In the rapidly evolving landscape of retail, the digital revolution has fundamentally altered the way consumers interact with brands and make purchases. The transformation has been particularly pronounced in China, where the concepts of "new retail" and digital commerce have reshaped traditional brick-and-mortar stores. Back in 2016, during a time when buzzwords like "digitalization" took center stage, the question on everyone's lips was: Which tech giant would serve as the backbone for offline retail—Alibaba, Tencent, or JD.com? Fast forward to 2024, and it appears the answer has emerged as a cautionary tale of sorts.
The journey of e-commerce companies into traditional retail has been marked by numerous partnerships, acquisitions, and even divestments, yet many still fail to grasp the nuances of brick-and-mortar retail. In a striking turn of events, JD.com no longer holds shares in Yonghui Superstores; instead, they have transferred their stake to Miniso, a trendy discount retailer. Meanwhile, Fat Donglai, a company that has emerged as a quintessential retail beacon, has sparked a wave of transformation and support for struggling stores. Furthermore, Alibaba, after a decade of holding shares in Intime Retail, made the decision to sell—signifying a major shift in strategy and focus.
The sale came to light on December 16, 2023, when a rehearsal photograph of a signing ceremony hinted at a significant transaction involving Alibaba and Youngor Group. On December 17, Alibaba confirmed the sale of Intime Retail, incurring an estimated loss of 9.3 billion yuan. This sharp decrease in valuation reveals Alibaba's resolute commitment to focusing on its core e-commerce business.
Since a new management team took charge in September 2023, divesting non-core assets has been a longstanding agenda at Alibaba. During a financial results conference on February 7, 2024, Alibaba Group's Chairman Joe Tsai acknowledged that physical retail is not the focal point of Alibaba’s strategy. However, considering the current market conditions, he indicated that exiting the physical retail landscape could take time. The transition accelerated in March 2024 when Alibaba discontinued Retail Pass, a service designed to assist small grocery shops, integrating the functionalities into its platform, 1688. During the same year, whispers of potential acquisitions surrounding RT-Mart and Hema peaked.
Reflecting on the ambitions spurred by Jack Ma’s provocative assertion about the impending end of pure e-commerce, his vision was one that saw "new retail" as the future. The company made pivotal advances from 2017 onward, achieving complete control over Intime and RT-Mart's parent company, Hasbro Retail, and subsequently engaged in a series of new retail experiments.
Key endeavors undertaken by RT-Mart included the launch of the "RT-Mart Fresh" application, facilitating online grocery shopping; revamping store digitization for consistent pricing across online and offline platforms; experimenting with different supermarket formats such as "Zhong RT-Mart" and "Xiao RT-Mart"; and integrating Alibaba's online grocery and community group buying initiatives, which culminated in the platform "Taobao Grocery" in May 2023.
On the other hand, Intime was busy establishing an online presence through various mobile applications and mini-programs on WeChat and Alipay. They also introduced same-day delivery services that claimed up to 80% of their stores could fulfill orders within an hour. Their efforts at store digitization aimed to streamline product selection, restocking, and recruitment processes, heightening their competitive edge.
What defines 'new retail'? According to a report released by Alibaba Research Institute in 2017, new retail is described as a data-driven retail form centered around consumer experience. It encompasses a digital overhaul across the entirety of the value chain, linking various shopping scenarios through data flow. The operational highlights include replacing physical delivery with enhanced logistics, yielding a noticeable uptick in online retail sales.
Despite admirable efforts to marry online and offline engagement, both Intime and RT-Mart have faced insurmountable challenges. In recent years, while online sales ratios have increased—for instance, Intime’s online sales jumped from 5% in 2019 to 23% in 2023—these achievements have not been enough to alleviate the pressures on profitability. According to financial reports, the average monthly sales per RT-Mart location plummeted significantly, resulting in a negative net profit margin for the brand.
In this particular narrative of e-commerce giants attempting to reshape offline retail, it's crucial to note that Alibaba is not alone in its struggles. In 2015, JD.com made a notable investment into Yonghui Superstores, acquiring a 10% stake, which later increased to become Yonghui's second-largest shareholder. Despite ambitious O2O (online-to-offline) collaborations, including direct online services, Yonghui’s financial performance reflected dire challenges, resulting in losses by 2023.
While e-commerce platforms like Alibaba and JD.com found initial success in transitioning to O2O models, they failed to achieve lasting changes across the retail landscape. This has led to the rise of alternative players who have effectively maneuvered through the e-commerce storm. Companies such as Dada, which specializes in grocery deliveries, and Sam's Club in China are thriving—each projecting notable revenue growth in 2024.
The persistent struggle of e-commerce platforms illustrates a disconnection between digital innovations and the persistent challenges plaguing traditional retail models. While online engines might have effectively driven customer engagement, the high operational costs associated with supply chains and physical stores remain formidable barriers. Companies such as Fat Donglai have embraced a more fundamental shift, reevaluating their teams, merchandising strategies, and customer engagement methodologies.
To gain a competitive edge, retailers must not only participate in the supply chain but also reimagine how they address cost structures. Sam’s Club’s approach demonstrates this, strategically planning product offerings that source cost reductions during raw material procurement stages. The meticulous process of establishing products can span 12 to 18 months, highlighting the need for foresight within retail strategies.
Additionally, creating distinct shopping experiences necessitates differentiation. Private labels have emerged as pivotal tools in delivering unique experiences. For instance, about one-third of Sam's Club and Fat Donglai's sales come from their respective private-label brands, a strategy that various other retailers are beginning to adopt more rigorously.
The challenge then remains for e-commerce giants struggling to create unique shopping experiences versus traditional stores. While digital platforms may harness big data analytics to forecast consumer trends, applying the same rigor to complex supply chains is still a substantial challenge. Here, feasibility often collides with ingrained habits secured over years, obstructing innovation.
In terms of shopper in-store experiences, there is a consensus on the future trend towards experiential and scenario-based shopping among online and offline retailers alike. Retailers such as Costco have mastered creating thematic shopping atmospheres, appealing directly to consumer preferences in physical spaces. Digital engagement chiefly compares to inviting Instagram influencers to drive foot traffic but rarely translates to deep consumer experiences.
Once painted as the dominant figures in transformational commerce, digital titans are finding themselves recalibrating their approaches. As digitization matures, the essence of retail increasingly pivots back towards prioritizing user experiences and immersive consumer environments. The shift away from e-commerce platforms owning the "new retail" narrative signifies the arrival of a new age—where traditional businesses once again wield considerable influence over retail dynamics.