Retail as a Service
Technology disrupts every sector, and none more so than retail. So what innovation is around the corner for the shoppers, merchants, suppliers and distributors? A good place to look to is China.
The PwC report China's next retail disruption: end-to-end value chain disruption, points out that China has eclipsed the US as the largest retail market in the world. In Q1 2018 total retail sales of consumer goods reached USD 1,436.8 billion - up 9.8 per cent year-on-year. In China 50% of consumers buy products online weekly, compared to the global average of 22%, and 86% have used mobile payments to make a purchase, compared to the global average of 24%.
According to the PwC report, the sector is evolving from Digital Retail to New Retail: "Over the last five years China's retail market has experienced a digital growth miracle but its impact has mostly been on the front office: sales channels and marketing. We are now entering a period of new retail in which there will be far more transformation, digitising the entire value chain."
Here are some examples of what this looks like in practice:
- Transaction orientated shopping to entertainment-led experiences (eg Alibaba's Singles Day which has evolved from a discount-led shopping season into an entertainment festival, raking in USD $25.2 billion in 2017),
- Endless choice to curated choice,
- Online and offline separate to integrated online and offline formats,
- Demographic segmentation to hyper personalisation,
- In-house R&D to Co-creation (eg Mars collaborated with Alibaba to co-design and develop a chilli-infused Snickers bar),
- Compliance as a hygiene factor to traceability becoming a differentiator (eg Alibaba, Fonterra and Blackmores create a blockchain food traceability solution to enhance consumer confidence).
According to the PwC report there are two internet ecosystems in China - Alibaba, and the Tencent and JD alliance. "While each have evolved from different core competencies they have built independent ecosystems that span the entire value chain of online consumer experiences." In practice this means that customers have to pick their ecosystem because the "seamless consumer experiences" only exists if they stay within the 'walled gardens' of the internet giants. For example, US retailer Walmart is no longer accepting Alipay in Western China because it favours WeChat Pay, in keeping with its alliance with JD.
The report goes on to speculate about Retail as a Service created by the Chinese internet giants in vertical-specific (Grocery, Fashion, Home etc) business models. "In this scenario, brands and retailers plug into cloud-based solutions to enable next generation applications in: supply chain, product development, and production and sourcing."
Retail as a Service could turn out to be the only way forward for retailers - large and small - as they try to cater to the rising expectations of consumers. PwC surveys show that 29% of Chinese consumers expect online purchases to arrive the next day, as opposed to 6% of US consumers.
Personalised service is also expected, even though it requires consumers to share their data. In China almost two-thirds (61%) of those surveyed are "comfortable for a retailer to monitor my shopping patterns and purchases". Of course, China is also experimenting with a social credit system in which points are added and deducted for behaviour, with reports about people being banned from public transport and certain jobs because of low social credit scores. The growing prevalence of personal data collection in China may have an influence on the results around the retail experience, for example in the US only 34% of consumers were comfortable with retailers monitoring their purchases.
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