A consumer uses an app on her mobile phone to scan a QR code attached to a coat at a store in Wenzhou last month. Photo: IC

 

Just two years ago, "online to offline (O2O)" was merely a concept in China, but now, the mode is regarded as the new trend of the entire retail industry and is expected to become most influential on people's purchasing habits.

Currently, O2O is mainly and widely applied to the service sector, particularly popular with catering services and at cinemas and beauty salons, where consumers have to visit a venue in-person to enjoy the services offered by retailers. For instance, O2O allows customers to receive sales promotions such as e-discounts, which can then be applied to offline orders.

The trend is somewhat starting to take off, with the number of O2O customers in domestic service-oriented markets reaching 135 million users last year, a 65 percent rise year-on-year, a figure that is expected to hit 293 million users in 2015, with an annual growth rate of 20 to 40 percent, according to a report earlier this year by Beijing-based Internet research firm iResearch.

Analysts also predict the trend to continue, confident the flame of this mode will spread to every corner of the retail industry, bringing along with it great changes to the sector as domestic retailers, and particularly those online, start realizing the full potential of O2O and begin proactively embracing the market.

"Without a doubt, O2O is the trend. Traditional brick-and-mortar retailers and business-to-customer e-commerce platforms will finally walk together in deep cooperation and integration," Li Bin, executive vice president of online shopping platform suning.com, told the Global Times.

E-commerce giant Alibaba in China slipped into the O2O market some time ago, but has been slowing expanding its reach in the sector, this year tying its shopping platform Tmall to the goods, services and consumer bases of Intime Retail (Group) Co's 35 stores in time for Singles' Day - the November 11 holiday in China that serves as more of an excuse for bachelors and bachelorettes to make online purchases to their hearts' content to mark the occasion. It made the move just two months after Alibaba introduced mobile e-commerce platform Tao Dian Dian, which allows users to pre-order restaurant dishes before heading out to eat.

Another e-commerce player, jd.com, followed closely, piloting its O2O project in Taiyuan, North China's Shanxi Province days later on November 18, in partnership with local convenient store chain Tang Jiu.

Shoppers there can now buy virtual goods illustrated on posters at Tang Jiu stores via JD's mobile app by scanning quick response (QR) codes to place orders, after which staff provide door-to-door delivery service.

But customers aren't the only ones who stand to gain from the added convenience of O2O. Retailers, both on and off the Net, have opportunities, too. 

Winning delivery

As traditional retailers suffer from high operating costs and online users' increasing purchasing power, it's crucial more than ever for them to seek out new modes of business, Wang Tingting, an analyst with iResearch told the Global Times on Tuesday.

According to an August report based on a survey of nearly 300 chain stores and firms by China Chain Store & Franchise Association, the sales volume of China's top 100 chain enterprises hit a staggering 1.87 trillion yuan ($306.9 billion). Though the number was up 10.8 percent from a year earlier, it was the lowest annual growth rate in history.

Some see O2O as a way out of this hole. Confident in the O2O world, Suning Corp, a domestic home appliance retailer, has already closed some of its offline stores, and has unified the prices of items sold at existing offline stores with those available on its e-commerce platform suning.com.

O2O is also a way for e-commerce platforms to break through management bottlenecks at consumer bases and with logistics, said Wang.

Yet analysts and online platform proponents also note that the offline market has and always will maintain the largest consumer flow, despite people's impression that offline stores may be replaced by online e-commerce with help from the Internet.

Offline consumer flow is much larger than online traffic, said Hou Yi, head of JD's O2O arm, at a November 25 press conference in Beijing, expecting to lead Tang Jiu's daily flow of some 300,000 customers to JD's online arm.

Alibaba said that it has also used Tao Dian Dian to attract new customers, but Kun Yang, head of Tao Dian Dian's development, declined to disclose specific numbers to the Global Times on Tuesday.

Apart from more customers, O2O can also help to save online platforms' operating costs, given that local stores can coordinate storage and delivery resources, said Hou.

But for the best result, online platforms and offline retailers must set aside their competition and further integrate to improve consumers' purchasing experience, Intime Retail's CEO Chen Xiaodong said at a press conference in Hangzhou in October.

Knocking heads

Yet not all traditional retailers share the same view as Chen, and are blocking the ability of O2O to catch on in more sectors, said Wang.

The fact remains that most well-established retailers are still unwilling to share their offline resources with online platforms, fearing they may become places for customers to select and try out products while the actual purchases are eventually made at other online outlets, he said.

Such was the case on November 4, when 19 domestic furniture mall chains, including Easyhome and Red Star Macalline, signed a document forbidding tenants from using stores as offline experience-venues for e-commerce, according to media reports.

But "stubborn" offline retailers can't take all the blame for O2O's slowing advancement, given that premature Internet technology is also a factor, said Wang.

Kun from Alibaba said that technologically supporting an O2O project is much more complex than a regular online platform.

"When it comes to running an online platform, we just need to think about how to create as many orders as possible, but with O2O, we also need to consider the capacity of restaurants, KTVs and beauty salons," he said.

"For instance, we're now developing a plug-in tool for our service-oriented app to timely update users on the number of consumers that offline stores can receive," he added, implying that the company needs to carefully calculate how it moves into the O2O market as it requires more time to conquer technological barriers.