JD has opened a 50,000 sqm experience center in Chongqing. And in doing so, they opened a new frontier in online-merge-offline retail (also called new retail). Their new center raises some really cool questions about the emerging digital lifestyles of Chinese consumers.
New retail (Jack Ma’s term) is really the first version of a much bigger idea, the merging of the online and offline worlds, assets and experiences. The tangible and intangible assets of businesses are being combined into a seamless, data-driven consumer experience. And while retail is going first, I expect to see the same phenomenon in financial services (definitely), education (probably), and healthcare (maybe). Kai Fu Li calls this online-merge-offline (OMO), which is a pretty good description. And, ironically, it really all began as a solution for how to move supermarkets online.
From grocery ecommerce to new retail to truly digital lifestyles
Grocery stores have long been resistant to ecommerce. The goods are perishable so inventory and supply chains are difficult. Consumers like to go frequently to their local markets. And in the markets, consumer like to wander around and see the items. And the operating margins are usually very small (2-3%) so there isn’t a big quick pay-off to moving things online.
If books and consumer electronics went online early, groceries (and luxury goods) have been the last holdouts. Usually you hear numbers like 3% of grocery purchases are now online (versus 20-25% for other categories).
Alibaba’s Hema stores were a solution to this problem. By adding on-demand delivery and mobile apps to supermarkets, the physical site of the local supermarket became the key asset for launching ecommerce for groceries. Instead of shutting down the physical site (like with bookstores), you use it as the main interaction point with customers. It becomes the forward distribution point in your logistics network. You start running sales through the mobile app but also the local store. And you add local services. That, more or less, gets you new retail as a business model. Alibaba started with this in supermarkets and then have been trying to expand to convenience stores, mom-and-pop stores and other locations. It’s not clear at all whether new retail as a business model is that scalable.
But grocery stores, convenience stores, hotels and mom-and-pop stores are actually fairly limited consumer experiences. You buy stuff and go home. You don’t hang out. You don’t go for entertainment. You don’t go to socialize and have fun. While they may capture part of your wallet, they don’t capture much of your lifestyle. And this is why what JD is doing in Chongqing is so interesting. They are going for the lifestyles of China’s increasingly digital-first consumers.
Shopping centers, department stores and walking streets are the places we go for shopping, relaxing, eating, seeing friends, being entertained, spending time with family, finding out about new things and just being out and about in the city. These locations capture so many of the aspects of our lives. There is far more going on than just buying stuff. And this is where OMO can really start to get creative. What happens when you apply OMO to a significant portion of people’s increasingly digital lifestyles?
Alibaba and Intime make a first attempt at OMO in department stores
Alibaba has already made a first attempt at this with their Intime Department stores. In 2017, Alibaba bought Intime Retail Group for $2.6B with the stated intention of integrating it into their ecommerce business. I wrote about my visit to their Hangzhou flagship a few weeks ago (article here). My take was they are mostly pulling three big levers right now.
- They are moving their customers onto their mobile app. Intime is now a popular mobile app. This is a big move and it creates a two-way relationship with customers. It also enables sales from outside the store. And it gathers a lot of data.
- They have added on-demand delivery. This effectively expands their sales floor from the physical structure to a 2-3km radius. People can sit on their sofas and order on the app and have stuff immediately delivered.
- They are capturing various operational efficiencies by implementing digital tools such as Alipay/Ant Financial, Alicloud, Cainiao logistics, etc.
But they have not, as of yet, really tried to transform the consumer experience within the store. Walking around, it is still a traditional department store at this point. That is not nearly as bold and interesting as what JD is doing. They are going for a big transformation of the customer experience, which they are referring to as “experiential” retail.
JD’s E-Space is about transforming the consumer experience
The E-Space has the following in it at this point (according to JD releases).
- 50,000 sqm of space. Equivalent to seven soccer fields.
- 7 special areas and 55 interactive experience zones.
- The world’s largest electronics experience store.
- 3D printing.
- Unmanned driving.
- Gaming zones.
- Beauty zone. Beauty products and services.
- Wine zone. For tasting and courses.
- Coffee zone. For tasting and courses.
- +200,000 products for sale overall.
- It’s the world’s largest store with 5G.
- Dynamic pricing so offline and online prices match.
- JD logistics does delivery for items within store and online.
It could also be a compelling new offering to merchants, brands and retailers. It potentially increases their ability to engage with customers in a more multi-faceted way. For example, in the electronics and home appliances category, consumers can touch and test products in store, and then buy online. Apple has its largest authorized offline experience store in the center. Microsoft also has its first future smart home experience area in China in the center
Here’s the description from JD: “JD’s boundaryless retail strategy is to integrate online and offline retail, enabling customers to buy whatever they want, whenever they want, wherever they want…Equipped with the most advanced technologies and state of the art products, JD E-Space provides consumers not only shopping convenience but also an immersive and interactive experience.”
I’m still thinking about this. And I’m planning to visit the E-Space shortly.
In Part 2, I lay out my main questions for the e-space and how shopping malls might be changing.
Thanks for subscribing,
I write and speak about digital competition and China / Asia’s leading tech companies.
My book Moats and Marathons details how to measure competitive advantage in digital businesses.
I also run Asia Tech Strategy, a podcast and subscription newsletter on the strategies of China / Asia tech companies.
My subscription newsletter offers:
Deeper insights into the strategies of the tech giants of China / Asia. I help investors see around the corner – both with tech giants and rising companies.
See the big picture. Get a better understanding of Asia’s digital ecosystem. What are the important tech themes? What will the future look like? Where to hunt for opportunities?
A unique view from on the ground of digital China / Asia.
Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.