Retail is at a crossroads. The industry recently came off its best holiday in the past six years, but despite the top level performance, something still feels off. What’s amiss is that the fuel for the top line of the aforementioned growth is all coming from one place—digital, and specifically Amazon, in the form of the proliferation of long-tail brands and products. Traffic and year-over-year comp store growth for many legacy retailers’ actual physical stores still remains a slog.
The endemic problem with the above growth trajectory and the underlying dynamics is that the rate of digital penetration does not appear to be slowing down either. Statista predicts that e-commerce penetration will grow from 9% in 2017 to 12.4% by 2020. This growth will be fueled by an acceleration in the direct-to-consumer grocery business, which until now has lagged behind other product categories in terms of digital penetration, and by a general, continued increase in consumers’ overall preferences and desires to shop online, all of which will only place further pressures on the already strained capital structures of America’s brick-and-mortar retailers.
There has to be a better way, and fortunately, there is.
The answer lies in thinking beyond the constraints of the two-party system of retail operations, e-commerce and legacy brick-and-mortar retailing, and instead in employing an entirely new operating system for reaching and inspiring consumers to shop—a system that blends, yes, the best of what both current worlds have to offer but that also offers the best of an entirely new blend of human, digital and physical experience design, a system that gives consumers a new means of inspiration, selection, immediate gratification, physical sensation and convenience, and that ultimately renders the distinction of digital vs. physical irrelevant.
Alibaba’s concept of “New Retail” is the answer. It offers the hope of making American retail great again by removing the albatross of legacy retail thinking that currently sits around the necks of some of the country’s most hallowed companies.
Now, before anyone goes all Rising Sun, xenophobic or jingoistic on me, please know that this argument has nothing to do with politics, hats or slogans. Far from it. This argument is about doing the opposite, about looking beyond the American retail industry’s comfort zone in the quest to find answers to the complex problems that plague it.
So, today’s piece goes right to the heart of what Alibaba’s New Retail is. No bull. No flowery buzzwords. No words, like “digitalization” or “platformization,” that are a dime a dozen within industry parlance and bantered around like Valley Girl vernacular at industry trade shows.
No, instead, what you will hear today is the candid truth about what New Retail is, why it is important, how it actually works, and what American retailers should do about it—as fast as they can.
Let’s get right to it.
In the possible event that you are not up to speed on who or what Alibaba is, let’s get some blocking and tackling out of the way first.
Since its founding in 1999, Alibaba has grown to become China’s largest online commerce company, controlling, according to the Wall Street Journal, 80% of China’s online market. Alibaba’s online marketplace sites Taobao and Tmall service the Chinese C2C markets (think eBay on steroids) and B2C markets (think Amazon but more inspirational and discovery-based). In addition, its third-party Alipay digital payment system has been the most popular online payment system in China, where mobile payments are far more prevalent than they are in the U.S.
Over the past two years, Alibaba has become even more noteworthy.
In his letter to shareholders in 2017, Alibaba’s executive chairman Jack Ma discussed his concept of New Retail, the concept of moving, not just Alibaba, but all retail beyond the tired delineations of digital vs. physical. “Commerce as we know it is changing in front of our eyes. ‘E-commerce’ is rapidly evolving into ‘New Retail.’ The boundary between offline and online commerce disappears as we focus on fulfilling the personalized needs of each customer,” Ma wrote.
If a picture is worth a thousand words, then a YouTube video is like a Billy Crudup voiced-over Mastercard commercial—priceless. So, Ma’s vision of New Retail is best captured below:
The video may look wild to the American market, but no one should dismiss it on the basis of novelty. Starbucks just this past week announcedits own New Retail partnership initiative with Alibaba in China surrounding delivery. The initiative is imbued with the same principles shown within the video above and also complements Starbucks’ already incredible Reserve Roastery in Shanghai, which, wait for it, was also done in partnership with Alibaba.
The next video shows in even greater detail, through the specific example of Alibaba’s Hema Supermarket, that New Retail could indeed be closer than it may appear in America’s rear view mirrors right now (the irony of using an American car analogy intended).
I love Hema Supermarket because it is the single best example in the world today of the next great innovation in retail—the personalized physical space. There is an elegant simplicity in what it connotes, namely that shopping is no longer the same thing as buying. Hema showcases shopping as an innately social activity—an activity of sensation, discovery, camaraderie—while buying remains the act of simply acquiring something. One activity can be done completely without the other.
In the past, this was not the case. “Stores” existed as stores of inventory for both shopping and product acquisition. They existed to provide five things: immediate gratification, inspiration, convenience, taction (the ability to touch and try things on), along with the memory and delight of being somewhere. Hema Supermarket illustrates how the first three are no longer the province of a store. They can happen just as easily via a mobile phone or from atop the cushions of one’s couch with potato chips spilled on one’s lap. The last two, however, taction and the memory of being somewhere, still remain and likely will remain the canton of physical places outside the home.
Hema Supermarket is therefore the first modern attempt at scale to say to consumers, “You can have whatever you want, however you want, and whenever you want, regardless of whether you are physically within a store or not.”
Here’s the crazy thing: New Retail is easy to do, too. It just takes guts and a willingness to innovate.
While it may look complicated, implementing New Retail, whether it be across a grocery store, a mall or even a car vending machine, as the video above shows, requires experimenting, implementing and harnessing the power of three important concepts, what I like to call the Holy Trinity of Retail:
- Cloud Commerce
- Digital Shopping Applications
- Location Data Analytics
First, cloud commerce. Retailers need cloud commerce because in order to pull off personalized experiences within physical settings for consumers, data needs to be processed quickly and securely at an unprecedented scale and in coordination with every other system a given retailer employs.
For example, a retailer’s point-of-sale system and transaction log must be up-to-date by the second, its order management system and inventory accounting log must mirror that data at all times, and its digital e-commerce information must be stored and processed congruently with its physical location information in real-time as well.
Many retailers right now do not have a real-time comprehensive understanding of their customer’s transaction history and their inventory flow across the digital and physical divide. Many systems were created and still operate in isolation. It is hard to believe, but it’s true. Cloud commerce can change that.
Second, digital shopping applications.
I intentionally define digital shopping applications broadly because the term is meant to capture any software applications or any hardware devices that can be designed and utilized within the creation of New Retail experiences, whether they be for consumers or for employees. So, what fits the bill?
Digital shopping mirrors? Yes. Shop-and-go mobile solutions? Yes. You get my drift. These applications are what will give each retailer’s brand experience a definitive heart and soul within the economics of its own business model.
Third, location data and analytics.
Location data and analytic tracking is the third leg of the stool. When real-time data processing via the cloud and real-time application activity of users and employees combine with a real-time understanding of where consumers, employees, inventory and even physical beauty are in relation to each other within time and space, then retailers really begin cooking with gas.
This coordination gives retailers an unprecedented level of data captured both online and offline, and, as a result, retailers can then tailor physical experiences uniquely to individuals just as one’s Facebook feed is uniquely tailored to every individual right now. The physical world then becomes a real-time manifestation of users’ implicit as well as explicit commercial desires.
The above may sound complicated and technical, but it is not. Alibaba wouldn’t be able to experiment with a myriad of new retail concepts if it were.
What makes the above simple is that Alibaba’s approach is greenfield. U.S. retailers need to think like Alibaba and implement new ideas with an experimental mindset. They need to conceive of ideas within their business models that align with their existing brand promises but that can also exist on their own. If successful, these ideas can then molt back into their valuable physical real estate assets over time. Physical real estate, after all, is still one hell of a barrier to entry against the competition.
Harnessing the power of the Holy Trinity and taking a page from Alibaba’s New Retail playbook in this greenfield manner would reinvigorate an American retail industry that is stuck in the days of student-body-right play calling.
In no short order, it would:
- Give American consumers a new reason to get off the couches and rediscover the social joys of shopping.
- Bring excitement back to the real estate industry at the local level, as the tech required would make it easier and more efficient for local businesses and entrepreneurs to stand up new ideas with less risk.
- Slow the tide of retail job dislocation that is likely to come from the further dissolution of old-line retailers stuck in the game of trying to automate and cost save themselves out of the rut in which they currently find themselves (cue Willie Sutton).
- Breathe life back into the social fabric of American communities.
The technology is out there.
It is out there to enable retail and real estate development to work together and to create new expressions of physical commercial experiences that are not mass experiences built from the top down and forced upon city after city, but experiences that are built from the ground up and unique to every individual locale.
The retailers that have the guts to put their histories behind them, to look to Alibaba and others for inspiration and partnership, and to experiment unbridled within the ethos of New Retail will find that New Retail is not so much about the red hat of Making America Great Again, but rather more about the proverbial white hat of the American frontier cowboy riding into save the day.
