Greater bay initiative – 2 July 2019

WHAT’S ‘NEW’ IN CHINA’S NEW RETAIL?

Jacco BouwAgencyChina.com

\ - Entrepreneur- 1999: Webpower Barneveld- 2006: entrance in China- Sweden, Poland, Germany, Spain- 2009: anti-spam policy China- 2009: meeting with the Chinese

‘Minister of industry and information technology’ Li Yizhong

- 2012: book “Face IT, Marketing to China’s netizens“

- Offices in Shanghai, Beijing, Shenzhen, Guangzhou, Chengdu & Singapore

Jacco Bouw

BUT CHINA IS ALSO THE COUNTRY WHAT

WAS WITHIN 2 YEARS CASH-FREE.

CASH FREE ECONOMY

You pay with QR

Leading platform (PAYMENT)

Shop’s and restaurants give you 2

possibilities.

• ALIPAY

• TENPAY / WECHAT PAY

Image Credit: Images belong to their respective owners and are used here for education and commentary

CASH FREE ECONOMY

You pay with QR

Leading platform (PAYMENT)

Shop’s and restaurants give you 2

possibilities.

• ALIPAY

• TENPAY / WECHAT PAY

Image Credit: Images belong to their respective owners and are used here for education and commentary

CASH FREE ECONOMY

You pay with QR

Leading platform (PAYMENT)

Shop’s and restaurants give you 2

possibilities.

• ALIPAY

• TENPAY / WECHAT PAY

Image Credit: Images tiktok

CASH FREE ECONOMY

You pay with QR

Leading platform (PAYMENT)

Shop’s and restaurants give you 2

possibilities.

• ALIPAY

• TENPAY / WECHAT PAY

Image Credit: Images belong to their respective owners and are used here for education and commentary

CASH FREE ECONOMY

Open doors, do the payment’s or getting

toilet paper with face recognition

Image Credit: Images tiktok

Tier cities or going for clusters

OUT WITH TIERS, IN WITH CLUSTERSThinking about market entry should move from city tiers to economic clusters

Economic Clusters, Relevant Cities and Retail Sales Growth (2016-17)

Economic Cluster Relevant CitiesRetail Sales

Growth

Yangtze River Delta Shanghai, Hangzhou, Nanjing, Hefei, Wuhu >10%

Shandong Peninsula Qingdao, Yantai, Jinan >10%

Chengdu-Chongqing Economic Zone Chengdu, Chongqing >10%

Western Plain Economic Cluster Xi’an >10%

Pearl River Delta Shenzhen, Guangzhou, Hong Kong 7-10%

Central China Zhengzhou, Luoyang, Changsha, Wuhan, 7-10%

Western Taiwan Straits Nanchang, Fuzhou 7-10%

Beijing-Tianjin-Hebei Beijing, Tianjin, Shijiazhuang 7-10%

Harbin-Changchun Harbin, Changchun 7-10%

OUT WITH TIERS, IN WITH CLUSTERS

City-tiers are less useful than economic clusters.

Economic Clusters, Mapped

Econoic Cluster Acronym

Yangtze River Delta YRD

Shandong Peninsula SP

Chengdu-Chongqing Economic Zone CCEZ

Western Plain Economic Cluster WP

Pearl River Delta PRD

Central China CC

Western Taiwan Straits WTS

Beijing-Tianjin-Hebei BTH

Harbin-Changchun HC

SP

WTS

HC

YRD

PRD

CC

BTH

WP

CCEZ

WHAT’S is CHINA’S NEW

RETAIL?

NEW RETAIL IS RETAIL’S DIGITAL TRANSFORMATION

New Retail’s pioneers are internet and tech giants

New Retail is a response to mixed e-commerce penetration and slowing e-commerce growth

New Retail’s main objective is improved revenues at lower cost

New Retail’s use of data, digitization and technology will change supply and value chains

New Retail brings internet economy thinking and models of scale to traditional retail

New Retail can be understood in five statements.

1

2

3

5

4

NEW RETAIL’S PIONEERS ARE INTERNET AND TECH GIANTS

One of New Retail’s more obvious signs is e-commerce platforms opening offline retail presences, but

this is just the tip of the iceberg.

Sample of e-Commerce Platforms Which Have Opened Offline Retail Presences

Note: Sample not intended to be comprehensive.

JD

(Franchised

Convenience Store)

JD

(Automated

ConvenienceStore)

Alibaba

(Hema)

Alibaba

(Taobao Selected)

NetEase

(网易严选)

NEW RETAIL’S PIONEERS ARE INTERNET AND TECH GIANTS

New Retail was first proposed by Jack Ma in 2016 and has since been formally defined.

Alibaba’s Definition of New Retail

Note: The above translation is the author’s own idiomatic translation. Source: Ali Research, 2017,《C时代新零售》

A consumer-centric, data-driven form of retail, the core value

of which is to improve the retail industry's operating

efficiency.

以消费者体验为中心的数据驱动的泛零售形态，其核心价值是将最大程度地提升全社会流通零售业运转效率.

NEW RETAIL’S KEY GOAL IS TO DRIVE GREATER EFFICIENCY

Note: International competitors’ Revenue Per Square Meter result was first recorded in US Dollars based off their retail presence in the US. It was converted to RMB at an exchange rate of 1 USD = 6.85 CNY

Source: Financial Reports;招商证券 Analysis.

Hema and Xiaomi’s Revenue Per Square Meter results rank well against international competitors

across different product categories.

Comparison of Revenue Per Square Meter (RMB/m2) Between Different Retail Players (2017)

41,463

32,400

27,000

20,666

13,2629,802

Apple Hema Xiaomi Tiffany Lululemon Michael Kors

NEW RETAIL ADOPTS GROWTH HACKING TECHNIQUES

Traffic

Conversion Rate

Basket Size

Repurchase Rate

Revenue

Retail Space

New Retailers break Revenue Per Square Meter and Cost Per Square Meter equations down and look

to optimize one or more variables.

How New Retailers Conceptualize Revenue Per Square Meter How New Retailers Conceptualize Cost Per Square Meter

Rent

Labour

Inventory

Marketing

Cost

Retail Space

WHERE’S THE ‘NEW’ IN

NEW RETAIL?

THERE’S ELEMENTS OF OLD AND NEW

‘New’ is transient and relative

China’s ‘Online to Offline’ and ‘Online Merge Online’ models are important catalysts

Chinese internet giants are offering Retail-as-a-Service

Retail-as-a-Service extends to finding and meeting unmet consumer needs

Retail-as-a-Service is powered by data collection and sharing

Much of New Retail’s ‘newness’ comes from China-specific factors.

1

2

3

B

A

O2O AND OMO ARE NEW RETAIL CATALYSTS

New Retailers might use O2O and OMO models, but New Retail shouldn’t be simply equated with

these models’ widespread adoption.

Features and Services That Aren’t Strictly New Retail

SharingProducts-as-a-

Service

Augmented

Reality

Smart

Mirrors

30 Minute

Delivery

Scannable

In-Store Items

Video

Commerce

NEW PRODUCT DEVELOPMENT PARTNERSHIPS

e-Commerce platforms are partnering with brands to tap unmet demand or occupy product niches.

Tmall Innovation Center Case Study

Unilever

• The Tmall Innovation Center’s found local consumers

were searching for highly-specialized skincare which

could remove unobservable pollutant particles fromthe

skin

• Unilever designed a range of products to meet thisneed

• They first released a mid-priced skin cleanser with anti-

pollutant properties to test demand and establish proof-

of-concept

• Time from conception to market was six months, down

from 18 months to two years

Source: Alizila

Image Credit: Images belong to their respective owners and are used here for education and commentary

NEW PRODUCT DEVELOPMENT PARTNERSHIPS

e-Commerce platforms are partnering with brands to tap unmet demand or occupy product niches.

Tmall Innovation Center Case Study

Mars

• Tmall’s Innovation Center observed a strong

relationship between chocolate and spicy snack

purchases

• Mars developed a spicy peanut chocolateSnickers

bar to capture the underserved taste combination

• The product was initially sold exclusively online to

test demand

• Sales of “Spicy Snickers” surpassed RMB 9 million

between August 2017 and March 218

Source: Alizila

Image Credit: Images belong to their respective owners and are used here for education and commentary

Confronted with new opportunities, people tend to lose out in four

ways: they don’t see it coming, they turn their nose up at it, they don’t

understand it, or they’re too late to adapt.

Jack Ma

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