Articles / podcasts cited in this class:

• JD’s E-Space Is a Fascinating New Frontier in Chinese Retail (Pt 1 of 2)
• 6 Questions About JD’s New E-Space (Pt 2 of 2)
• How Intime and Alibaba Are Pioneering a New Digital Lifestyle in China

• Digital Superpower: Dramatic Improvements in User Experience
• Personalization at Scale

Companies for this class:

• JD
• Alibaba
• Intime

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—–transcription below

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Welcome, welcome everybody. My name is Jeff Towson. I teach at Peking University, and this is Jeff’s Asia Tech class. And the question for today’s class is, is JD’s new eSpace a game changer in department stores in China? I recently visited the center out in Chongqing, so I’m gonna talk about that, and also sort of compare how it does relative to Alibaba’s moves in this area, which is its in-time department store. So that’s gonna be the question for today is, Is it a game changer? Does it change how department stores are going to be run? But first if you haven’t signed up, please do so you can go to jefftausen.com and subscribe there There’s no fee for the first 30 days. So that’s pretty good deal I think and please if you can go to itunes and you can follow there as well Okay, let’s get into the question So about a week ago, I flew out to chongqing to uh visit their new facility. This is the JD space which you’ve has just opened about a month ago and it’s a 50,000 square kilometer retail space which is really kind of a new frontier in this whole new retail OMO online merge offline world which is really China’s I think is the leader in this by a good measure at this point. We’ve seen it in grocery stores, we’ve seen it in convenience stores didn’t really happen so well there. We’ve seen in some other areas, but one of the areas that’s kind of, I think, a really compelling frontier is department stores and shopping malls. And Alibaba made some moves in this, uh, with their in-time department store. And this is kind of JD’s first big move in this. So they opened this pretty big center out in Chongqing and I flew out to take a look and a couple of points on that. Like, first of all, Chongqing is awesome. Like if you haven’t been to Chongqing, it’s really spectacular. It’s one of these cities that really outside of China, nobody even knows about it. It’s a huge city. I mean, I think it’s actually the world’s largest city or it’s like in the top three, you know, 20, 30 million people. Plus it’s part of a city cluster. These big cities in China are usually not standalone cities like Beijing, Shanghai. They’re clusters of. 20 to 30 cities where you generally get a combined population of about 60 million people. And it’s usually one big city closely connected with a bunch of smaller cities. But it all happens. It’s all kind of one cluster. So Chongqing is one of the big clusters in sort of the center of China. The other one in the area is Chengdu, which is also like super awesome if you’ve never been there. You know, Chongqing is fascinating. It’s kind of the gateway to middle China. When you hear about companies moving west, like Ford moved west, and they set up in Chongqing, it’s kind of like the gateway to middle China, and then you have inland China, which is the other 50% of the country to the west, which nobody ever talks about, even though it’s got like 300 million people, the land mass is like 50% of the country. You know, we call it China’s big backyard. There’s a whole lot going out there as well. So, Chongqing is kind of halfway. It’s right in the middle of the country. It’s got some amazing food. It’s on the Yangtze River, which is, whenever you hear this phrase like, China is the world’s workshop, China is the biggest exporter of the world, the factory of the world, blah, blah, blah. More often than not, what they’re talking about is the Yangtze, which is, there’s factories and manufacturing that go all the way up the river, and then all the ships come down the river, and they go to the deep water port in Shanghai, where they’re… moved on to different boats and then they go out to the world. That’s kind of where a lot of that happens. Happens other places too but that’s probably the biggest one and just sort of tonnage moved. So Chongqing is on the river. It’s quite a ways up the river. It’s down three down river from the the sort of huge dam up there which is a massive water project. So you can take these cruises up and down the river and it’s also just sort of a it’s just a spectacular city. I mean it’s It sits at two rivers, the intersection, the water from one side is sort of blue, the other is brown, so you see this is sort of two colors of water. It’s very mountainous. It’s kind of like Hong Kong, it’s just a lot bigger where it’s all mountains and the skyscrapers just sit on the sides of the mountains and there’s all these curvy bridges and crazy roads. It’s really a fascinating place. And it’s great fun, so I always go there if I can. Okay, so I flew in there and went along with JD and got some nice sort of lot of questions. I always ask a lot of questions and went out to see their new e-space, which I had read a lot about and I’d written a bit about, but it was more questions. I wasn’t totally sure. I think I got it about half right, half wrong in retrospect. I was thinking this was a department store, like a downtown space, like an urban living space. like a shopping mall or a walking street. You know, one of these sort of areas that you just don’t go to shop, you go to live your life. Like it’s part of your live, your urban life. You have your office, you have your home, and then maybe you have the park and the walking street and the shopping center. And you go to socialize and hang out and see your friends. So it’s a lot more than just, I’m gonna buy some stuff. I thought that was, so I was calling this like a digital lifestyle. That’s not really what the eSpace was. I thought it was, it’s not. It’s a bit north, a bit outside of town. So it’s more like going somewhere as a destination site where you really are going to shop. You are going to buy things. It’s not just, hey, let’s hang out downtown together, my friend. So more of a destination site, more of a going to purchase as opposed to just part of urban life. So anyways, that was kind of my first impression. I had that a little bit wrong. So go out to the site, I’ll put some pictures up. If you’re looking at this or you’re listening to this podcast on my site, there are pictures there of that. Or if you’re on iTunes, there’s a link in the show notes, click to those, you can go see them. But it’s a pretty nice sender. It looks kind of like a big department store slash shopping mall. It’s got JD everywhere. It’s got their dog. logo everywhere. Alibaba, T Mall has the cat, JD has the dog, so it’s cat versus dog. Really interesting. They have about three floors occupied right now and then two more floors, it looks like, that are empty, which are floors four and five, which I think they haven’t launched those yet. But really in the three floors, what they’re doing is it’s experiential retail. That’s the word, experiential. So we’re taking some digital aspects, we’re integrating it with the physical aspects of retail. And you know, so this is online merge offline, which we’ve talked about before, but this is definitely something new. They were doing a lot of things here I haven’t seen before. So anyways, show up at the center, and what they have under the logo of, or title of experiential retail, is basically you can try anything. That’s kind of the rule. So. You go to the little Nestle counter and they have coffee machines and you can use the coffee machines and try and make yourself a cup of coffee. So you can try literally everything in the store as far as I can tell. You can go over to the Dyson Vacuums. Dyson Vacuums are actually quite popular in China. It’s one of these cool consumer stores of China. They’re a lot more expensive, but Chinese consumers really like them. And they have floors set up where you can sprinkle. debris of some kind on the floor and vacuum them up and see how they do. They’ve got a lot of home appliances, a lot of consumer electronics, a lot of laptops, a lot of smartphones, they got video games. And you can try everything. Like I literally, one of the stores they had was Ninebot, which is these, you know, one wheels where you stand on the thing and you drive it around with your knees, I guess, and carts and things. And you can drive them around the store. Like I got on one and I was like, oh, this, they have a little track. That’s cool. And they’re like, no, no, no, you can go off the track, go around the store. So I peeled out and I went around this, it was really fun, that was like my favorite part. They’ve got a bunch of drones, you can fly all of the drones in the store. Now those they have nets, so you can’t fly them everywhere, but literally every drone they sell, you can fly them. Cameras, you can try cameras out, take pictures of stuff, they set up pictures of things you can try to take pictures of. They have classes, you can try, they have, headphones. If you’re selling premium headphones, well if you buy those online you don’t really know what it sounds like. It’s a photo on your phone. Well, they have listening boots and you can try all the different headphones and try them out and see which ones they like. So lots of interesting stuff. Video games, you can play those. They actually have washing machines and the washing machines are hooked up to water supply and they say that you can wash your clothes. They’re not totally sure how you do it, like you take off your socks and you put them in there. But in theory, literally everything in the store you can try. So when they say experiential retail, that’s what it means, trying every product they sell. And beyond just trying, they will have classes. They will help you. So in some sense, it’s a lot like an Apple store, where yes, you can go in and try everything. You can play on the laptops, but you can also go to the Genius Bar and get help for after sales. You can also take classes, which they offer at the Apple store. So it’s kind of that model, but it’s for everything they offer. Now within this 50,000 square meter store, they have what they call seven zones and 55 experiential categories. Now, generally speaking, it looks to me like what they have now, which is kind of version 1.0. They have a lot of home appliances. They have a lot of, uh, computers, communications, devices, sort of the 3Cs, gaming, laptops, things like that. They don’t have a lot of other categories, like no apparel right now that I could see. They have some makeup and some beauty stuff, but actually quite small. The Nestle thing I mentioned, very small. They’ve mentioned wine bars, again, very, very small. I suspect that’s version 2.0 that’s coming. But I think the first wave of this, the product categories look pretty similar to what JD is known to be good at, which is consumer electronics, computers, smartphones, home appliances, home devices, things like that, small and large blenders, toasters, washing machines, refrigerators, all of that. That looks like 80% of what they’re doing. And I’ve put the whole list of their centers on the website there, so you can see it. I suspect they’re gonna expand out from that, but I think that was what they were doing, sort of version 1.0. Okay, so does it matter? Now, I think one of the things that’s interesting about this is it raises the question of who cares? Like, if I’m gonna buy a fan, which I need to buy because like, Thailand is like super hot and the air conditioner is not doing it. Okay, does an experiential aspect of a product like a fan matter? No, not really. You know it’s going to turn, you know it’s going to generate wind. It’s a pretty basic commodity product. You might buy a little higher one or a little lower, but you don’t really need to try it. It doesn’t change the experience significantly for the consumer to try the fan. How about a toaster? I know what’s going to happen. Toaster is a toaster. Blender, not so. But I started making a list of situations in products where I thought the experiential aspect really did have some power to it from the consumer side. Okay. So here’s kind of my short list. Complicated products. Things like that you would buy in an Apple store. Where, look. you actually need to try it to understand how it works because you just may not be at the right comfort level to buy this. Let’s say they had a little section for 3D printing. If you want to buy a 3D printer, well I’ve never really done that. If I’m online I probably want to try it a couple times and see how it works and if it’s cool and what. I mean it’s just a little bit too technically complicated of a product for me just to buy online if I’m not already familiar with it. So complicated products. Yeah, you can see that that would actually make sense where you could try it out. Cameras. Cameras are pretty complicated products when you get into the more complicated ones like the DSLRs and the mirrorless cameras and all that. Okay, that’s actually helpful when you can try it and see it and maybe they offer classes. Maybe some cooking devices, things like that. So definitely complicated products. Really there is a great dimension that’s added when you can try it out. Another category I wrote was called premium products. Okay, now these are sort of basic products, but for some reason they’re charging more. So like the product itself is not inherently complicated. Let’s say like a TV. I know what a TV is, I know what it does. Okay, I just bought a smart TV here and I bought an LED TV and there’s two technologies, you know, that people compete against. There’s the OLED, O-L-E-D. I think it’s pronounced OLED. And then there’s the LED and LG is kind of the leader in OLED and everyone else makes LED. OLED is more expensive. Okay, I read about all this online. OLED was more expensive. I ended up just buying an LED because it was cheaper and it seemed good enough for me. Okay, you go into the JD-E space, they have a whole area about OLED versus LED. Someone tell me if I’m saying OLED incorrectly, if it’s pronounced another way. and they put them side by side so you can see the difference in the premium product and they had a lot on this. And after looking at like three or four different displays of OLED versus LED, it was like really clear that OLED is actually significantly better. So the experience part of that really showed me what justified the premium in a way I didn’t pick up just online. And after going to this, in retrospect, I would have bought the OLED and not the LED. So in that case, premium products this is a really good approach for them. They had some other sort of super premium products like when we went to home appliances something they had was a hundred thousand rem in be dishwasher which is like a seventeen thousand dollar dishwasher. Like why in the world do I need a seventeen thousand dollar dishwasher. That’s insane. Well they have someone there who can explain it to you. You’re not gonna convince someone to buy a $17,000 dishwasher with reviews online. You’re gonna need a salesperson in that scenario. So you talk to them and they explain, it was a beautiful dishwasher. Oh wait, not dishwasher, it was a washing machine. Washing machine and dryer. I haven’t done that stuff in years. So I don’t know anything about washing machines. Another one they had was a refrigerator and it was a 300,000 rem MB refrigerator. Okay so that’s what 45,000 dollar refrigerator. That’s a super premium product. There’s no way you’re gonna sell that online. You need the experience aspect. You need the salesperson aspect. You need to see it, you need to touch it, you need to try it, all of that. So complicated products, premium products, super premium would be a subcategory of that. I have another bucket I just called weird or niche products. which is like… like self washing devices for your floor or your windows. So I get these devices, you stick them on your window, like on the outside, I guess, if you’re on a high rise, and it’s a little robot and it sticks to the outside of the window and it moves around and washes it. Now, that’s one where it is actually helpful to see it and they have a big glass window plane and you can stick it on there and have it go and, okay. Weird products where the sales processes. A little confusing, like niche weird stuff. That in-person stuff kind of made sense to me. Okay, I get it now. They had a section on record players. Like who buys a record player now? Like if you’re selling record players, that’s a weird business to be in in 2019. But they had a whole room about record players and they were all modern versions of record players and why they’re better and talking to you about. That’s the kind of experience was okay. If you’re a niche or a weird product. It’s very hard to get that story across as a brand purely online. So that would be another category. Uh, what else? And then I had another one that was just unknown brands. If you’re an unknown brand, nobody’s ever heard of you. It’s very hard to get traction online because online you’re competing with, you know, tens of thousands, hundreds of thousands of merchants. So how do you break out if you’re just another product? Well, one way to do that is to take a space in an eSpace and get people and start to talk in person. So niche brands and a lot of these companies were doing what they were using their eSpace to launch new products and introduce them. And then the last one I would say is, oh, there’s two more. One is there was. Ninebot, the cart company, and then OnePlus, which makes smartphones, they both had spaces there. Neither of those companies have physical retail anywhere. They’re purely online merchants. This was their first sort of offline approach. So if you’re a purely online commercial product, a direct to consumer play, things like that, this could be a nice place to do that. So that would be one. And the last one I just call fun stuff. It’s stuff that just draws people into the space because it’s fun. So they had video games where, one, you could play the video game and then two, they would have local e-sports teams or even I think well-known e-sports teams come in and play each other and they had like two sides set up where one team sets in the red table and the other in the blue table and they all compete and it’s kind of like an event. So I mean that’s clearly something to bring younger people into the store because that’s who plays e-sports a lot. There was a little bit of makeup stuff and beauty treatment. So you could see some of this is just fun stuff to bring people into the space and try stuff out and discover and things like that. So kind of six or seven, I thought categories of products where suddenly this was pretty interesting. And then a lot of categories were like, look, I don’t need to see the toaster. One, I haven’t made toast in like 15 years. And two, I kind of know how that works. So that was kind of my walkthrough. Couple other points, the store now has about 300 staff and this appears to be, I mean JD is an interesting animal in it’s 50% of marketplace, it’s a platform business. You know, they have merchants, they have consumers, they connect them, but they don’t buy in, that part is not them buying or selling, they just take a commission or a transaction fee or marketing fees, but that inventory never shows up on their books. Now that’s how Alibaba works. That’s about 50% of their gross merchandise value, but their other 50% of their business is they are actually a retailer themselves. So they will buy the goods, put them on the shelves, they’re on their balance sheet, and then sell them. And on their income statement, you’ll see revenue, cost of goods sold, and you’ll see that. So they’ve always been kind of a mix of a business, which is similar to Amazon in the US, but definitely not the same as Alibaba, which is a pure marketplace platform. Now I asked them about this, okay, these 300 people that work here, who do they work for? Is this a retail business for you or are you acting like a platform? And it appears that this is a retail business for JD at this point. So this is all their goods they’re selling and of the 300, most of them are JD employees. Now there are some that work for the brands and merchants themselves, which I’ll talk about next. Now in an earlier lecture, I talked about sort of digital superpowers. Now we kind of get to the point. Is this a game changer in department stores? Now I, the way I’ve laid out this class is like most businesses don’t change that much. There’s a lot of technology that comes along, especially now a lot of digital stuff. And you just sort of build that into your business in various use cases. You know, banks didn’t used to have ATMs. Now they have ATMs. They used to have telephone banking. They didn’t used to have apps, now they have apps. They didn’t used to have, I don’t know, Wi-Fi in the retail outlets, the banking outlets, now they do. Okay, these things are just all technology advancing, but they’re not game changers. One of my sort of standard questions is, okay, does this digital tool, this technology, whatever use case you’re doing, is there a superpower here where such that if you implement this or your competitor implements this, it’s a huge deal? It’s not just a normal competitive back and forth, you hit me, I hit you. It’s a superpower. It’s like your competitor just got a superpower and you can’t do what they do. So I have a list of sort of eight digital superpowers where if one of your competitors gets one of these, you gotta go into panic mode. Now I think what Alibaba is doing with their supermarkets, the huma stores, the fresh hippo stores. I think that’s a game changer. I think it’s a digital superpower. I think traditional supermarkets are in deep, deep trouble. I think when Luckin Coffee did a lot of digital tools, I don’t think it was a game changer, a digital superpower versus Starbucks. They could kind of wait and see. Okay, of the eight, I’ve introduced two of them so far in the class. The first one was… Is this turning your business into a digital platform? Is platformification possible? Where it was a traditional business, like let’s say you’re a newspaper or a magazine, and suddenly, well let’s say encyclopedia, that’s a better example, and suddenly Google comes along and Wikipedia comes along with because of the digitization of information, they were able to build a platform play, and suddenly they’re offering Wikipedia for free. That’s a huge deal. So oftentimes when, a business starts to go digital, it enables a platform business model to emerge. Okay, I don’t think that’s happening at the eSpace. If they had maybe done a marketplace in this and they weren’t buying and selling, it would be possible, but I don’t really see a platform play emerging here yet. So not that one. The one that did get my attention was the other digital superpower I introduced was, does it create… a dramatic, is there a dramatic improvement in the user experience such that this is fresh hip-o the hummus doors. Like when you walk into an Alibaba digital supermarket, it is so dramatically better than a traditional supermarket. It’s like the old business model is obsolete. I think bike sharing did this when Mobike and Ofo came along that The idea of renting a bicycle in any other way became immediately obsolete. Now owning a bicycle is different. And we talked about ownership versus access business models in podcasts, I think number two. But it definitely made renting a bicycle from a regular rental shop obsolete because it so improved the user experience that consumers would no longer accept this. So does that change this scenario? Okay, now here’s a little qualifier, because I didn’t use the word consumer experience, I used the word user experience, because in the eSpace and in JD overall, there are actually, there’s more than one user group. It’s not just the consumers, they are in many cases a platform, which means they are connecting two different user groups. We had a whole talk on digital platforms, merchants and brands and consumers. you can change the experience dramatically on either side of the platform and have a big impact. Now, consumers is obviously very important, but you can also change the experience for merchants. Does this change the consumer or the merchant experience significantly such that a regular department store without this stuff is in deep trouble? Okay, now I would say there’s a couple things here that… that are worth thinking about and this brings us back to Alibaba. Now when I went to the Alibaba Intime store, I think it’s pronounced Intime, Intima, Intime, I think it’s Intime, which is their sort of, you know, Alibaba bought a department store chain a couple years ago and began digitizing it and I went and visited their flagship in Hanjo in November. And I kind of asked the same questions and… They basically in that store, according to the general manager, they are not changing the user experience yet. You walk into that department store, it’s just like walking into a regular department store. You don’t see anything different. And I think they just haven’t gotten to that yet. What they did do is they basically pulled three big levers. Lever number one, they really put a lot of work into their mobile app, where suddenly all the transactions are going through the mobile app. The mobile app wasn’t so good, not the Alibaba app, but the in time app. And they moved all the transactions, interactions, communications with consumers onto that app and the app did very well. It’s ranked much, much higher on the Play stores now. Okay, that’s actually a pretty big lever to pull because it sort of creates a two way mechanism of communication with your customers. Traditional department stores don’t know anything about you. You ever notice when you walk into a department store, the first thing they ask is, hi, what can I help you with today? Because they have no idea who you are, and they don’t know anything about you until you walk in their front door. If you’re walking down the street 20 feet away, they have no idea who you are or what you’re doing. Well, if you’re connected with a mobile app with someone, you know what they’re doing all the time. You have data, you know where they live, probably. You know how you figure out where people live. You just look at the location at 2 a.m. and that tells you where everyone lives. So that was a big lever to pull because one, you start to move all the payments there, but you create this constant connection with your customers and your potential customers in the area and you start to gather data and you can market and you can start to have actual engagement beyond putting someone with a sign outside on the sidewalk saying, please come in. Okay, so that’s a big lever. Second big lever they did is they sort of digitized operations. This is about being more efficient, saving money, being more productive. You get rid of all the cashiers. I think the Alibaba Hanzo store, they said they got rid of about a hundred cashiers and they just gave all the salespeople smartphones that all had Ant Financial on them and they could do the payments right there. And they digitized the inventory and they brought in Ant Financial. They brought in Sineo to do their logistics and supply chain. So a lot of digitization of the operations, that gets you a lot more efficiencies. That’s kind of an early quick win. You can save a lot of money, especially when you have hundreds of employees, you can actually move the needle pretty good on that one. I don’t think that’s incredibly exciting, but it’s important. And then the third big lever they pulled was on-demand delivery, whereby tying this in with Sineo, their shipment and delivery and logistics platform. Anyone living within a 2 to 3 kilometer radius can basically sit on their sofa, use the app, buy anything, and it will be delivered in a couple hours. At the Hohemann grocery stores, it’s 30 minutes. At the JD store, the e-space store, it’s 24 hours. Now that’s actually a huge move because if you’re a regular department store, your selling space, your retail floor space is basically the physical structure. That’s where you can sell. Once you get the app and the on-demand delivery in place, pretty much everyone living within a two kilometer radius, you can sell to them right now, almost the same as if they’re in the store. So you can sit on your sofa and order everything at home, just like if you walked into the store. That’s a big move. So those three levers, Alibaba pulled those, but they didn’t change the consumer or merchant experience significantly yet. And JD did the same thing with the eSpace store. They did the mobile app. There’s a mini program within WeChat for the eSpace store. They have on-demand delivery within 24 hours and they run the whole thing out of the JD warehouse in Chongqing because JD has got a huge, you know, logistics footprint and they just use the local one. Okay, fine. Do any of those change? Are they game changers, those three? And I’m gonna put one more on the table because this is where I think JD has done some cool stuff. Unlike the Alibaba store, what JD is doing with experiential retail is they are clearly trying to change the user experience. That’s kind of these scenarios I teed up. Like, they’re trying to change the user experience for certain product categories. But here’s the difference. There’s two types of users. There’s the merchants and the brands and there’s the consumers. And the way the store is laid out, which is really funny, is the first two floors are all about the consumer experience. And the third floor is kind of about the merchant and brand experience, where if you go on the second floor, where they have the LED TVs versus the OLED TVs, the brands don’t have their own spaces. All the products are mixed together within the category of smart TVs. And when you walk down the hallway, There’s all the TVs right next to each other and it’s all designed so you can compare products within a category. It’s focused on the consumer experience and it lets you try things because that helps you learn more. So does that change the consumer experience significantly enough in something like an LED or Smart TV or in buying a smartphone or in buying makeup or having beauty treatments? Is the experiential aspect on floors one and two, is it changing the consumer’s experience such that a traditional department store is obsolete? That’s kind of an interesting question. Then when you go to the third floor, the whole thing is not organized by category of product, it’s organized by brand. So here is the Samsung space. Well, actually that was mostly home appliances. So here’s the Bosch space, here’s the Phillips space, and they have all their products. And what those spaces are doing, it’s, they’re trying to be sort of a game changer for the merchants and brands where it gives the brands an opportunity to sell and tell a more complicated brand story. If you’re going to charge a premium for a product, let’s say like a washing machine or a vacuum, Dyson is a good example. If you’re going to charge twice as much, like a Dyson vacuum was 6,000 kuai, $1,000. You know, a typical vacuum in China is 100 or 200. So it’s like 10 times as much. It’s crazy. If you’re going to sell a premium product, if you’re going to sell a complicated product, a lot of these scenarios I just mentioned, you need the ability to sell and tell a more complicated story. You need more engagement. You need more communication. You need your own staff. And on the third floor, it’s not all JD staff. It’s 50% JD staff. It’s 50% staff from the merchants and the brands themselves. So is that a game changer? for the merchants and brands the opportunity for them to tell a more complicated story to have greater engagement and communication with their consumers. If you ask the merchants or brands, I’m making this up but I think it’s true, why are you in the e-space? It’s not because they want to sell products. They can sell products. They have their products everywhere. They’re in the e-space because they want greater communication and engagement with consumers and this gives them a place to do that. So the third floor is like, it’s an attempt to dramatically improve the user experience for merchants. That’s a digital superpower maybe. Floors one and two were organized by category, all staffed by JD people. That’s an attempt to dramatically improve the user experience for consumers. So you can see they’re going for at least four levers where Alibaba was kind of going to for pulling three. Let’s see if there’s anything else I want. I’m gonna basically put the question to you in a moment. So I wanted to kind of tee up those two stories of JD and Alibaba in time and the eSpace and then put on the table, you know, at least one concept which would be this idea of, is this a digital superpower? Does it dramatically improve the consumer experience? Does it dramatically improve the merchant brand experience? The second concept for today, I try and give you two concepts every time so we can keep building, keep building, keep building. The other one is an idea a lot of people are talking about which is personal personalization at scale. You know, the last hundred years have all been about mass market. Let’s do one product, one set of shoes. We’ll have a factory that’s built for scale. We’ll produce lots of copies of this one shoe and because we do a lot of one thing, we’ll get cheaper at it. Then we will put it all in stores. Then we’ll go mass market. It’s mass market production, mass market distribution, mass market retail, mass market advertising. We’re pushing one thing to hopefully a mass market audience. Okay, what we’re seeing now is increasing personalization, not just at the product level, but at the… assortment of products. When you go on Amazon, what you see is different than what I see. The website itself is personalizing the retail experience to you. And increasingly we’re seeing personalization at the product level where you can have custom shoes designed, you can have custom makeup made for your skin type, things like that. Everyone thinks that’s a powerful move because the more personalized something is to you, the more you’re going to buy. Which is by and large true. The trick with personalization is how do you do it at scale? If I have a little boutique store with 10 staff, I can personalize to you. You can come in, we can have a conversation. I can find what you need. Maybe I have it in the store. Maybe I order it for you. We have a conversation, blah, blah, blah. How do you personalize at scale is a question. Is it just recommending products? Is it designing new products? Is it tailoring? the experience itself, is it tailoring the communication, the marketing, the engagement. If we’re going to sort of a two-way relationship with a lot of ongoing communication with customers, is that gonna be different for me than it is for you for a company like Samsung? Yeah, it’s all gonna be personalized, the products, the retail, the experience, the communication, the marketing. And that becomes a real trick of how do you do it at scale. So is this an attempt to do personalization at a larger scale by tailoring the experiences to people? It’s hard to tailor the products to people at this point. When we get to new manufacturing, this idea that we’re gonna have a factory that doesn’t make 2,000 of the same thing per hour, it’s gonna make 2,000 different things per hour, eventually we’ll have sort of new manufacturing, new retail, new manufacturing. But right now a lot of the personalization is happening at the retail level, not at the product level, it’s happening at the marketing and communications level, and at the experience level. So is this an opportunity to personalize experience, which is a big lever to pull? I don’t know. We’re gonna talk more about personalization at scale, which tees up the question of AI, but that’ll be for another lecture. Okay, I’m gonna leave it there for now. That is kind of the question for today. which is the assignment. So if you’re leaning back, resting, wake up, pull out a piece of paper, pull out a pen, or use your smartphone, open up the notes section, and try and take a stab at answering this question. Is JD’s new eSpace a game changer in department stores, in China, anywhere? And one way to answer that question, is to use the right framework or to use a framework. And the framework I would say in this is, does it, is this a, are they creating a digital superpower where it is going to dramatically improve the user experience for consumers and merchants? And let me, I’ll tee up the answer to this, which is, it’s obviously not yes or no for everything. It’s gonna be certain product categories where it’s like, yeah, maybe right there it’s a big deal. So think about it at that kind of level makeup beauty appliances stoves consumer electronics computers things like that But try and sort of take a stab at that Is it a is it a game changer if you’re a department store down the street and you saw this opened? Are you in trouble? Are you panicked? Are you an oh my god? We’ve got to do something right now as Opposed to you know what we’re giant bicycles. We see what mobile can offer we’re doing. We’ll wait six months and then look at it again. It’s interesting, it’s not a mortal threat. Do you have to engage today or can you wait and see? So that’s the question. Is it a game changer in department stores and where? And think about digital superpower from the consumer merchant side and maybe think about personalization at scale. Those are kind of the two tools in your toolkit to apply to this question. Okay, that’s it. Take about five minutes, 10 minutes. Write about three paragraphs, a three minute pitch. If you were pulled into the CEO’s office to answer this question, and you get three minutes to give your answer, what would be your three minute pitch? Which is about, it’s about two to three paragraphs. Take a stab at the answer and say why. and then restart the podcast, come back, and I’ll give you my take. Okay, so that’s it. Do the test right now or give it your best shot, and then back in a couple minutes. And we’re back. How would you do? I find this a fascinating question. I’ve been thinking about this literally since I left this door. I’ve been kind of taking notes thinking about this. And all right, I’ll give you my take. I think… The part that struck me as a digital superpower, i.e. a game changer, is definitely the mobile app and the on-demand delivery because it just creates such a relationship with consumers and expands your radius of sales. If you’re, I mean, if you’re a, now one of the benefits of a company like JD and Alibaba is they already have the e-commerce site first. and then they’re building the physical asset on top of it. That’s a heck of a lot easier than going the other direction, trying to get people to engage on your app if all you’ve got is a local store. But imagine you’re a department store down the street and you’re still waiting for people to come in your front door, you know, and you’re doing advertising locally and you got people out on the street with signs, come on in, there’s a sale this week. And meanwhile, your competitor down the street, you know, has all the consumers. are a lot of the consumers in the same geographic area, they’re in communication with them because they have a very popular app and they can sell to them at their house because they have delivery. I mean, that is a really powerful set of capabilities that you don’t have. That one would freak me out if I was the local competitor. And you’d really have to get on that. Now, fortunately, you can actually replicate the delivery aspect in China fairly easily. because there are services that do this. I mean, you can sign up with various delivery groups. There’s a lot of, now the whole express delivery market of China is fascinating. It’s massive. Nobody talks about it. It’s absolutely massive express delivery market in China, much bigger than like the US. That part you can actually replicate. The harder one is replicating the popular app to get your customers on an app that they’re using and build that sort of two-way communication all the time. So that would definitely freak me out if I was a local department store. The other, I sort of have three conclusions for this. I’d say yes, mobile app plus on-demand delivery. We gotta go into panic mode. We have to replicate that right now or we’re in deep trouble. Number two, I think there is a dramatic improvement for consumers in niche products and in complicated products. Now I liked the LED versus OLED thing, but the truth is I can go into a regular department store and kind of see the same thing. There’s a lot of department stores that have, here’s this TV, here’s that TV. That didn’t strike me as like a game changer. Oh my God, we’re in trouble. What struck me as interesting was the complicated ones, like 3D printing. Like where else do you learn about 3D printing? What are the weaknesses of the traditional department store? is they have to use sort of the main mass market brands. Most of the stores, the brands you all know, you go into one department store after the next, let’s say if we’re in home appliances, it’s always the same brands. There are no record player showrooms. There are no 3D printing showrooms. There are no self washing machine, where the little washer goes on the window thing. It’s kind of these niche products and these more complicated products where you really do need to try them out in person. I thought that was very compelling from the consumer side. And I think the experience aspect is important. I think the niche brand niche product categories were pretty interesting. And it’s almost like surfing the web where you’re just hunting around and you always find new stuff. One of the things I like about YouTube. is you always discover new stuff you never heard of. You can hunt that website forever and you keep discovering new stuff. You’ve been to your local department store five times. You’ve seen everything. So I like the fact that they can sort of use their model to bring in experiential retail and niche products and complicated products. I thought that was compelling from the consumer side. Like, does it dramatically improve the consumer experience? No, but it’s moving in the right direction. And I think it’s probably gonna happen eventually. I think the product categories they started with kind of limited them. It’s not a lot you can show people about a washing machine, but apparel, fashion, makeup, beauty, there’s a lot you can do in person in those sort of things. And they did mention, I asked them, what was their most popular part of the eSpace, and they said for women, it’s basically the beauty section, which was very small. For men, it was the appliances, I think. Okay, so that’s number two, I give that a maybe. And then number three, which I think is probably the strongest one, is I think there’s a dramatic improvement in the experience for merchants in premium and complicated products. The headphones, if you are selling premium headphones, you’re in a difficult business. Hard to get them carried in stores, even if they are carried in stores, they’re just in a box behind the counter. hard to sell them online, you know, but what the store is offering them is an opportunity to set up their own space where people can actually listen to their product and engage with their consumers. So I thought certain categories, this was amazing for them. Like definitely the headphones was one that got my attention. I also think more complicated products where if you’re selling a high-end DSLR camera, you really want someone who can tell your more complicated story. and explain why your brand is better and all those subtleties and get people engaged. So I thought that was probably the most powerful lever I saw was the ability to give merchants and brands an opportunity to engage in a way that many of them can’t. And that’s kind of a cool thing that’s happening right now. There’s this funny idea floating around that real estate in retail is becoming marketing. that you’re no longer going into real estate, like, hey, let’s rent a shop, in order to move products, you’re doing it as a form of marketing. And it’s really maybe your only direct channel left. I mean, you’re trying to reach people online, that’s very difficult. There’s a lot of traffic online, a lot of people pushing for attention, maybe you’re dealing with marketplaces where you’re just one of many. Maybe your only direct communication with your consumers is in physical spaces you rent. So there’s this argument that maybe you need to take retail, I’m sorry, real estate out of that line item on the income statement and put it under the marketing budget. And that’s kind of what I saw for some of these brands was this was pretty awesome for them. If I was selling headphones, I’d be very excited about this. If I was selling those self-washing machine things that go on the windows, I would be very excited about this. So I thought that was almost the most powerful thing I saw. Anyways, that’s kind of where I am at my thinking right now. We’ll see as they sort of go from E space 1.0 to 2.0 to 3.0. We’ll see what it looks like in six months. But that’s kind of where I am. Anyways, if you have any comments on this, feel free to put them below on my webpage. And if you think I’m wrong, tell me. I’d really appreciate your feedback on what you think. I’m still mulling this over, but I do. I am sort of excited about this as a frontier of new retail, this department store shopping mall frontier because there’s so much more going on there than just, hey, I’m buying milk. So that’s kind of the space I’ve been looking at a lot at the last six months. Okay, I think that’s it for today. It is start of the new year. I’m going to be posting another little short podcast and or video with kind of a new year’s challenge. So take a look at it, maybe sign up with me. I’m gonna do it too, I’ll explain more. But it’s gonna be sort of a 30 day New Year’s challenge. I’m gonna do it, I’m hoping other people do it with me. I’ll give you more details, it’ll be a podcast and probably a video coming up in the next day or so. But I’ll send out a little note for that. But that’s basically it for today. Thank you for subscribing, thank you for being part of this. If you haven’t subscribed, please do so. You can do it at jeffertowson.com. There’s a 30 day free trial. You can click on iTunes, follow there. But it’s great to have you. Those of you who are subscribers, I really do appreciate it. Especially, some of you have been sending me feedback, which is such a big help. I really, really do appreciate these emails I’ve been getting saying, hey, I liked that, that was helpful, or hey, that was dumb, don’t do that. I’m still sort of iterating and improving this. So feel free, jeffreetowzen at gmail.com. Send me an email, all that feedback, it’s a huge, huge help. But that’s it for today. Happy New Year to everyone. Happy holidays. 2020, very exciting. It’s gonna be a good year. So I will talk to you next week. Cheers from Bangkok.