Sunday January 07, 2018
Want to see the future of shopping? Look to China
By Sissi Wang
Whether you love retail therapy or dread the trip to the grocery store, shopping is a part of life. But it will all change in the future as retail gets transformed by digital technology.
Back in 2016, the Chinese e-commerce company Alibaba launched an app called Buy+. Users can browse items in a virtual mall as if they were walking through physical stores and make real-time purchases via the company's payment app.
Since then, western companies like eBay, IKEA and Häagen-Daas also started experimenting with virtual reality, and investment firm Goldman Sachs estimated that by 2025, virtual reality in retail will be worth $1.6 billion annually, with 32 million users.
But it's not just VR on the horizon. Amazon has also been experimenting with an unstaffed grocery store, which could completely change the shopping experience.
Chinese company Alibaba leads the tech movement in retail
But to understand where retail is headed in Canada, one must look at Alibaba. Often referred to as the Amazon of China, it has three main shopping sites that altogether serve about half a billion consumers in China.
Beyond scale though, Alibaba is tackling a tricky retail problem: Even though more people are shopping online, many still want to test out products in physical stores.
"Alibaba, over the past couple of years, has really pushed this integration of online and offline commerce a lot further than it's ever been," says Tom Brennan, the managing editor of Alizila, Alibaba Group's news site. "Although we started as an e-commerce company, we really don't believe it has to be one or the other."
Last year, Alibaba announced its new model of retail, combining both online and offline shopping. It uses technologies like virtual reality, augmented reality, machine learning and cloud computing to engage their consumers. And everything is being played out over the mobile phone. The company and many industry experts believe this integrated model is the future of retail.
The prime example of integrated retail is Hema, a chain of technology-powered supermarkets owned by Alibaba.
All shopping at Hema stores is done through a mobile phone. "I can scan anything in the store and get information about the products, where they're from, who makes it and what other products go with that," Tom says. Customers can also order groceries at home or at work and get them delivered in 30 minutes, as long as their address is within three kilometers of the store.
"It's new retail because it gives users what they want, how they want it and when they want it," Tom says. And although Amazon buying Whole Foods has received a lot of coverage in North America, Tom says Hema has actually been operating for a few years already. "It's doing the very thing that Amazon is trying to do."
Other examples of integrated retail from Alibaba include initiatives from this year's 11.11 celebration - the largest shopping festival in China. In 24 hours, Alibaba generated 23.5 billion dollars in sales by putting the model to work with technologies like Magic Mirror, virtual fitting rooms and "Catch the Cat," an augmented reality game similar to Pokemon Go.
Maybelline worked with Alibaba on Magic Mirror so that consumers can try on its makeup by simply standing in front of the mirror. Shoppers can use touchscreen and tap through various of shades of lipstick to see how they'd look without actually trying them on.
The game "Catch the Cat" also became a national sensation during 11.11, where families and friends would go out together to catch virtual cats in malls. "Brands like Mac Cosmetics and even KFC and Pizza Hut have been using this to bring foot traffic into their stores," Tom says, "while consumers get to have some fun and receive a coupon or a free product that they want [as a reward for catching a cat]."
Where does Canada stand in the transition?
Outside of China, the integration of online and offline shopping is also taking place, but at a much slower pace, according to retail consultant Matt MacKenzie, partner and managing director at Boston Consulting Group based in Toronto. "As you go to different countries, in many cases, it's being led by retailers that started online first," Matt says. "They realize that to deliver on the full suite of benefits that their customers are looking for, they need to extend to physical stores."
Take Warby Parker, for example. The American company started off selling eyewear online, but decided to open physical stores as well in recent years. "There was a recognition that as terrific as it was to provide eyeglasses without stepping into the store, there's a certain element of product discovery, of fashion, of trend, that can't always be delivered in an online form."
In the West, United States and United Kingdom are further along in the transition to an integrated model of shopping than Canada, which doesn't have as many large technology players as U.S. or U.K., and therefore, not as much pressure to compete. "Canadian companies have healthy businesses," Matt says. "So right now, there's a desire to see how things play out before making some major investments to drive change."
China is way ahead of other countries thanks to technology leapfrogging. Many Chinese people went straight to using their smart phones to browse the Internet and to shop, without previously owning a desktop or a laptop. This gave well-funded, large technology players like Alibaba and JD.com (the second largest e-commerce business in China) a huge advantage. It allowed them to digitize the shopping experience and use the rich set of data collected from their users' mobile phones to further drive advancements in the sector.
Although different countries are at different stages of the transformation, both Matt and Tom believe that sooner or later, everybody will be able to use virtual reality to shop right in their living room.
"Even outside of China, you're starting to see uptakes of things like virtual reality," Tom says. "It's just that in China, they're already happening. It sort of started here, and in some ways it's being exported to other markets."