how merchants plan their business. Both online and offline merchants can benefit from this model by engaging their customers with personalized content and experience. Also, players benefit from marketing, inventory management, innovation, new brands development and logistics to better fit ever-changing customer needs.
How China online retail could be a market leader According to the National Bureau of Statistics, China’s online retail sales reached CNY 7,175 billion in 2017, accounting for 20% of total retail sales. We believe that the main drivers behind these jaw-dropping numbers are:
- Seamless and integrated online-offline platforms
- Distinct Chinese consumer behavior
- Personalized online experience.
Seamless and integrated online-offline platforms in China
China is a front-runner in e-commerce and online retail thanks to its distinctive online and offline platforms which provide a one-stop ‘station’ for consumers. Consumers can visit an integrated platform, ranging from pre-purchase search to product delivery: They can 1) discover new trends; 2) select their targeted products based on users’ reviews, sellers’ comments, online shows, cyber celebrities’ recommendations, and discussions in different online communities; 3) compare products in different online shops and virtually try the products online; 4) pay for the products; and 5) decide where to pick up the products, either by courier, physical stores, other local distribution centers or some convenient stores on the one-stop single platform. The Tmall Double 11 Shopping Festival is a typical successful case in this ecosystem. Tmall’s one- day sale on November 11, 2017 reached CNY 168 billion, which is equivalent to the 10-month average attributable sales of the top 10 Chinese property developers in 2016 and to the average contracted sales of the top 5 Hong Kong property developers in the last 9.6 years. Tmall embarked upon a digital revolution across sectors and built a new retail ecosystem in China. In the US, the online shopping providers also offer unlimited product selection, product recommendations, users’ reviews and payment systems for clients. While it also has to manage product inventory (which Tmall does not), it does not connect buyers and sellers directly. US buyers have to search for the products themselves and select the sellers with the users’ reviews, and they cannot decide how they are going to receive the products. Chinese consumers are experiencing totally different and more advanced online shopping activity.
Chinese consumer behavior fosters a great environment
Major online consumers in China are youngsters born in the 1990s or 2000s, the so-called Generation Y and Generation Z, or the post-’90s generation. They are the new engine behind New Retail as they are aged 18 to 28 and are a young working population with strong inter- net savvy. Based on our observation, China’s post-’90s generation displays distinct consumption behavior:
- Instinctive buyers
- Upgrading their consumption
- Health conscious
- Shifting preference from foreign brands to local brands
The post-’90s generation is generally highly knowledgeable about the internet, some of them even skipping the PC era and moving straight to mobile devices. They are usually well educated and have a positive economic outlook; hence, they are willing to buy more and spend a lot of time online. According to the OMD industry report, only 26% of them save part of their income, 38% of them spend their entire income, and 36% even overspend. According to Boston Consulting Group, every day Chinese consumers spend three times longer e-shopping than US consumers. At the same time, China’s new generation is also upgrading its consumption, is keen on buying premium products with good quality, does not mind spending more on quality goods and is really brand conscious. According to McKinsey & Company, nearly 20% of all Chinese consumers are trading up in key FMCG categories, compared to only 8% and 12% in the US and Germany, respectively.
They are health conscious and, given that they are more well educated and earning more than older generations, are willing to spend more on healthful and organic products and spend more time participating in sports activities. They are on the lookout for new health trends and purchase organic health products online.
Although the new generation is brand conscious, it is increasingly indifferent to the distinction between foreign and local brands. In the past, Chinese consumers preferred well known foreign brands, but nowadays they are shifting to local brands. According to McKinsey & Company, Chinese consumers prefer local brands in half of their surveyed categories because of better after-sales service, value for money and quality products.
Personalized shopping experience
In China, online consumers are like shoppers in a virtual mall, where they engage with sellers via different channels, online shows, videos, news, games and online chatting communities. They see the online experience as entertainment, fashion, social engagement and fun. Tmall’s “Retail as Entertainment” leverages China’s social media; youngsters enjoy their online shopping experience, while all their shopping data, including product preferences, shopping habits, behavior, feedback, and payment methods, are collected. Over 454 million active buyers use one of the online retail giants’ platforms, which provides ample data to develop accurate consumer models and offer a personalized shopping experience. Consumers enjoy bespoke newsfeeds, display ads, new brands, product recommendations and personalized sales experiences with direct connections to sellers. Online merchants can manage inventories efficiently, understand consumers’ needs and enhance product development.
“New Retail” consolidates online-offline logistics and mega data into one single platform which ties consumers and sellers together, and we believe China will remain the global e-retail leader.