The online dividend period has completely passed, and traffic has shifted from online to offline. From an investment perspective, the focus now should be on who has offline traffic. Looking at future trends, the competition for offline store expansion will become even more intense. E-commerce seems to have a thousand reasons to kill physical stores, so why are they coming back to court death? The rise of the internet has driven the growth of e-commerce. Under the impact of online shopping, many physical stores have closed: Wanda Department Stores, Belle, Septwolves, GAP, Renrenle, Metersbonwe, and others have frequently reported store closures, with terms like losses, sharp profit declines, sparse customer traffic, and forced transformation constantly appearing. Ma Yun, Liu Qiangdong, and Lei Jun initially destroyed those physical stores to win the market and eventually grew strong. Why are they now opening physical stores themselves? ● ● ● The "Resurgence" of Physical Stores JD.com's offline store layout did not start this year, but this year it is particularly aggressive. First, at the beginning of the year, Liu Qiangdong publicly stated in an interview with CCTV Finance that his hometown Suqian still has Gome and Suning stores as well as various OPPO specialty stores, which he called a shame for JD.com. Then Liu Qiangdong declared, "In the future, JD.com will open one million convenience stores, ten thousand home appliance specialty stores, and five thousand mother and baby stores." His high-profile style indeed seems to be a direct confrontation with offline rulers like Gome and Suning, aiming to outflank them. Also hoping to break through offline is Xiaomi. In March 2016, Xiaomi, which was celebrating its seventh anniversary, officially launched its offline retail plan, opening 68 offline stores named "Xiaomi Home" in more than 20 provinces throughout the year. Xiaomi, which had been glorious, encountered difficulties in 2016: shipments continued to decline, and the launch of high-end models frequently hit setbacks. At the same time, OV (OPPO and vivo), which were ridiculed as "factory girl phones," quickly caught up by relying on strong offline channels. Xiaomi's internet myth began to lose its halo. Betting on Xiaomi Home became Lei Jun's biggest trump card to turn the tide. As a typical mobile phone brand that started on the internet, Xiaomi's major characteristic is that it has no offline channels. Xiaomi chose a self-operated model. The advantage of this approach is high controllability, but the disadvantage is that the operating costs and personnel costs of offline stores are significant pressures, and its expansion speed and scale will be constrained, with limited short-term impact on boosting Xiaomi's sales. Perhaps this is also one of the reasons why Xiaomi launched "Xiaomi Direct Supply" some time ago. Industry observer Xu He recently wrote that Xiaomi Direct Supply is a nationwide call for heroes, aiming to establish a huge direct supply system, with independent offline communication stores as its main target. However, although Xiaomi Direct Supply can to some extent compensate for the difficulty of accelerating Xiaomi Home's layout in the short term and speed up the establishment of Xiaomi's offline channels, Xiaomi's long-criticized supply shortage, how to meet the demands of different types of direct supply partners, how to manage pricing, service quality, and sales personnel quality, how to improve offline after-sales service, and prevent cross-channel selling between online and offline are all challenges that Xiaomi, which lacks the experience of large-scale distribution to county-level cities like the blue and green giants, must face. Unlike Xiaomi, JD.com chose a franchise model for its stores. Why would JD.com, which insisted on building its own logistics in the past, now choose an asset-light franchise model? JD.com has a strong brand effect, and in previous years, JD.com recruited a large number of rural promoters in villages, as well as many couriers and their family members. Most of JD.com's franchise stores are started by these people locally, which can be considered its direct line. From this perspective, JD.com's choice of franchising has its advantages. It no longer needs to be as heavy as building its own logistics, transferring the bulk of the risk, while JD.com hangs its signboards across the country at low cost. JD.com's stores and Xiaomi Home have different positioning. JD.com is tapping into incremental markets; JD convenience stores are opened in rural areas that e-commerce previously could not cover. The functions of convenience stores include JD proxy purchasing, online order placement, parcel collection, phone bill top-ups, train and plane ticket booking, travel and hotel reservations, sales of personal care and beauty products, daily chemical and washing products, paper products and cleaning supplies, and wholesale and retail of general merchandise. Rural e-commerce has been touted for years, but progress has been slow, especially JD.com's self-built logistics system, which cannot play its due role in rural areas. JD.com still relies on the delivery of third-party couriers like S.F. Express, Shentong, Yunda, and Zhongtong for rural terminals. But JD.com needs to face the reality that its growth rate is rapidly declining. JD.com's GMV growth rate in 2016 was 47%, while in 2015 it was 84%, and in 2014 it was 107%. This decline is alarming. At this rate, JD.com's GMV will stagnate or even turn negative in a few years. The rural market, with low penetration, has not yet been fully exploited. Although JD.com's stores are just signboard stores and do not require significant costs, the target of one million stores still seems overly ambitious. Xiaomi is tapping into the existing market. Xiaomi Home is positioned as "MUJI." In the past few years, besides producing phones, Xiaomi has also produced power strips, power banks, TVs, bicycles, rice cookers, and more. The SKUs on Xiaomi Mall have exceeded one hundred, and no other internet company loves launching new products so much. Xiaomi's problem is that apart from a few products like phones and power banks, Mi fans are not very enthusiastic about buying other products. But phones themselves are not profitable. If Mi fans only buy phones, Xiaomi's valuation will shrink. At this point, if Mi fans can also buy a rice cooker, a power strip, or a body fat scale when they buy a phone, and ideally use Xiaomi products for everything in their daily lives, the value is self-evident. It's like the old ladies who go to the supermarket for cheap eggs but end up buying a bunch of other things. It needs to create an offline scenario where Mi fans can spend freely. This is more important than selling a few more phones. Whether JD.com or Xiaomi, neither is particularly good at making money. When growth slows down, the anxiety about sustained growth is clearly greater than how to make money. So it's not hard to understand why these e-commerce people are starting to do "store commerce." Besides JD.com and Xiaomi, Alibaba and Suning are also actively laying out offline. Earlier, in October 2016, Ma Yun proposed "New Retail": New Retail is a comprehensive upgrade of O2O in a broad sense. New Retail = online + offline + logistics, with the core being the comprehensive integration of data on membership, payment, inventory, and services centered on consumers. Ma Yun practiced what he preached: first investing in Intime Department Store and Suning Appliance, then investing in Sanjiang Shopping. In February this year, Alibaba partnered with Bailian Group, which has 4,800 offline store resources, officially making Shanghai a testing ground for New Retail. JD.com's archrival Suning has also launched a plan to accelerate its physical store layout. Suning.com direct-operated stores in rural areas have already opened more than 2,000 nationwide. In 2017, Suning.com direct-operated stores will open 1,000 new stores, bringing the total to over 3,000. It is obvious that in the past two years, many e-commerce companies have begun to frantically arrange offline businesses, and this momentum looks like a resurgence of physical stores. ● ● ● Why E-commerce Companies Are Rushing to Open Physical Stores Such dense offline store layouts by e-commerce companies are definitely not a spur-of-the-moment decision. They are conclusions drawn after meticulous market research and careful thinking. There are probably several reasons why e-commerce companies open physical stores: First, conversion rates are forcing e-commerce to shift. After years of rapid development, the e-commerce market has become more mature. Now, online customer growth is hitting bottlenecks, and online product homogenization is becoming increasingly serious. Opening physical stores offline to enhance the shopping experience is a good way to attract traffic online. In a sense, physical commerce is no longer playing the simple role of "goods mover"; they have gradually become a lifestyle. The process of shopping in physical stores is not just about purchasing but also about enjoying the shopping experience. Unlike online shopping, which is purpose-driven, offline shopping involves more impulse purchases, and consumers enjoy the process. Second, strengthening resource integration. Although online shopping is ubiquitous in our lives, it cannot satisfy all our needs. We still spend a lot of time outside, and online shopping often cannot meet those needs. This is a huge "fat piece of meat" offline, and e-commerce companies cannot have missed it. If they integrate it, forming a strategy of online as the main and offline as a supplement, they will gain another huge market. Third, targeting third- and fourth-tier cities and rural areas. In the process of channel sinking, physical stores are an inevitable connection point, and this is a blue ocean market. The first- and second-tier markets are saturated, and gaining any additional share will come at a huge cost. Small cities and rural areas, however, are unreachable due to logistics issues. If physical stores are opened in between, it seems there is great potential. Fourth, educating consumers. Take Amazon as an example. Amazon also owns hardware products like Kindle, Fire TV, Echo, and Fire Tablet. Compared to selling through internet channels, consumers are likely to want more trial experiences when purchasing high-involvement products like hardware. Therefore, offline channels are a link that cannot be ignored. But if Amazon uses offline channels it does not control, it will inevitably encounter troubles caused by uncertainties when selling and promoting hardware products. Thus, selling hardware products through Amazon Books and having trained Amazon professionals answer questions in stores is a good approach. ● ● ● What Are the Advantages, Disadvantages, and Opportunities of Online and Offline? Let's take a look at the advantages, fatal weaknesses, and opportunities of online and offline for e-commerce. For online, online shopping is first cheap. Whether it was Amazon or Dangdang, or Taobao and JD.com, almost all e-commerce companies defeated physical stores with price advantages. Second, it is convenient; you can order anytime, anywhere and then wait for the courier to arrive. It really takes no effort to buy anything you want. However, reality is cruel. When God opens a window for you, he often closes a door. The most fatal problem with online shopping is undoubtedly quality. You confidently place an order online, eagerly waiting for your treasure to arrive from afar, only to open it and find it's fake, defective, or not as described. It's heartbreaking, followed by a bunch of troubles: returns, negotiations, refunds... It really makes you feel terrible. And the courier: from ordering to receiving, it feels like half a year has passed. You urge them, and they make excuses. It's speechless. But for now, online shopping still has advantages. Whether in big cities or small villages, online shopping has become a part of our daily lives and occupies a large market. Its price is still an absolute advantage for low- and middle-income groups. Physical stores are powerless in these two aspects. Physical stores also have their advantages, such as a good shopping experience. On weekends and holidays, whether you bring your best friend, a couple of friends, or family, you can go for a spontaneous shopping trip. What you see is the real thing; there's no "images are for reference only, please refer to the actual product." And if you like something, you can buy it immediately without any waiting. The "Achilles' heel" of physical stores lies in high rents and sparse customer traffic. In any provincial capital, the annual rent for a small street-side shop will deter many people, let alone the fact that under the current internet tide, most physical stores are deserted, with not even a bird coming. How can they make ends meet? So, under the current "resurgence" of physical stores, where are the opportunities? There are still opportunities. Now, online shopping in first- and second-tier cities is mostly saturated with fierce competition, while in third- and fourth-tier cities and rural areas, the distances are long and logistics cannot effectively reach. The opportunity for physical stores lies here! First- and second-tier cities need a good shopping experience and to build a strong brand image to attract traffic online, while third- and fourth-tier cities and rural areas need warehousing and logistics, which physical stores can provide. Thus, it is not hard to see why e-commerce companies are rushing to open physical stores. A new e-commerce landscape of online-offline cooperation is taking shape. However, since the development of internet e-commerce, it has passed the stumbling stage of ignorance and moved toward maturity. Now, whether combining with physical stores can create new glory is not impossible. ● ● ● Final Thoughts E-commerce found a thousand reasons to kill physical stores, but then fell into its own quagmire and couldn't extricate itself. Now it turns around and wants to rely on physical stores to increase traffic. It can be said that it failed because of physical stores, and it will succeed because of physical stores! In the internet industry, business models are ever-changing. There are no fixed rules, nor is there a permanent "follow the old ways." To remain invincible in this fiercely competitive e-commerce landscape, continuous innovation is necessary. However, this time e-commerce companies are rushing to open physical stores. Whether this is model innovation or regression, self-destruction or phoenix nirvana, it is just a thought away between Buddha and demon. This article is compiled from Bailve.com (www.ibailve.com), Entrepreneur (ID: chuangyejia), author: Wang Yaqi, Paidai.com (ID: paidaiwang), E-commerce New Knowledge, etc. -END-