I recently visited the Intime department store in Hangzhou. And it struck me that department stores and shopping malls may be the most compelling version of new retail – the frontier of an increasingly dynamic, digital lifestyle for Chinese consumers.

 

From New Retail to a New Digital Lifestyle

The online world is surprisingly rich and fun. You can shop, watch videos, listen to music, read, play and be social. And it all happens in an integrated and rapidly evolving fashion. New things are emerging all the time.

But things are much more static and separate in the physical world. We go to one store to buy shoes, another to see a movie and a third to have dinner. And experiences evolve slowly. Department stores and shopping malls don’t emerge and reinvent themselves every month.

Enter “new retail” as a merger of online and offline assets into one seamless, data-driven consumer experience. And we get different mixes of online and offline in different businesses.

• In entertainment, it’s mostly about the online world, with lots of shows and movies emerging all the time in a dynamic fashion. The physical locations (i.e., cinemas) extend this but aren’t a critical part.
• In coffee shops, convenience stores and donut stores, it’s the opposite. It’s mostly about the physical assets. You pick up a cup of coffee on the way to work at a convenient location. Or you buy a donut while walking in the mall. There are some digital aspects like ordering and delivery. But it’s mostly physical, with digital as an extra capability.
• In new retail supermarkets (i.e. Hema / Freshippo) it is probably 50/50 online and physical. Freshippo combines groceries, retail space, services and on-demand delivery into a fairly compelling consumer experience. And it is becoming increasingly data-driven, with new products and services being added quite quickly.

But new retail in supermarkets is actually a fairly narrow band of consumer experiences. You buy and eat food. You don’t go to the market for entertainment. Or to socialize. Or to just relax and spend time. However, all of that happens at department stores and shopping malls, which is why they are such an interesting case. We buy products, services, eat, socialize, chat, be entertained, and just have fun relaxing. Shopping centers, department stores, and walking streets are arguably at the center of urban life. So what happens when you digitize this?

Enter Intime, the Chinese department store chain that is currently pioneering OMO business models in this space. It’s arguable where new retail starts to become a new digital lifestyle.

So what is happening at the +30 Intime department stores and +17 shopping malls Alibaba purchased back in 2017?

My take-away from my visit is they are mostly doing the basics right now. With some interesting things on the horizon

Initiative 1: Digitize customers and the customer relationship.

Intime appears to have heavily focused on creating a much better mobile app and getting their customers onto this system. According to the CEO, they now have one of the top downloaded apps in the Apple Store.

This is super important for lots of reasons.

The first is that it lets you sell to and take orders from customers who are not physically in the store. And Intime says it now has something like 30% of orders happening in this way. That is consistent with Freshippo’s statements that 60-70% of orders are now coming from customers outside the stores. Customers order on their phones and can then pick-up at the store or have it delivered. This effectively expands the sales area from the walls of the store to a 5-10km radius around it.

But digitizing customers and the customer relationship is a much bigger idea than this. What you are really doing is building a two-way relationship with customers. With a physical store, your relationship is limited to people walking into the store. And then you trying to help them without knowing much about them (“Can I help you? What are you looking for today?”). That, plus some advertising, is your relationship with most customers in a physical store.

But a mobile app gets you a real relationship and engagement. And it gets you two-way communication. You can send your customers content. You can send them promotions. They can comment. They can reply. They can share. And this relationship can exist 24/7 – especially as Chinese consumers are always on their phones. The real goal is engagement.

And you can start to gather lots of data. What they like. What they don’t. And why. And not just about your customers – but also about other potential customers that live in the 5-10km radius from your store. It turns out there are actually tons of potential customers nearby. You’ve just never been able to reach them before.

So I think that is their primary initiative. Digitizing customers and the customer relationship.

Initiative 2: Digitize operations – and ideally move them to the cloud or to a partner.

One of the first things Intime did was to move their IT systems and other back-office systems to the cloud. That makes sense given Alibaba owns Alicloud.

But they went much further than this and have been trying to move all their operating activities, staff and equipment online. They want to be a fully “digitized physical store”.

So staff communicate with Dingtalk. Payments are done with Alipay. Inventory management and the supply chain are being handled in the cloud. Logistics and delivery are now handled by Cainiao (I think). The idea is to either move the activity to the cloud or push it to a service or partner (like Cainiao and Ant Financial). It helps that Alibaba already has big platform businesses in logistics, e-commerce and payment / financial services.

And, unsurprisingly, you get a lot of cost savings with this. The metric to track is efficiency. Intime apparently reduced their cashiers by about 100 because sales agents could process payments on their smartphones. The CEO also mentioned that the time to process an order fell from minutes to seconds.

Digitizing the physical store has lots of benefits. But individual retailers can’t really build a digital platform in logistics, payment or ecommerce by themselves. So these need to already exist in the ecosystem, which they do in China.

Initiative 3: Add new products, digital media, and location-based services.

As mentioned, one of the things that happens easily online is the combination of lots of services and products. You can chat, watch a video, and shop all in the same site.

And as both customers and operations are digitized at a department store or shopping mall, it can increasingly act the same way. It can increasingly add and combine new services, products and digital media. And it can start to go way beyond what a purely physical store can offer.

The most directly powerful of these new services is on-demand delivery. Within the delivery radius, customers can now sit on their sofas, shop on their mobile app and have items delivered within hours. As mentioned, that effectively increases the sales floor of the store from the physical structure to a 2-3km radius. And it lets customers shop 24/7, not just when they visit.

However, a digital department store can also add other services like movie tickets, dinner reservations, food delivered, make-up services, massage, etc. Think of all the things you would normally find in the mall. Why can’t you now sell those to your customers in their homes?

And you can start to combine products and services. You can now watch online videos about cosmetics, use AI tools to see how you would look, buy the products and book a cosmetics expert to come to your house (with your product) and apply it. In theory, a digitized department store can let you see and virtually try on clothes, sell them to you, have them delivered and also have someone come by to do your nails and hair.

This is my main point. That new retail is slowly becoming a digital lifestyle. And department stores and shopping malls (like Intime) appear to be on the frontier of this. Mostly because they are close to your home and have the broadest set of consumer activities. It’s still early days but it’s pretty cool.

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The above is most of what I think Intime is doing right now. But there are some interesting things on the horizon as well. Here’s what I am keeping an eye out for.

Advanced matching and personalization. Plus rapid “data+innovation” product development.

Once you have a fully digitized department store, you are in a good position to move beyond the traditional slow and standardized retail offerings. You can move away from just stocking your store inventory, making it the same for everyone who visits. And you can move beyond just a few seasons of new fashions coming in per year. You can start to personalize and to be more dynamic.

You now have lots of data on your current and potential customers. And you are in contact with them all the time via the app. You know what they like or might like. You can test ideas with them directly. And you are increasingly customizing both the products and experiences for them.

First, you can tailor the app so every customer gets a personalized experience online. You don’t just show different products and services to each person. You tailor the look, the style, the content, etc. Everything. You do advanced matching and personalization. In certain sectors, you can do this more than others. There isn’t a lot of advanced matching going on in sneakers or coffee. But there is such a broad spectrum of activities happening in shopping malls, you can really start to do lots of advanced matching of products, services, media, etc.

And you can also increasingly create new products for each consumer or customer group. You mine the data and then work with manufacturers (or merchants) to create entirely new products. I wrote about how the TMall Innovation is doing this. I call it rapid “data+innovation” product development. You combine data analysis with innovation. And you do it fast. You can invent entirely new products by working with designers, retailers, and merchants. And it can happen more and more rapidly. The time to do product development can drop to a few months.

With advanced matching and personalization, we are going to increasingly get our own personal shopping malls and department stores.

And with rapid “data+innovation” product development, couldn’t 30% of all products carried be completely new to the market?

The more I think about a digital lifestyle, the more I am convinced it is going to be both personalized and rapidly changing.

Platformification

Another thing I am looking for is the emergence of new platform business models in the department store and shopping mall category. Keep in mind, Alibaba is in the platform business. They don’t buy and sell themselves (for the most part). They build platforms that enable other parties to interact.

They haven’t really done this in new retail yet. They are actually building themselves, which is unusual for them. I think it’s because they are doing a lot of experimentation. And because they need a retail footprint to enable on-demand delivery and other local services nationally.

But eventually, they are going to confront the question of how to turn new retail into a platform. And to make it more scalable. That probably means providing their digital tools to all the other shopping malls and supermarkets. And then plugging them into their logistics, payment and e-commerce platforms.

But I’m wondering if there is another platform model for department stores and shopping malls. This is one of the things you really want to watch for when a business is digitized. Is there the possibility for an entirely new platform business model? This is what Uber and Airbnb did to taxis and hotels.

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Final question: What is a digital lifestyle?

I’m sort of fascinated by this question. We know how we act online. We know how we act in the physical world. But is an entirely new type of lifestyle and behavior going to emerge when we combine these two things?

Our “lifestyle” is actually a mix of several things, such as:

• Purchasing goods and services
• Social and family life
• Experiences
• Entertainment
• Habits and daily activities

And within this, location has been a powerful tool for retailers and other businesses. People went to the local mall because there were only a few places to go to do things. Our lifestyles were defined by limited supply.

But we are increasingly in an age of abundance, where there is an endless supply of goods, services and activities. Will our lifestyles be different? For businesses, location still matters. But business is increasingly about who can capture and hold the consumer’s attention. The biggest fight is on demand side.

And that means having a real understanding of consumers’ increasingly digital lifestyles.

Cheers, jeff

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

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