Online business channels are increasingly considered as an alternative, rather than a competitive method to traditional business. Retailers are trying to “marry” these two things together in O2O.
In China, it is paradoxical that Alibaba has invested heavily in the traditional retail industry. So what is the strategy behind it? The answer is that the president wants to merge both online and offline to get a full picture of how a consumer will shop in the context of growing O2O trend as analyzed in the first article.
Jack Ma coined a new term in the shareholder letter in 2016, which is “New Retail,” a retail model combining both online and offline, covering the payment field, promotions In-store, take orders online and optimize data on user behavior. The concept will integrate products, services, logistics, big data, marketing, and administration. New retail is the central strategy in ‘Five New’, including New Retail, New Finance, New Manufacturing, New Technology and New Energy.
Jack Ma has made a statement on New Retail in shareholder meeting: “Pure e-commerce will gradually become a traditional business and will be replaced by new retail.” One example is integrating customer loyalty programs with T-mall when customers buy products, helping to gather user behavior data. Alibaba’s biggest goal is to build a retail ecosystem with the customer focus.
This direction is reinforced by the strategic steps in creating the current hub that combines both online and offline elements:
- Alibaba launched the LST system to help grocery store owners to grasp the customer data as well as shopping habits in the business sector. This technology can be applied in retail management, inventory calculation and logistics planning to optimize efficiency as well as profitability.
- At the same time, the Tao Café cashless chain was also developed.
- In addition, Alibaba also invests in supermarket chains selling fresh foods – Hema. Hema is a combination of supermarkets, restaurants, distribution centers and online stores. This is a living example of Alibaba making good use of the O2O trend in China.
Alibaba has invested heavily in the “offline” retail chain in recent years
Alibaba, the king of e-commerce in China in recent years has invested heavily in the traditional retail industry, with over $9.3 billion from 2015 to date. Most recently, Alibaba signed a big deal, most recently is the investment in Easyhome, China’s second largest furniture maker. Prior to this, Alibaba invested $2.88 billion for a 36% stake in China’s second largest supermarket chain Sun Art Retail, which owns several well-known supermarket brands such as RT-Mart. Alibaba has also taken over the Intime retail chain in 2017 and invested in the retail chain Sunning Electronic Appliances in 2015. In addition, Amazon has invested heavily in the Hema supermarket chain- the new, integrated online and offline shopping (O2O).
In addition to Alibaba, JD (China’s No. 2 eCommerce site) also launched a similar model to Hema, called “7Fresh” to catch up with the trend. JD.com also owns 92 grocery stores and will have 300 stores by the end of this year. Earlier, JD.com also acquired a share of the Yonghui Superstores grocery chain with 200 subsidiaries. After purchasing Walmart’s online store in China for about $1.5 billion, JD.com has turned over 130 Walmart stores across the country into online repositories.
In the United States, the two largest retailers in the United States are taking headlines from the media: Walmart, the traditional retail giant, and Amazon, the e-commerce giant.
Walmart has significantly expanded its online business through the acquisition of Jet.com, Amazon’s ex-rival in the US. This is the smart e-commerce platform that helps customers save through each step of shopping. Walmart later appointed Chief Executive Officer of Jet.com to be in charge of Walmart’s online business. Walmart is also boosting its online food delivery line to compete with Amazon when it will plan to serve 40 percent of its population in the United States by the end of 2018. Walmart also launches promotions at Walmart stores. In India, Walmart is willing to spend $10 to $12 billion to buy 51% of Flipkart, Amazon’s rival in India.
In the opposite direction, Amazon has stepped into the traditional retail sector and made a bold move when it acquired a $13.7 billion retail chain for Whole Foods. Amazon.com has officially launched Amazon’s state-of-the-art retail store, Amazon Go, which combines state-of-the-art technology. This is an automated store, no cashier or checkout. Customers just step into the store, select the items to buy and then step out of the store. Series of sensors installed in the store to track behaviors of consumers.
O2O in the world
A combination of online and traditional retail models is also spreading around the world. In India, PayTM Mall (a branch of the PayTM payment giant’s startup) is also planning a traditional chain of stores. Or Line, a popular messaging application in Asia and Vietnam, is also planning to open 100 more stores to sell the characters which are so popular online (To boost the sales and acquire user online as well). Tesla also opens its own car experience shop, which simply plays a role in the experience, increasing awareness of the new technology, and thereby influencing the purchasing decision. Or Uniqlo has launched its “click & collect” program in China, where customers buy products online and receive goods at 400 omni-channel stores.
O2O in Vietnam
In the future, Hanoi will pilot the “Smart Shop” chain (with no sellers, use 020 Online 2 Offline model, use QR code in online order and online payment , using electronic logistics in product and goods delivery). Currently, there are a few shop that is cashless in Ho Chi Minh city and Hanoi.
In Vietnam, e-commerce is booming but 80% of Vietnam’s retail sales also came from small retail stores. According to statistics, 44% of customers research online products and continue to order online, while the percentage of customers find online products, but buy offline stores up to 51%. According to Sapo’s survey, the three largest sales channels are at the store, Facebook, and website, creating a 3 pillar in the business. Thus, it is important for shoppers to focus on creating a “virtual” & “real” experience across channels. In fact, the big retail chains such as Mobile World, FPT Shop, Vin Group have had specific directions to take advantage of this “merging” in retail.
Finally, back to the bets between Wang & Jack at the beginning of the article, perhaps in the future there will not winning or losing between online & offline channel, but instead, it will be the combined model, reconcile the advantages of both models, thereby be resonating and help users to have the best experience.
In part 3, we will talk more about the Hema supermarket chain – an Alibaba masterpiece in the New Retail strategy.
From FPT Tech