Physical retail in China is getting an upgrade

So much shopping is done online in China these days that large retail giants seem like an afterthought. Electronics chains like Sundan and Suning do not have the same level of dominance as Best Buy in the U.S. By this point, many Chinese companies like Xiaomi and OnePlus have become successful while initially bypassing retailers.

Physical retail isn’t going anywhere, of course. Xiaomi and others realized eventually they need these outlets for visibility and growth. The sector is changing, though, and is moving in the direction of “smart retail.”

At the Consumer Electronics Show in Las Vegas this week, Suning released a white paper on the evolution of smart retail and how it’s transforming the market. The utilization of new technologies and omni-channel retail allows companies to serve “anyone who needs anything, anywhere, anytime,” Suning executive VP of R&D Joshua Xiang said at the event. “We are quickly moving towards a future where truly intelligent smart technology will provide shoppers with personalized products and services in multiple scenarios, from smart self-service shelves and shopping guide robots to drone delivery.”

Smart retail means technologies like artificial intelligence and augmented and virtual reality will become more prevalent in consumers’ shopping experiences. Retailers will also leverage big data and use more online-to-offline selling. The aim, according to Suning, is to “enable retailers to anticipate, meet and beat customer expectations.”

Just as Best Buy is seen as a success story for surviving the onslaught of e-commerce in the U.S., Chinese retailers see the integration of new technology as a means of survival in in a country where e-commerce is so popular. Shopping on Taobao seems almost like a way of life in China. Delivery of goods is always cheap and often free. In 2017, online sales topped $1.1 trillion in China compared with nearly $453 billion in the U.S., data from eMarketer shows.

(Source: eMarketer)

Among all retail, offline retail still accounts for about 80 percent of sales in China, according to Fung Global Retail and Technology. Online retailers and C2C e-commerce are growing quickly, though. While these areas accounted for just 4 percent of sales in 2011, they’re projected to make up 25 percent by 2020.

Though e-commerce is often heralded as the future, the power of offline sales and distribution is obvious. That power in the market means online and offline retail is starting to converge in China as it’s doing in the U.S. As brick-and-mortar stores like Suning look for ways to better leverage e-commerce, Taobao owner Alibaba is moving in the opposite direction.

Like Amazon in the U.S., Alibaba is moving into the brick-and-mortar space through acquisitions and building its own retail locations. The company was part of a bid to privatize department store operator Intime Retail Group a year ago and in November announced an acquisition of 36 percent of Sun Art Retail for $3 billion. Alibaba is also already building its first mall. The “More Mall” will open in April in Hangzhou, where Alibaba is also headquartered.

Getting into brick-and-mortar stores is still important for boosting product awareness and sales. That won’t change. Fortunately, better technology such as AR and VR could allow people more opportunities to interact with and consider a product before making a purchase. The more opportunities consumers have to envision themselves using a product is always a good thing for startups.

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