China Retail Trends – What Can We Learn About the Future of eCommerce From China?
February 1, 2019
We tend to look to the U.S for retail inspiration and innovation. But China has become the largest eCommerce market in the world, estimated at £850bn in 2018 (over 100x that of the UK, for example). Singles Day – China’s anti-Valentine’s commerce phenomenon – grossed $30 billion in 2018, more than double Black Friday and Cyber Monday combined. But what is China doing to leapfrog the West?
Clearly, China is a unique animal – there are reasons why it’s become a commerce colossus. Scale is obvious – with almost 1.4bn people making China the highest population on the planet. The country has experienced enormous change in a short time. No fewer than 40 years ago, it was a largely poor, rural nation – now, following an economic explosion, the rise of Chinese consumerism has been meteoric. And to sustain economic growth, Chinese people are encouraged to continue spending. And spend they do.
The lack of red tape in privacy and financial regulations has allowed Chinese retailers to fully embrace commerce technology in mobile payments and AI. It’s the ideal testing ground, offering the largest population in the world speaking one language, Chinese Mandarin. Implementation of AI, the progress of machine learning and subsequent updates are therefore faster in China.
Cash is no longer king. Nor is plastic. Mobile has the crown. Smartphones are used to pay for everything in China – street food, grocery stalls, toll stations, bus fares, taxi rides – even beggars are now accepting mobile payments.
Now let’s think about some of the other things mobiles are used for: search, gaming, social media, shopping, banking. And what if all of these things were integrated into one ubiquitous, personalised platform? Welcome to China’s mobile economy.
A lack of obstacles in terms of financial and personal data regulations has allowed total connectivity and ubiquity for payment and personal finances in China. Alipay (Alibaba) and Wechat Pay (Tencent) are the most popular online payment platforms, handling over 90 percent of all cashless mobile transactions in China. In 2017, these totaled $15.4 trillion, more than 40 times comparable transactions in the U.S.
And by building all-in-one platforms that marry social media, commerce, and banking, these technological behemoths are pushing traditional banks aside and playing increasing roles in the daily transactions of hundreds of millions in China.
The concept of social commerce in Western countries is to market and sell from brand to consumer, with networks such as Instagram proving a very successful model of see-click-buy, in app, in seconds.
In China, this has evolved into something far more powerful. It’s as social as it gets. Group bargaining in social communities is a new concept, encouraging a ‘consumer-to-consumer’ promotional model. Essentially, consumers can invite others to form a group, to purchase products from a brand at a lower price. It’s the ultimate in organic, digital word of mouth – incentivised through discount. PinDuoDuo – the Chinese social eCommerce platform that introduced the concept – was recently valued at over £22 billion, with over 200 million regular users.
This consumer-led promotion is seen in other concepts, such as personal affiliate marketing, where consumers are rewarded with points or coupons if a product is sold through a link they’ve shared – not dissimilar to micro-influencer campaigns in the West.
Forget ‘omnichannel’ – let’s use the term ‘New Retail’ – coined by Alibaba, and start with Hema Supermarkets (think Amazon Go, but better) – the first example of New Retail ‘stores’ and an ‘anywhere, anytime’ approach to digital experiential shopping.
Away from the store, customers use the Hema app to quickly place an order, and can receive their items within 30 minutes. In-store, Hema’s mobile app scans barcodes for product information and recipe ideas, or adds to cart for purchase. Items can be taken there and then, or delivered home. Every order is remembered, so it’s easy to quickly re-order. Customers pay automatically through Alipay, at some stores by facial recognition.
And Alibaba is continuing to experiment with Hema’s ‘Robot.He’ restaurant in Shanghai – where customers order and pay via the Hema app, with dishes delivered by robot – as well as the Alibaba-powered Starbucks, which is as much a virtual reality coffee museum as it is a coffee shop.
To enable this approach, brands have three factors to develop. Firstly, cloud commerce technology, which allows retailers to deliver personalised experiences through quick and secure data processing, integrated with order management, inventory logs, CRM systems and other software. Secondly, digital applications are enablers for customers to enjoy fun, streamlined, and transactional user experiences.
And finally, data and analytics allow retailers to tailor personalised physical and digital experiences. This is where China has cracked it, with retailers granted carte blanche to experiment with ideas, powered by masses of personal and financial data. And it doesn’t stop at Hema or 7Fresh (JD’s digital store concept). These digital giants are targeting the millions of existing grocery stores and food markets to further monetise their payment and eCommerce platforms.
As established, fewer laws and regulations surrounding data, AI, and other advancements, have allowed China to test and implement new technologies faster than in the West. AR applications have enhanced New Retail, revolutionising the way retail brands interact with customers. Face recognition is being used for payment. Away from customer experience, AI is also being used to aid delivery, logistics, marketing, and product search.
China is the ideal environment for developing and deploying voice technology, with Baidu and iFlytek becoming world leaders. One reason for rapid adoption is the complexity of the Chinese alphabet. With thousands of individual characters – as opposed to 26 in the Latin alphabet – typing on a small screen is difficult, so voice-enabled technology has been widely used in China for many years, meaning the technology has a mountain of data from which to mine.
Apple claims that Siri has a global user base of 375 million. iFlytek has over 700 million. In 2017, Google claimed to have 95% voice recognition accuracy – Baidu had 97%, having invested $3billion into the technology since 2015.
Fundamentally, Western retailers need to stop seeing words such as ‘AI’, ‘AR’, and ‘voice’ as buzzwords and should instead be looking to actively adopt to improve customer experience across all channels. Whilst AI is slowly being adopted in eCommerce technology in terms of data management and industry insights, the risk is being out-innovated by the far more nimble Chinese model of test-implement. The country’s digital powers are forcing retail into a new realm through innovation, and the effects of competition means this is happening at an unprecedented rate.