In a 2017 letter to shareholders, Alibaba’s Executive Chairman, Jack Ma, said “‘E-commerce’ is rapidly evolving into ‘New Retail.’ The boundary between offline and online commerce disappears as we focus on fulfilling the personalized needs of each customer.” This concept has already morphed into reality in China, where the dichotomy between offline and online has all but disappeared through retail experiences such as the Hema supermarkets. However, the US has been slower to integrate e-commerce into brick and mortar, with even Amazon shuttering many of its attempts at physical stores.
NewtonX recently investigated this phenomenon with the intent of discovering why US retailers have been slower to integrate online and offline experiences. NewtonX used a qual-quant-qual approach to surveying and interviewing 200 retail executives in the US, and the data and insights in this article are sourced from this research and analysis.
New Retail: Integrated, Convenient, Scalable
Based on Alibaba’s description of the term, we define New Retail as the digitization of all commerce for a unified brand experience. In practice, this looks a lot like Alibaba’s Hema supermarkets, where shoppers can scan barcodes to get info on products, and have groceries delivered within 30 minutes from the store since every Hema supermarket doubles as a distribution center. The reason these capabilities make Hema an example of New Retail is that shoppers get the best of online and in-person shopping: they can pick out items that require touch/in-person evaluation (fish, fruit, etc.), can read about products on their smartphones (the equivalent of opening a new tab and Googling), and can still benefit from the convenience of rapid delivery. Additionally, Hema allows shoppers to choose fresh food and have it cooked up right in the store for a rapid in-shop dinner.
This approach to integrating the best of digital with the tactile benefits of in-person can be applied to every retail experience — from shopping for clothes, to buying a car, to grabbing a six pack of beer from the local bodega. The key to New Retail is ensuring that every shopping and purchasing experience consists of the best avenue for getting there — whether that’s in-person or digital. Shoppers move seamlessly between the two, which eliminates the difficulties associated with each on its own.
In the US, however, retail has remained dichotomous, with just two routes for purchasing: online or offline. Even attempts from Amazon at moving from e-commerce to brick and mortar did not integrate the two: I recently visited the Amazon Four-Star store in New York, looking for a portable charger, and discovered that there was no variety or options because the store did not double as a distribution center or integrate with Amazon.com. The store functioned more as a novelty than as an actually functional alternative to either online shopping or physical shopping.
Will America Follow in Alibaba’s Footsteps?
Starbucks, a pioneer in digitizing in-store experiences, recently partnered with Alibaba in China to compete with local Luckin Coffee, which offers lower prices. To attract Chinese customers, who tend to expect digitize in-store experiences because of Alibaba and JD, Starbucks is using Alipay, partnered with Alibaba’s delivery service, Ele.me, and is selling on the Tmall marketplace (one of several Chinese equivalents to Amazon). This move is not particularly surprising, given Starbucks’ heavy investment in its app (for loyalty, payment, ‘happy hours’, and ordering ahead) in the US. The coffee giant’s partnership with Alibaba indicates that it may consider rolling out New Retail concepts in the US.
That said, the US has only dabbled in New Retail concepts. Where China has smart kiosks that leverage facial recognition technology and mini warehouses for distribution, the US has only experimented with mini vending machines. Respondents to the NewtonX survey indicated that while “digitizing brick and mortar stores” is a strategic priority for 69% of retailers, only 4% believe that this digitization qualifies as New Retail (vs. simply data collection). Many stores are investing in in-store wi-fi, smarter check-out ,and ordering processes, but have not combined the ease of online ordering with live experiences.
American brick and mortar stores are closing right and left, but instead of digitizing in-person experiences, companies are subscribing to the dichotomy and turning their sights on e-commerce. In other words, the online/offline dichotomy still very much exists in the vast majority of US retail experiences, with only slight moves toward digitization from companies like Starbucks.
Eventually, the US will need to figure out how to offer brand experiences at scale that don’t rely on the offline/online dichotomy. This shift will likely be spearheaded by companies like Starbucks and Amazon, but may not be fully realized until digital-first startups enter the space.