Before we dive into the space, we thought we’d take a moment to clarify some of the industry buzz words that get thrown around a lot in this space.
O2O is a broad term describing the merging of online and offline retail experiences. It covers both:
Remember those eBay buy-sell storeswhich popped up and quickly disappeared in the mid 2000s? They were some of the earliest formations of the O2O concept. Their shortcomings were famously crystalised in ‘The Forty-Year-Old Virgin’.
Since then though, O2O business models have adapted to the times and proven to be extremely profitable in some circumstances. The prevalence of physical Daigou buy-and-ship businesses across Australia and NZ are testament to this.
‘Omnichannel Commerce’ is a little more specific and perhaps, slightly more brand oriented. It relates to the careful planning of all digital and physical channels in support of retail, marketing and operational activities. Each facet of the customer journey is supported by a variety of online and offline elements. Adsoup’s diagram left gives a pretty good conceptual overview.
‘Smart Retail’ takes omnichannel commerce into Industry 4.0. It refers to the use of smart technologies (IoT & IIoT, blockchain, AI, big-data, beacons, SaaS, POS, VR & XR etc.) to optimise all facets of retail operations.
New Retail is China’s defacto term for ‘smart retail’. It was coined in 2017 by Alibaba Founder Jack Ma as:
Compared to traditional retail, New Retail shifts the paradigm from ‘product-push‘ to ‘demand-pull‘ by focusing first and foremost on the needs and wants of the customer. Big data and smart technologies are integral to supporting a tailored, optimised and integrated physical and digital shopping experience.
Importantly, with New Retail, both the customer and the seller’s utility is maximised. While the customer reaps the benefit of a more seamless and entertaining overall experience, the merchant gains the added benefits of data-driven efficiencies.
New Retail leverages tools to minimize the minor inconveniences which may stifle or cause delays to the customer journey. Some examples of this include:
Other New Retail initiatives aim to bring a joyful or experiential component to the customer journey. The net result of this is generally a boost in foot traffic, engagement, customer delight and loyalty. Some examples of these include:
Ultimately, Smart Retail is about driving operational efficiencies. These can be quantifiably measured by tracking the value per square-metre of any given premises. For example, HEMA themselves expressly state that the annualised sales per square metre of their HEMA stores are more than ¥50K.
Many retailers, in their efforts to jump aboard the smart retail train, install technologies which are not yet refined and don’t actually raise value. A typical example is those virtual reality mirrors sometimes found in clothing stores. Presently, this technology isn’t yet good enough to be engaging or useful. Chinese customers are becoming increasingly savvy and capable of distinguishing great tech from marketing ploys. The general rule of thumb is that new retail technology must by definition raise the overall value per-square metre of the given outlet.
From 2015-16, most of the world was woeing the death of retail; pointing to eCommerce as the prime culprit. Meanwhile, China’s largest eCommerce company Alibaba was purchasing dozens of offline supermarkets across China. When Jack Ma officially launched HEMA in 2017 as China’s premier New Retail outlet, it became abundantly clear that the game was about to change.
Alibaba now operates over 150 stores in 21 cities. This figure represents 85 more than this time in 2019, which is unsurprising given that Alibaba plans to open up 2000 by 2022-2024.
It is reported that in China, the top 100 grocery chains only have an 8% share of the total market. While the exact numbers are hard to validate, few would argue that China’s grocery industry is unbelievably fragmented.
One of the main factors behind this are the 6.8million+ Mom and Pop stores across the countries. Recognizing this, Alibaba launched an ‘LST’ 零售通 / “retail integrated” model to bring these humble Mom and Pop operations into the new world.
LST offers various ‘upgrade packages’ for store owners. These packages provide cutting edge retail, sourcing and distribution technologies free of charge. The trade-off: Alibaba gains access to your retail and sales data and is thereby able to use your store as a distribution hub.
Overall, it’s a pretty great deal. Store owners benefit from vastly improved product sourcing, elevated brand/market presence and recognition (by affiliation with Tmall) as well as a suite of New-Retail technologies that dramatically boost operational efficiencies and overall competitiveness. Alizila’s introductory video to LST Stores offers a very comprehensive overview.