A market of extreme competition
While America’s top 100 retailers account for approximately 40% of its retail market, China’s equivalent enjoy just 6.4% of total sales of consumer goods.
What this means in practice is a market of extreme competition where every brand must strive to stay ahead of the pack, because if they don’t, there are literally thousands of willing brands eager to take their place.
As different as China is, the market isn’t on a totally separate trajectory to the rest of the world, but in many ways simply just further along in its development. Here, we look at the evolution of five key pillars which define the elements that make up the new retail landscape.
China is now the world’s largest cashless marketplace. In 2018, mobile payments in the country became a US$17 trillion industry. Alipay and WeChat Pay each handle more payments per month than PayPal does annually and they’re rapidly transforming China into a cashless society. From big end of town retailers to street-side vendors, it’s almost impossible to find a retailer in a major city that takes other forms of payment as the standard.
The next horizon? Alipay is now trialling facial recognition payment system infrastructure. One could almost argue that QR-codes are already on their way out with biometric payments taking over.
In years gone by, customers around the world were won over and then stayed loyal through individual relationships with sales associates who knew and understood them. Today, it is increasingly hard to maintain consumer loyalty in China where the sheer volume of interactions between brands and consumers mean personal interactions have given way to mass convenience.
Progressive brands now use a bevy of tools at their disposal to recapture the power of personalisation of yesteryear, but this time at scale and with greater intimacy than ever.
AKQA partner HeyShop is a platform which allows retailers and brands all over the world to open their own online store and serve Chinese consumers. The organisation has now branched into physical retail stores.
Accessible and immediate
Across the board, Chinese customers have grown accustomed to shopping online - particularly via mobile devices. In 2019, eCommerce will account for about 35% of total retail sales in China. A sizeable 80% of this is mobile. The incredible speed in terms of both responsiveness to market opportunity and provision of services have created hungry and demanding customers who expect to have products and services available to them exactly when and where they desire.
With grocery stores like Hema, 7Fresh and even the massive RT-Mart now delivering orders within 30 minutes, the incentive to purchase frozen products has diminished, as fresh fruit and vegetables can now be ordered on a daily basis and delivered right before being cooked. There are currently 355 million users of delivery Apps in China – and a quarter of all Chinese regularly have food brought to their homes and offices.
It’s easy for Western brands to be dismissive of this trend owing to labourforce limitations and dispersed population challenges common the world over. The first food deliveries by drone have started in Shanghai’s Jinshan Industrial Park by Eleme. The drones operate on 17 different routes from over 100 local restaurants allowing them to cover an area of 58 square kilometres. JD.com is also experimenting with product delivery via flying drone and testing unmanned vehicles. The latter is currently responsible for last-mile delivery in several universities, commercial and residential areas in Shanghai. McKinsey estimates that autonomous delivery options will account for 80% of all product delivery within 10 years.
Experiential and Immersive
At AKQA, we believe the interface is now the brand. That is, modern brands are the sum of experiences people have with them - not just one stand alone piece of content, interaction or campaign (or even a handful of them). Compelling modern brands are built holistically using a non-linear narrative. Rather than assuming that everyone will follow a particular path in their discovery of the brand, ensuring each touchpoint plays its role in an overall brand story.
Some time ago, the role of a physical retail space was to incite and conduct purchases. Increasingly however, brands from Starbucks through to bookshops in lower-tier cities are using these spaces to allow consumers to experience the brand - driving awareness and generating loyalty.
The M·A·C Cosmetics Experience Centre in Shanghai blends product discovery, social engagement and purchase into an immersive brand universe, making it one of the most sophisticated interactive retail experiences in the cosmetics category in China. Created by AKQA’s sister agency Wunderman Thompson, the M·A·C Cosmetics Experience Centre was the result of six months of research to understand GenZ makeup purchase behaviour.
Omnichannel has undoubtedly been one of the go-to buzzwords of every consumer-facing industry for some years. The modern incarnation is less about simple ‘integration’ and more about putting the consumer at the centre of the brand ecosystem, rethinking the provision of products and services accordingly (much like the Meituan Dianping enabled experience outlined above). Mobile devices are increasingly used as the key with which a seamless, omnichannel experience is unlocked, allowing the end-user to transition without friction between touchpoints.
Hema supermarket is a chain of supermarkets owned by Alibaba group, which seamlessly blends online and offline elements into one cohesive end-to-end experience. The entire experience is enabled by the App which can be used to order for delivery, but also facilitates the in-store experience where customers can order whilst standing in the store and have items shipped ahead. Delivery is free and occurs within a 30 minute delivery window, 24 hours a day. All product in store (even live product) has a QR or barcode which can be scanned in the App to receive supply chain information, preparation tips and recipes. The experience is so mobile-centric that Hema's website doesn't offer online shopping functionalities. Instead, it redirects users to download its APP by touting the benefits and encourages them to visit one of Hema's physical stores.
On a slightly smaller scale, last year AKQA partnered with Nike in the wake of the Shanghai Marathon to create the Never Done Shop - a mobile-centric omnichannel experience which challenged users to participate in real-world challenges in the weeks after the marathon.
Where to next?
It’s easy to read things like this, be excited (and perhaps a little overwhelmed) by all the possibilities but either not know where to start or slip straight back into complacency. Instead, here are three key lessons we believe anyone can take into their strategy.
1. Solve for one, scale for many
Take the time to understand individual human pain points, but then solve for them in a way that doesn’t inherently limit future possibilities. A great example of this is our friends at HeyShop who experimented with having large in-store touchscreens for customers to interact with to discover more about product. They realised quickly that this trapped all the information they had available in an experience that only one or two people could interact with at a time (for that matter, they also had to maintain the infrastructure and use up valuable wall space). Instead, they transitioned to codes on product which could be scanned using personal smart phones carried by every customer.
2. Think of experiences like they’re software
Rather than obsess over delivering your ultimate vision on day one, get something out there which solves for the challenge you’ve identified in a way which is true to your brand… and then iterate and update based on new insights, opportunities and the like. This seems obvious, but for many reasons it’s just not been an attitude Western markets are comfortable applying to the physical world. For example, Meituan Dianping’s bike sharing service typically has around five generations of bikes in-market at any time, each of which boasts updates based on learnings from those which came before.
3. Lean in to the home advantage
That is, work with the possibilities of the channel your customers are in and use all the tools at your disposal to elevate that experience, rather than try to send them someplace else. Gentle Monster gives in-store visitors an experience they’ll never get online. Hema pool stock from multiple places (stores and warehouses) for online customers meaning they have a greater selection than any one store could offer. Instead of trying to completely solve for the challenges of each channel, how might you amplify what they have going for them? For example, virtual trial can be conducted when a customer is on their couch. If they’re in your space, why not amplify their ability to touch, smell, feel and get their hands on your product or try out your service?
There is no singular solution for winning in retail, and each market has cultural and behavioural nuances which result in unique opportunities on which to capitalise. However, the pressure-cooker that is China has created an environment in which ambitious and innovative brands can create and adapt at pace, causing progress at pace and giving us a glimpse into the future.
Sam Sterling is MD at AKQA Shanghai.