The ‘New Retail’ Revolution

By Dong Feng and Huang Ge Source:Global Times Published: 2017/7/17 18:13:39

Alibaba’s Hema Fresh Store leads the way in transforming China’s shopping world

A customer has a picture taken with a lobster at the Hema store in Chaoyang, Beijing on Thursday. Photo: Dong Feng/GT

The concept of "New Retail," which was created by Jack Ma Yun, Alibaba Group Holding's founder and chairman, in late October, is gaining momentum in the domestic markets. Hema Xiansheng, Alibaba's newly founded online-to-offline platform, is putting the novel retail business model into practice, an effort experts say is changing China's traditional retail sector. Despite its large growth potential, the new retail sector still faces many challenges and uncertainties.

Hema Xiansheng, which is also known as Hema Fresh Store, is likely to reshape the landscape of China's retail industry.

It is an online-to-offline (O2O) e-commerce fresh food start-up, backed by domestic Internet titan Alibaba Group Holding.

When Jack Ma Yun, Alibaba's founder and chairman, coined the term "New Retail" at a conference held in Hangzhou, capital of East China's Zhejiang Province, in October 2016, domestic consumers tried to figure out how the concept might unfold.

As a pioneering example of New Retail, the Hema Fresh Store was initially launched in March 2015 in Shanghai. On Friday, Ma visited the Shanghai outlet and ordered king crab and Boston lobster onsite.

The first flagship store of Hema opened in Beijing's Chaoyang district in June and the second one in Beijing opened on Monday. A total of 13 Hema fresh stores have so far been launched across Shanghai, Beijing and Ningbo, East China's Zhejiang Province.

Hema is more than a shopping mall. It integrates the online and offline worlds with logistics and data in a single value chain, offering customers a unique one-stop food center experience. Various options are offered in Hema, including butchery, vegetables, dairy, frozen seafood, hotpot, bakery, and wine.

"I often order fresh food, including vegetables, meat and fruits, on Hema's online platform, and they can be delivered to me within an hour. It is very convenient and the quality of the fresh food is guaranteed," a Beijing resident surnamed Zhang told the Global Times on Sunday.

"The offline Hema Fresh Store also impressed me. Customers who buy seafood can get them cooked and served at the center," Zhang said, noting that ''this takes quite a while, however."

When paying, there are options for both staff-supported and self-service checkout counters, but neither accept cash and rather both focus on the future-oriented quick payment platforms. Hema Fresh recognizes Alibaba's Taobao and Alipay as its main quick transaction platforms, with the Hema Fresh app serving as the only payment platform no matter which channel the consumers choose.

New Retail has therefore gained rising momentum in the country recently as more and more domestic companies are stepping up efforts to advance their O2O businesses.

New drive

During recent years, Alibaba has employed its spending power and logistics know-how to advance the collaboration of online commerce with offline shopping.

In January, Alibaba proposed a bid to privatize Intime Retail, a leading Chinese department store and mall operator. The deal is consistent with Alibaba's strategic goal of enhancing its integration with physical stores and developing its "New Retail" concept.

In February, Alibaba made another move when it announced a new retail strategic partnership with Bailian Group, China's leading retail conglomerate.

Pure e-commerce will become a traditional business and will be replaced by the concept of New Retail - the integration of online, offline, logistics and data across a single value chain - Ma told the conference in Hangzhou in late October.

New Retail is becoming an emerging driving force in reshaping the domestic retail industry as the e-commerce business is evolving to its next inevitable phase; the era of pure online retail has ended, Zhao Nan, deputy director of Ebrun Institute, told the Global Times.

The key purposes of New Retail is to gain deep understanding and analysis of online consumers' preferences, to roll out the next generation of online brands and to be aligned with the process of reshaping the manufacturing industry, Zhao said. "In the New Retail era, those enterprises that look primarily at e-commerce as the core channel to sell surplus stock and end-of-line items will be out of the game."

In addition, recent public concerns persist with regard to the impact that e-commerce players have made on traditional shopping systems.

Zhao noted that instead of positioning e-commerce as the competitor of traditional retailers, the New Retail concept aims to converge different business models.

A huge revolution

Not only is Alibaba eager to catch the novel retail trend, but so are other domestic e-commerce platforms.

JD DaoJia (JDDJ), an online direct sales company under the O2O unit of Chinese second-largest online retailer Inc, released the "Retail Empower Strategy" on April 13 to help traditional retailers improve weak links and to reinforce online transformation.

"The Internet has been helping the Chinese fresh food retail market engender a huge revolution,'' JDDJ CEO Kuai Jiaqi was quoted as saying in a statement the company sent to the Global Times on Friday.

"Merchants are now able to build their own territory online by virtue of JDDJ's platform, by which the traditional retailers can overcome limit on time and distance," Kuai said.

Traditional retailers cannot fully satisfy the needs of present consumers due to the lack of logistics, order processes and online experience, said the company.

The home delivery service is becoming an important business model as it could satisfy the rising demand of consumers in today's society, Cao Lei, director of Hangzhou-based China e-Business Research Center, told the Global Times.

As the government is beefing up efforts to help the retail sector transform, a revolution in the retail industry will be truly realized once online and offline channels further integrate, experts said.

Uncertainties and challenges

Although New Retail seems to possess large growth potential, uncertainties and challenges still remain in the sector, experts said.

Alibaba is still in the middle of experimenting, said Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting.

In the view of Lu, Hema Fresh has not earned solid revenue so far.

"All chain shops under Hema are not able to cover the entire country so far… Given that consumers have to travel far to the chain shops, it is not realistic to retain them in the long run," Lu told the Global Times on Thursday.

Currently, for those consumers who are located further than a reasonable delivery area - that is, further away than a 30 minute drive - they will not be able to place any order via Hema's app.

Experts also said that the New Retail concept is not mainstream yet and is considered to be applied in first-tier cities where sufficient operating resources such as logistics can be provided.

Sustainable development of platforms like Hema Fresh is critical and the operating teams need to continuously enrich the goods, maintain the fresh food, ensure orders are delivered in short time, keep the price competitive and ensure food security, said Cao.

Lu said that if Hema Fresh can find the balance between operation cost and consumer satisfaction, this experiment might succeed.

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