Returning to Kenli District (a fourth-tier city) in Dongying, Shandong Province from Shanghai (a first-tier city) for the Dragon Boat Festival, after more than a decade, everything is still so familiar, and people's lifestyles remain the same. The concepts I study daily in my industry (mobile internet, dimensionality reduction attacks, etc.) seem to have no impact on this city. After retirement, my parents opened a small convenience store in their garage, about 30 square meters, in an inconspicuous corner of the residential complex. Last year, when I went home, I told my parents that young people in big cities now use WeChat and Alipay, and I switched them to smartphones, but they still only use the basic functions of calling and texting. We set up a family WeChat group, but my mother is not good at typing. Every time in the group, she just watches us chat and laugh, as if she has never been on stage. It's like this fourth-tier city hometown only sees the outside world's changes through the news, feeling that those are other people's stories. This Dragon Boat Festival was the same. After helping my parents tidy up the shop, we watched TV together. My mother said, "Let's order some goods tomorrow; many things are almost sold out." This sentence is ordinary, but it's important because stocking up is a big problem for the shop: due to the small size and low order volume, wholesalers don't deliver directly; my father has to go to the wholesaler with a written order to pick up goods. I continued watching TV, and after a while, my father took out his phone and said, "Help me see how to use the red envelope." I looked at the app: Alibaba Retail Link. With professional sensitivity, I quickly asked, "Are we ordering online now?" "Yes, we've been using it for a few months. It's convenient and cheap, delivered the next day, and often comes with red envelopes," my mother said. "How did you learn to use this software?" I pressed, knowing my mother can't even use WeChat. "A young guy came and taught me for an afternoon. Later, I found it was really cheaper, so I started using it often. Once I learned, I taught your mother too," my father replied. Alibaba's ground promotion is really awesome! I thought to myself. "In this way, middlemen and wholesalers are all eliminated?" "There's no choice. Either switch careers or deliver goods for Alibaba Retail Link." Hearing this, I shuddered. The dimensionality reduction attack of the internet is too brutal: either you join me, or you're eliminated! As a half-baked TMT industry equity investment practitioner, I felt a chill down my spine. Let's look at two news items:

  1. On May 26, 2017, Alibaba Group signed a "Share Transfer Agreement" with Yiguo Fresh, acquiring 18% of the domestic shares of Lianhua Supermarket, becoming its second largest shareholder. Lianhua's Hong Kong stock surged 24% and was temporarily suspended. Looking at my family's convenience store example, it's clear that while cooperating with giants, Alibaba has already extended its channels to the very end of the retail industry. What we see is just a glamorous corner; the unseen nerve endings are more powerful.
  2. According to the "2016 China Top 500 Private Enterprises Report" released by the All-China Federation of Industry and Commerce, in 2015, Wahaha ranked 70th with revenue of 49.4 billion yuan, while in 2014 these figures were 72 billion yuan and 31st place. Wahaha is a large enterprise that has developed for decades. Its prominent feature is a strong joint distribution network, with very complete sales channel layouts in rural and third- and fourth-tier cities. Simply comparing the above old and new news, let's further ask:
  3. What is Alibaba's new retail? Similar to the Alibaba Retail Link app, it essentially subverts the traditional franchise model. The new channel is established by Alibaba. In the future, I wouldn't be surprised if Alibaba's revenue reaches one trillion. The traditional retail model and network being shattered is the first step of new retail, as the saying goes, "No destruction, no construction."
  4. How is the traditional franchise model being subverted? My personal analysis has two points: 1. Data accumulation: Taobao C2C, Tmall B2C, Alibaba B2B—these models have accumulated data over years of operation, utilized by Alibaba's cloud. Customer needs are already clearly understood. When online traffic saturates, entering offline has long been a set strategy; 2. Infrastructure accumulation: Mainly refers to Cainiao Network's integration of China's logistics industry. Its huge order processing capability allows Alibaba to deliver goods to retail terminals efficiently and at low cost.
  5. Facing this subversion, can traditional retail enterprises resist? They cannot resist because the opponent of traditional retail enterprises is their own survival-dependent channel model. If the channel is subverted, survival is subverted. Alibaba's model of going deep into terminals is like a black hole; it will eventually absorb all online and offline traffic, and the more it absorbs, the more obvious its advantages become. That's the terrifying part. Traditional retail enterprises can only choose to join, or they may be eliminated. Alibaba designated 2017 as the "First Year of New Retail." So far, it has invested in dozens of projects, including Suning, Intime, Bailian, Sanjiang, and RRS. Join Alibaba to share traffic; don't join, and you have no traffic. It's terrifying to think about.
  6. After subversion, what will Alibaba do? According to a speech by Alibaba's chief strategist Zeng Ming, we can learn a new term: S2b. S represents the large supply platform (Alibaba), which will directly empower many small b's (retail terminals) to better serve their customers. This is not a traditional franchise system but an innovative collaborative network. Through S's empowerment, small b's gain advantages they never had before. Small b's and large b's have no information or cost differences, competing on the same platform.
  7. Why directly face small b? Because the biggest advantage of small b is direct contact with customers and understanding their needs; the disadvantage is that in the traditional model, small b cannot directly face producers, so customer demand data is useless. But the S2b model changes all this, essentially forming a "terminal + cloud" model: the terminal small b transmits customer (C-end) needs to the S-end (platform end, cloud), and the S-end contacts B-end manufacturers. Thus, under this collaboration, the personalized new retail model C2B forms a closed loop. The essence of C2B is made-to-order, focusing on intelligence, personalization, and customization. The formation of this closed loop in Alibaba's new retail model is achieved by skipping intermediate channels and going directly to the final end, stepping on the blood of countless channel providers, middlemen, and wholesalers. And perhaps no one cares about their cries, which is the sad part. I wonder if these retail participants in the middle and lower strata of society, these millions of workers, and these millions of families, are prepared? This time, Alibaba's business model may succeed brilliantly or fail at the cost of the entire society paying a huge price. In an increasingly divided society, do our internet innovations really need to be this fast? I couldn't sleep because the next one to be disrupted might be you, under the banner of innovation. Source: Shiyi Ranhou Thinking (ID: Poetic-lover), republished with authorization from New Distribution. For republishing, please contact the original author Wang Kang: "henryfor1" -END-