3. April 2020 | Chapter China, News, Retail Technology

In China, life is returning to normal as the COVID-19 outbreak slows. People have become accustomed to having temperature taken, disinfection, queuing, and maintaining distance. In general, the epidemic has spurred further developments in the entire society, and the same is true for the retail industry. The article will explore the changes in retail from four dimensions, i.e. user base, pain points, commercialization, and market competition.

1 Evolving users: staying online and deep digitization

During the COVID-19 outbreak, change of great magnitude has been recorded in the number of users, duration of internet usage and frequency of interactions, and online indicators shot to extreme values. The epidemic has pushed consumers into a new generation of mobile internet. It’s a common observation that users are staying online and involved in deep digitization. Moreover: they have evolved to the next level. This may be something we need to pay more attention to! Users are increasingly enhancing their competence in attention distribution, channel switching, store familiarity, group bargaining, demand release, and interaction. For companies, this is what we call digital consumer surplus.

The challenge for all retail businesses: playing it by the rule book of the past could result in losing more marginal benefits. Enterprises should work on enhancing their fundamental digital capabilities that remain to be improved: Facing potential consumers, the key lies in recognizing, defining, and digitizing the user base with precise segmentation instead of untargeted development. It’s like opening a store, for example, that we should clarify the LBS range, potential traffic and consumer acquisition rate. Facilities, goods, services and online management competence are what we call the ability to generate private traffic.

2 Pain points: Information overload and deep insights

As restrictions are being lifted, user pain point would no longer lie in social networking needs nor timeliness of delivery, which is being taken care of by an enhanced supply chain and best practices. It could be the information overload. The COVID-19 outbreak has greatly driven China’s mobile Internet technology forward. Online operations have become common competence among businesses. At the consumer end, high fidelity brands would remain after low-quality information is screened and filtered out through interactions. What this means for business is to obtain deep user insights and strive to become that information and content which is saved by users. Take fresh produce as an example. Some catering companies are entering the business with solutions and recipes that are advantageous to their development.

3 Commercialization of the entire society: Mobile power and new integration

When brick-and-mortar stores closed amid the lockdown, operations of the entire society went from offline to the online sphere with new characteristics. 1. Setting operations online becomes a matter of survival.  The change is no longer driven by technology companies nor the management or insightful experts, as were the case in the past. Nowadays, setting operations online is a comprehensive and encompassing campaign that spans across all sectors of the society. The change has increased by hundreds of times on the commercial supply side. 2. New rules of the game.  A mini-program or APP in the past could have been sufficient, but it’s no longer the case. Now the services have evolved and expanded to WeChat Moments, TikTok, mini-programs, industry interconnectivity, physical store access, livestreaming and many more, reaching out to a wider group of potential users via multimedia and multiple channels. This increases the demand for content innovation. To predict whether a company could make it or not depends on its content and strategy on these online channels. Low-quality content leads to low repurchase rate, and eventually filtered out by consumers. Glancing at WeChat Moments, for example, one has the urge to turn off certain content twice. 3. The supply chain is accelerating.  During the epidemic outbreak, the support for setting frontend operations online actually comes from backend supply chain capabilities. Many conventional retailers have generated great sales revenues during this period as a result of traffic flow from restaurants, since people cook at home, and supply chain development in the past.

Amid the epidemic, commercial business practices that are greater, faster, better and more economical have been replaced by “availability”. After the crisis, “availability” will no longer be a problem, though efficiency remains a constant challenge. Supply chain efficiency, timely delivery and deep connectivity reflect capability of a business in generating private traffic. It was less evident in the past but has now become a core competitive competence.

 4 Omnichannel competition: A new round of market eliminations

Online competition is bound to become more intense, but it mostly brings add-on benefits. What we are more concerned about are physical retail channels. It is not that physical stores would cease to exist, but their consumer traffic would be further diverted. Compared to online outlets, physical stores may need some fundamental changes. Brick-and-mortar stores are set up for specific functions. In the past, transactions and delivery of goods take place here. In the future, they could well turn into a warehouse, display center, or exhibition space. Besides retrofitting commercial facilities, we suggest retailers restructure the physical space. Hypermarkets could allocate more space for express delivery, or designate certain area, however small, for takeaways, live demonstrations or livestreaming. It is also recommended to free up more space for value-added activities rather than static display. Business should strive to enhance experience with on-site interactions, improve efficiency of delivery and add value to transform the current cost structure. Structural changes, even if it may not affect the total costs, could make a major difference in future development. Would competition intensify? Competition always intensifies, but in a different form. Business should adapt by acquiring the necessary new set of competence. Without it, the situation definitely is not getting easier!

5 Organizational capability: New competence is required

What we’ve been talking about so far is merely scratching the surface and the superficial. What needs to be further explored is the organizational capability. Otherwise, we may not even get to know the real problem. The organization of people within an enterprise is the underlying logic behind all business. For the retail industry, the focus of organization should move from business specialization to omnichannel operation.  It is not a difficult task to launch online business as we are well versed in the Internet thinking. The question is about what it means to launch business online, and how it is different from the current business. What to persist in and inherit?

The first is product upgrade: industrial production of finished goods. The most obvious changes are refined packaging and image upgrade. A time-saving business model and product solution would stand out from competition. Production is not that difficult, and there are new packaging solutions.
Some may say: isn’t this easy to do? Well, not so easy. We can see that many companies fail to launch their business online in processed and packaged vegetables. The reason behind such failed attempts lies in the supply chain. It is necessary to internalize external supply chains and externalize internal supply chains. A. Internalization of external supply chain refers to transforming external products into a best form that represents the company brand before delivering to consumers. Of course, the external supplier could also directly deliver the desirable presentation. Without these changes, the online business may bring in many extra complaints and costs. The key points are packaging transformation, price strategy and the critical internal quality control. This is what we call industrial finished product. Therefore, it is necessary to design the packaging and adjust the price to a comfortable level for customers. Take fresh ginger as an example. It’s sold at RMB 9.8/jin (500g) in bulk but RMB 4.98/bag with brand and package design and quality control. B. Externalization of the internal supply chain. In the future, is it possible to open up the supply chain to engage other market actors and allow for them to help design scenario-oriented products? This goes for all business with fixed cost inputs. For example, a processing center should be running 24/7 to be worthy of investment.

The second is marketing strength: multiple dimensions and channels. Nowadays, any scenario can be used for marketing, any product a business, and any connection a sales channel. This value chain all comes down to the marketing capability. Copywriting changes from a single dimension to multiple spheres. Content generates new explosive power. Subsequently, marketing departments should be capable of utilizing tools such as videos, graphic images, lighting, makeup, editing, and directing. They should also have knowledge of aesthetics, and necessary talents to handle these emerging new tasks of marketing in the new era. The content has also undergone dramatic changes. To put it simply, how could we catch people’s attention in front of the camera? Are users willing to watch our live streaming shows? In the new marketing era, we need more creative dimensions and depths. Many companies have started live broadcasts. In the end, only those that recognize trends of the time would win.

The third is about talent management: self-organization. Creative talents need a certain level of autonomy and room for creation. A hierarchical management structure would not work. The new organization method should encourage self-motivated tasks, and allow for autonomy in live broadcasts, short videos and community management, as long as online output is delivered.

Sales and marketing should go hand-in-hand with existing business. It could be a challenging task to integrate new marketers into the corporate human resources. A consistent understanding and shared corporate culture could help. Without tackling these challenges, the operation either does not work or is not long-lasting. Clearly, companies or mechanisms with shared and win-win values will be the only ones that can grow and evolve. The fundamental Internet thinking promotes exponential growth. Any method otherwise would result in a hard survival. Naturally, it is not for use to say with certainty that our society in the post-epidemic period would be turned upside. Conventional formats will remain in the market, only gradually moving away from the center stage.

We believe that after the epidemic, digitalization, smart retail, the Internet of Things, and blockchain will enjoy great prospects in the future. They offer opportunities and breakthrough points for “evolution”. With these technologies, the essential fresh produce sector may fast track the development and improve the overall industry efficiency, giving rise to new retail “species” on the horizon. Survive and evolve. Evolution for survival! What have we evolved into? This is the most important thing.

Source: Linkshop, 17. March 2020, https://mp.weixin.qq.com/s/eQlXCGQlEAri1PRURzMj9A
Author: Shang Jia