Chinese retail innovation
Leadership from retailers such as Alibaba and JD.com, with help from technology companies like Tencent, is pushing new retail concepts to the masses with impressive results. While the sheer growth and practices of the Chinese retail industry can offer Western retailers a vast array of valuable lessons, it’s important to note that Chinese strategies cannot be simply copied and replicated in the West. Yet, by observing the similarities and differences between the Chinese and Western retail industries, Western retailers can find a treasure trove of lessons to fuel future growth.
Let’s look at Chinese New Retail and Western practices through the lens of payments, privacy, and profits.
Chinese consumers adopted mobile payments very quickly, with 90% of the country using Alipay, WeChat Pay, or both. These solutions are based on connections to Chinese banks without involving credit cards and their associated fees. They are also based on the use of QR Codes, which are barcodes encoded with information that can be easily read with a phone camera. This mitigates expensive upgrades to payment terminals, thus increasing merchant adoption.
In contrast, the West’s attempts to create mobile payment systems were mostly based on existing credit card networks, and they required expensive Near Field Communication (NFC) hardware upgrades. Without an established and widely adopted mobile payment ecosystem, the West has had difficulty digitizing the store.
Many of the cashierless systems in China use technologies like facial recognition to identify customers with minimal friction. Customers are identified when they enter the store, they choose their items, then they are again identified exiting so that payment is automatically handled. In the West, there is much more concern about privacy. For example, Euclid developed a system that would track customers' phones within a store, but there was lots of pushback from customers and the project was cancelled. Since then there have been other attempts using technologies like BLE, but none have been widely adopted.
It seems the Chinese culture is more willing to give up some privacy in exchange for a better customer experience. In the West, however, legislation is going in the opposite direction with legislation and regulations like GDPR and CCPA.
The poster-child for New Retail has been Alibaba’s Freshippo grocery stores, which use facial recognition for payment, and can do 30min deliveries to nearby customers. However, their stores are not yet profitable. Analyst believe they may turn profitable in 2020, but for now they operate at a slight loss.
Additionally, several cashierless convenience stores, such as Buy-and-Go and i-Stores, have begun to close stores. This might be an isolated case of taking on too much debt during expansion, but it could also be indicative of supply chain issues or just consumers losing interest.
There is really cool technology being deployed in China that is impacting the retail landscape in many ways. But we must look carefully to see if these concepts really translate to the Western markets.
For additional information, download our white paper on Chinese Retail Innovation.
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- CloudSuite Retail