The future of retail is unfolding before our eyes. Nike recently introduced a subscription model for children’s tennis shoes. Alibaba’s Freshippo markets defined the potential of offline-to-online user experience while also dedicating over 40% of retail space for dining and cooking classes. Beauty brands such as PaperWai and Glossier successfully shifted their business models to be direct-to-consumer.
Brands are shifting business models and integrating technology in response to retail turbulence. In 2017, 7000 retail stores closed including names such as Toys R Us, Gymboree, Payless, Wet Seal, and The Limited. With this came many expectations that 2018 would continue this trend. However, half as many stores closed, and, surprisingly, several large real estate companies birthed new concepts for shopping malls.
With 2019 showing upward trends for retailers, brands are racing to crack the code to new retail. And, in order to crack the code, it is critical to survey the landscape and evaluate what is working. And, for that, we turn to China. China is the largest retail market in the world with 2018 Q1 consumer goods retail sales of USD 1,436.8 billion, an increase of 9.8% from the previous year. They also lead in eCommerce as well as setting a precedent for holiday shopping. Singles Day reached record-breaking USD 25.2 billion in 2017, which easily outshines the combined 11.6 billion for Black Friday and Cyber Monday. Talk about purchasing power!
So, what are the trends that are emerging in China, and how can retailers around the world take note? Here are the top three trends.
Innovation Leadership — How China is Building the Future of Retail
1. Digital Everything
China is setting the pace for retail digitalization. WeChat, or Weixin as it’s called in China, emerged as the most integral mobile app utilized daily for everything from shopping to chatting to reading the news. WeChat boasts over 1 billion monthly active users. In addition to mobile platforms, China is also actively utilizing artificial intelligence to evolve retail. 67% of Chinese consumers now expect brands to provide a personalized shopping experience. Here are two key examples of how brands are using WeChat and AI:
- Burberry had fans’ hearts racing with its 24-hour flash sale on WeChat. Its Spring/Summer 2019 runway show items, ranging from fresh-looking trench coats to modernized logo t-shirts and new monogram sneakers, were made available for only one day. The result? Nearly half of the products sold out before the end of the sale.
- SK-II opened its Future X Smart Store in Shanghai, which utilizes AI for facial recognition supporting personalized skincare recommendations.
2. People Want People
The internet has changed the way people perceive brands. People now have access to companies’ malpractices and scandals that flood headlines. This shows in the 84% of millennials that don’t like advertising and don’t trust it’s messages. And, if you’re one to write off millennials, consider their massive purchasing power: Chinese millennials alone account for the purchase of 30% of the world’s luxury goods. So, if people don’t trust brands, whom do they trust? Influencers and peers. Here are two key examples of such:
- Givenchy partnered with KOL Mr. Bags on Valentines Day to promote a limited edition bag. This campaign sold 1.2 million RMB worth in bags in just 12 minutes.
- 75% of Chinese Internet users post online feedback on their purchases at least once a month. Peter Stein, CEO of Razorfish noted that “there are now more than 300 million people in China who move forward only with purchasing a product after getting consent from their peers via social media and eCommerce forums.
3. Meet Retailtainment + Entertainmerce
China, and Alibaba more specifically, has coined the terms “retailtainment” and, the recent, “enertainmerce.” Retailtainment is a term intended to emphasize experiential marketing, whereas entertainmerce is the union of eCommerce and entertainment. Despite Chinese consumers' demand for digital, in-person experiences are ranked as the most impactful amongst 90% of young Chinese consumers. This has caused retailers to brainstorm creative ways to merge the two. Here are two key examples:
- Hermès put on The “Silk Mix” event in Beijing which combined a pop-up store with a WeChat mini-program. The mini-program increased traffic to Hermès’ official account by more than 60% and ultimately helped to attract thousands of guests to the event.
- Alibaba live-streamed an 8 hr. Fashion show for Singles Day on Tmall where customers could buy pieces as they watched models wear the pieces down the runway. There are now more than 300 platforms with 300 million users taking advantage of this “see now, buy now” approach.
Shape the Future of Retail
The future of retail is only just beginning to take shape. There is space for innovation leadership amongst brands to utilize technology and trends. Amongst these three trends of digitization, peer and influencer marketing, as well as experiential shopping, the core underlying is technology.
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