Pioneers of the past were told “go west”. In the world of multi-channel retail, this has been very much the case in the last few years as the US has seen an explosion in online sales. Like most pioneers many have ended up with arrows in their backs so now, as China’s retail world is rapidly swinging towards multi-channel formats, the opportunity to take what has been learnt into a new frontier is huge.
BCG believes China has the potential to offer 200m online shoppers within the next 5 years – a bigger and considerably richer online market than any other on the planet. The rate of adoption of online retail is already impressive, in the last four weeks; every educated, high-income manager we have met in Shanghai has claimed to buy “at least” 90% of their groceries online. One mother enthusiastically spoke about how her eight-year-old son actively searches the Tao Bao malls for his next birthday present. For these kids toy stores are no longer physical environments.
Global retailers see this. In August Walmart snapped up a 51% share of Yihaodian – one of China’s leading online players. Yihaodian themselves have opened “QR stores” in the southern cities of Guangzhou and Shenzhen where shoppers scan products on their phones for delivery later in the day (yes in the day!).
Manufacturers are also beginning to feel the pinch: Sony has seen its sales in physical retail decline as TaoBao malls have grown and as the traditional leaders in the market Suning and Gome have shifted sales online. Even dairy companies recognize sales of milk online have reached notable levels.
This is provoking huge changes. Gome and Suning (mentioned above) have been hit hard by online retail. As sales have shifted onto their own websites and others like 360buy.com, stores have been hit hard. Gome put out its second profit warning of the year. Four weeks ago Suning (China’s largest retailer), in perhaps the bravest retail strategy move ever, have announced a wholesale change in their retail philosophy. Sun WeiMin, Suning’s president and head of Suning.com, recently stated the intention to re-position the appliance retailer as “A combination of Amazon and Walmart”. If this is successful this will be the first time a 1700-store retail giant has dramatically changed its offer, solely in response to pressure from the online world.
Multichannel retail has three major implications: firstly it democratizes demand, making wider ranges available to a broader base of shoppers faster than bricks and mortar can possibly deliver; second it demands a complete re-think in shopper engagement, requiring greater consistency and continuity throughout the path-to-purchase and; thirdly it dramatically changes the supply chain, requiring absolute levels of product availability that go way beyond the current expectations of traditional retail.
These implications affect the operations of retailers, manufacturers and agencies alike.
Retailers will face enormous financial pressures as stores become less competitive. Retail is a low-profit model that depends on massive returns on capital employed in bricks and mortar and inventory for its survival. Those who will survive will not only have to re-engineer their marketing models to keep stores attractive whilst capitalizing on online opportunities but also they will also need to re-invent the underlying financial models they use to stay profitable.
Manufacturers will come under massive pressure as the demands of retailers increase to match online prices and to meet shoppers’ expectations for product today. Traditional mass-marketing models are becoming irrelevant as personalization drives shopper choice and as the line between “above-the-line” and “below-the line” disappears.
Agencies will have to respond by thinking ‘beyond 360’ and into the creation of contiguous shopper journeys – the rules for which are only just beginning to be written.
With all this change happening in the world’s largest emerging market multi-national players have some tough questions to answer:
- Do we understand the implications of the shift to multi-channel retail in China? If not, now is the time to understand which consumer groups will be served by online shoppers and how to maintain and grow sales to these groups in new environments.
- Do we have the right talent in China? If the leading thinkers in online currently reside in the US or Europe can this talent be leveraged in China or is new talent required. If so how can this talent be developed now?
- Do we have the willingness to embrace change? The status quo is always attractive but expecting the future to emulate the past is the easiest way to wholesale collapse. Organizations need to embrace the potential changes rapidly to get ahead in China.
For the last twenty years China has been the game changer for many companies, now is the time for multi-channel pioneers to “Look East”.
Featured Image: Ogilvy Shanghai