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Forrester research published a report recently that suggests the Chinese retail market is now bigger than the USA. At almost $5 trillion it is a huge market, but what’s really interesting is the Forrester analysis on market changes and how retail is developing over there.
In particular, there is a trend developing where online retailers go physical. Companies like Alibaba have developed an enormous amount of business, but always from online sales, now Alibaba, Baidu, JD, and Tencent all want to create real physical stores. To put the scale into context for some of these online operations, on Singles’ Day last November Alibaba sold product woth almost $18bn.
It’s true that in the USA, Amazon has been experimenting with stores. They created a bookstore that only stocks the best-selling books on their online platform, with information from the online site available in store – such as customer reviews. Amazon has also recently opened a grocery store without checkouts, using technology to monitor what customers pick up and put in their basket.
But these are really just experiments in taking an online brand into the high street. I have not seen a major trend in the USA or Europe that takes enormous online brands and moves into physical stores.
The Chinese strategy is based on blurring channels. Customers think of a brand, not a sales channel, and therefore it can be helpful for online brands to deliver a complete omni-channel experience by placing stores in major cities.
Of course, this does require a change in the way that the company is organised. An online-only brand can be focused on a single central location that ships products using mail services. All despatches and returns can be handled from a single warehouse. Once the supply chain needs to include a branch network, and both sales and returns are blurred with the online store, then logistics are much more complex.
If this is now becoming a trend in Chinese retail it will be interesting for several major brands here to monitor what happens. Will customers appreciate being able to use real stores for their favourite online brands and is the reorganisation a worthwhile expense? Will an increase in sales justify the change? I’m looking forward to finding out over the coming year.
Let me know what you think of this trend in Chinese retail by leaving a comment below or get in touch on LinkedIn.