In Part 1, I detailed my visit to JD’s new E-Space store in Chongqing. And I ended by posing the following question:
Can “experiential” retail dramatically improve the user experience such that traditionally run department stores are at a competitive disadvantage?
And my answer to that is yes in basically 6 situations and product types.
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In most cases, like trying out microwaves, toasters and blenders in the store, it’s petty clear “experiential” is not a big game changer. You don’t really need to try these products in person. You can just buy them online. Or you just see them on a shelf in a store and that’s fine. So being able to try them is nice, but it’s not a game changer.
In other cases, like smartphones, washing machines and furniture, “experiential” retail is a nice upgrade to current consumer behavior. People generally like to see these types of products in person when they buy them. They want to sit on the sofa. They want to play with the smartphone. So having an “experiential” retail center is a nicer and upgraded version of something people are already doing. I would call it a digital upgrade, but not a game changer.
But I did notice 6 situations where experiential retail had some really compelling aspects to it.
Situation 1: Complicated Products
I really liked the space for cameras. You can try out the advanced DSLR and mirrorless cameras by Canon and such. They have city models you can take pictures of. They even offer classes about photography. And they have after-sales support.
I thought this was pretty compelling. “Complicated products” require a certain level of education before you buy. It really does help to be able to try them out and talk to someone. And the lessons and after sales services help. The camera section reminded me of an Apple store where you can try everything – and you can also take classes and go the Genius bar. Complicated products kind of need a more educational retail, where you educate the consumers on the more technical products and their functions.
There was also a small section for 3D printers, which I also put into the complicated products category. It does help to try them out and learn before you buy.
Situation 2: Premium Products
If you sell fairly straight forward products (vacuums, washing machines, etc.) at premium prices, how do you show the special features and quality differences that justify the price difference? Dyson vacuums (popular in China) can go up to 6,000RMB in price. How can consumers see the quality difference unless they can try it out or talk to a sales staff? Experiential retail seems like a big deal in premium products.
I thought a really good example of this was the headphones section – where you can listen and hear the difference. Something you cannot do online.
Scattered throughout were also some super-premium products. There was a 100,000 rmb washing machine and a 300,000 rmb refrigerator. If you are a merchant trying to sell those two products, you absolutely need an experiential center or showroom where you can tell your story and explain why it is worth the much higher price.
Situation 3: Obscure and Weird Products
There was a room for classic record players. And that is really an odd product to be selling these days. So merchants need the opportunity to explain a more complicated story to the consumer. Then the consumer needs to be able to try it out and hear the difference.
Other products in this situation are automatic window washers (the device moves on the window by itself). Or one-wheel scooters. Anything that is of weird so that you need the opportunity to tell a more complicated story to the consumer.
Situation 4: New and Niche Products
This is something that will be discussed below. But one of the biggest things brands are doing in the E-Space is using it to launch new products. Where you can have events. Where you can show how it works. Where you can have staff talk about its merits. And niche products have the same product. There is just a lot more education that is required than with a well known product.
That’s most of the list. The last two situations are just sort of interesting.
- There are spaces for online-online companies. Both Ninebot (one wheels and karts) and OnePlus (smartphones) have spaces in the E-Space, which are their only physical retail spaces anywhere.
- There are spaces just for fun stuff that bring people into the store. There is a large gaming areas where you can play online. And where esports teams can have competitions. This is likely to bring in younger consumers.
So let’s say there are 6 situations where experiential retail version 1.0 has a pretty compelling impact.
- Complicated products
- Premium products. Including super-premium products
- Obscure and weird products
- New and niche products
- Online-only brands
- Fun products
And I raised the point that we are looking for situations where the user experience is dramatically improved – such that traditionally run department stores are at a competitive disadvantage.
But it’s important to remember that there are two user groups in e-commerce: consumers and merchants / brands. And you can dramatically improve for either group. So from the consumer side, experiential retail means trying things out in person. And in some cases that can be a significant improvement (as mentioned above). But from the merchant side, experiential retail could also mean being able to communicate and engage with consumers in a much better way. Especially around a more complicated product or brand story.
And, interestingly, you can see this difference in the lay-out of the E-Space.
Floors 1-2 are about improving the consumer experience.
The first two floors are organized by product category, not brand. You go to the smart television section and they have all the brands side-by-side. Each tv is right next to the others so you can see the differences and compare them.
And it turns out smart televisions are a category where experiential retail matters. A big part of the smart tv category was comparisons of LED vs. OLED. OLED tvs are a newer technology and quite a bit more expensive. You can read about OLED online but when you can actually see both technologies in person, you really do see the difference. I recently bought an LED television. But after seeing the LED vs. OLED comparisons in the JD store, I would now have bought the OLED instead. Experiential retail is very good at showing and explaining quality and premium price differences, especially in more technical or complicated products.
And most of the first two floors are organized this way. There are product category areas where you can try out products, learn about them and see the differences. And these floors are all staffed by JD. JD also chooses the brands and the specific inventory to show in these sections.
However, the third floor is organized by brand. And this where they can launch their new products. This is where they can let consumers try their premium products. It is really a space where brands can tell their more complicated stories – and have more communication and engagement with customers. This floor is staffed by 50% JD people and 50% people from the brands and merchants.
Experiential retail and real estate are becoming marketing?
There has been a funny evolution in real estate in retail. Location used to be critical for retail. And then ecommerce came along and having real estate became a liability for many. Especially for those selling digital goods (Blockbuster, CD stores). And now real estate is coming back in retail as almost a critical channel for merchants and brands. Not for distribution or for sales, but for marketing and communication. The online world is more efficient (no physical costs) but it is also endlessly competitive. With increasing competition for online attention and powerful gatekeepers (Facebook, Amazon, etc.), many merchants and brands are finding their only real direct and substantial connection to their customers may be via real estate. It’s like real estate has moved from the rental expense line to the marketing expense line of the income statement.
The goal of the major merchants and brands in the E-Space is not really to move lots of product. They are there for greater engagement with customers. And for communication. And for the opportunity to tell a more complicated and subtle brand story via experience. And this is particularly important for more complicated, expensive or obscure products. And especially for new product launches.
So where are the game changers at JD’s E-Space?
Ok. Back to my main question.
JD’s E-Space is 50,000 sqm, 300 staff and 3 floors (with two vacant floors above). It has 55 experience centers, a mobile app and on-demand delivery run out of JD’s Chongqing warehouse. And I think it is a game changer in three ways:
1) It is pulling the three big new retail levers: a mobile app, digital operations and on-demand delivery.
This is a big deal. The mobile app creates continuous two-way communication with customers – something traditional departments stores do not have. And on-demand delivery expands the radius of the sales floor from the building to a 2-3 kilometer radius around the store. Both of these are dramatic improvements in the consumer experience and traditional departments stores need to offer both of these these asap. Offering delivery is not that difficult as there are lots of express delivery companies in China. But creating a popular and widely used mobile app is pretty difficult.
2) There are dramatic improvements in the consumer experience for niche and complicated products.
This includes cameras, 3D printers, record players, self-washing machines. The experience aspect plus the classes and after-sales service do significantly improve the customer experience. This will be a big problem for competitors.
3) There are dramatic improvements for merchants and brands in premium, obscure and complicated products.
This headphones, high-end washing machines and really anything where you need to tell a more complicated brand story.
Those are my working conclusions.
I also asked what were the most popular areas of E-Space and was told (for women) it is the small make-up and beauty center on the second floor. For men, it was the consumer electronics. I was sort of surprised they didn’t make beauty larger in their first version of the E-Space. Experience can makes a big difference in beauty and fashion. I suspect they will expand in this area going forward.
Overall, it was fascinating. Department stores and shopping centers are a pretty cool frontier in new retail. I think it is going to be one of the next big things.
Thanks for reading. And cheers from Chongqing, jeff
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