JD 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). They are applying OMO to department stores. That’s really interesting.
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 digital intangible assets of businesses are being combined into one seamless, data-driven consumer experience. And while retail is going first (i.e., new retail), 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 finally move supermarkets online.
What is really going on?
Grocery Ecommerce -> New Retail -> Digital-First Lifestyles
Grocery stores have long been resistant to ecommerce. While it is the largest sector in retail, it is the one that everyone avoided for twenty years.
- Grocery goods are perishable so both inventory and supply chains are difficult.
- Consumers like to buy groceries frequently so there is frequent and rapid delivery, which is expensive.
- Plus consumers like to wander around and see the items. They touch the oranges and choose the pork chops they want.
- And finally, the operating margins at supermarkets are usually very small (2-3%) so there isn’t a big quick pay-off by moving things online. There isn’t a big margin to attack with digital tools.
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 online (versus 20-25% for other categories).
It was Alibaba’s solution to this problem that led to the creation of new retail.
Alibaba launched a few Hema / Freshippo stores as a solution to this problem. They added on-demand delivery and mobile apps to supermarkets. Instead of shutting down the physical store (like with bookstores), they digitized it and used it as their main interaction point with customers. The mobile app plus the store became the new consumer experience. It also became the forward distribution point in their logistics network. And they added local services. That solved all the ecommerce problems in groceries.
And it gets you new retail as a business model. Alibaba started with supermarkets and then expanded to convenience stores, mom-and-pop stores and other locations.
But grocery stores are a big success, 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 that’s what comes next. You go from ecommerce in groceries to new retail to digital-first lifestyles. We can see this in grocery stores. They are fantastic and evolving experiences.
And that is also what we are seeing in JD’s e-space experiment in Chongqing. They are doing new retail in department stores. And we can see a new type of digital lifestyle emerging.
This makes intuitive sense.
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 retail locations capture so many of the aspects of our lives. There is far more going on than just buying stuff. So like with groceries, this is where new retail can really start to get creative.
Alibaba and Intime Made the First Attempt at New Retail for Department Stores
Alibaba 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 visited their Hangzhou flagship store and decided they were mostly pulling three big levers.
- They were moving their customers onto their mobile app. Intime became a popular mobile app in China. This was a big move because it created a two-way relationship with customers. And it enabled sales from outside the store. It also gathered a lot of data.
- They added on-demand delivery. This effectively expanded their sales floor from the physical structure to a 2-3km radius around the store. People can sit now on their sofas and order on the app and have stuff immediately delivered.
- They began 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 like we saw with grocery stores. Walking around, it was still mostly a traditional department store. So they did the standard playbook for new retail. But they did not really take the next step of creating a digital lifestyle, which is what makes department stores so interesting for digital.
It was JD that took the next step. They digitized a department store in Chongqing (called e-space) and went for a big transformation of the customer experience, which they referred to as “experiential” retail.
JD’s E-Space Was an Attempt to Transform the Consumer Experience in Department Stores
In Chongqing (which is awesome), JD built a big department store with the following break down.
- 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 for delivery of items purchased within the store and online.
Here are some photos.
So the big question is: How much does this transform the consumer experience?
The answer (thus far) is sort of.
The store is fun. You can ride around on scooters. Get your hair washed. Try out pretty much anything. So they have moved way beyond just a mobile app and on-demand delivery. I think it is halfway between new retail and digital lifestyle. It’s close enough that (like with grocery stores) we can really see what’s coming. And it’s pretty awesome.
This could also be a compelling new offering for merchants, brands and retailers. Consumers aren’t the only user group in this space. The e-space increases merchants’ 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. And merchants can create great experiences that are far beyond what can be offered on a mobile app. Note: 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 of the e-space 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.”
That last phrase (immersive and interactive experience) is really important. That’s what I think digital lifestyle really means.
- Can ByteDance Breach Alibaba’s Infrastructure Moat and Become An Ecommerce Giant? (Tech Strategy – Podcast 82)
- Alibaba Takes Over Sun Art Retail. Is It Going to Take Off? Or Is It Infrastructure? (pt 1 of 2) (Asia Tech Strategy – Daily Update)
- Could Sun Art Grow +30% Under Alibaba? (pt 2 of 2) (Asia Tech Strategy – Daily Update)
From the Concept Library, concepts for this article are:
- Retail / Ecommerce
From the Company Library, companies for this article are:
- Alibaba / Intime
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