In October last year, Alibaba launched a pilot of its City Partner program in several cities across Zhejiang, Jiangsu, and Anhui provinces, recruiting city partners to provide community retail stores with a range of services including supply and delivery. Around the same time, JD also launched a similar business model—New Channel (新通路)—and made it the group's top priority project for 2016. Why have these small, often overlooked retail stores suddenly become the primary target for the two internet giants in the new year? At 10 p.m., Ke Lei, who had been out all day, returned home, wiped her face, and opened WeChat Moments to interact with clients. After summarizing the day's work and writing down the next day's plan, she went to bed feeling fulfilled. Ke Lei joined as a City Partner in December last year, responsible for over a hundred retail stores in the Xiaoshan area of Hangzhou. Her clients describe her as proactive, enthusiastic, and patient. In October last year, Alibaba launched a pilot of its City Partner program in several cities across Zhejiang, Jiangsu, and Anhui provinces, recruiting city partners to provide community retail stores with a range of services including supply and delivery. Around the same time, JD also launched a similar business model—New Channel—and made it the group's top priority project for 2016. Why have these small, often overlooked retail stores suddenly become the primary target for the two internet giants in the new year? Establishing an offline presence As residents' incomes rise, consumption is also upgrading. Although online shopping has become a new consumption trend, there remains the last-mile problem to solve before reaching the end consumer. In comparison, retail stores, being closest to consumers, have an advantage. However, most retail stores have not upgraded along with consumer demands. Their stagnation may not lead to complete elimination, but it does result in struggling operations. Traditional retail stores are becoming less visible, often only used for convenience or emergencies. Their bargaining power with upstream suppliers remains weak. Due to small purchase volumes, their wholesale prices are usually higher than supermarkets, leading to higher retail prices and making them a fallback option for consumers. For suppliers, retail stores' sales volumes are far lower than hypermarkets, but the labor costs of covering them with salespeople do not decrease. After accounting for the 10%–25% cost of labor, the unit sales per retail store are low, making them unprofitable for suppliers. However, in urban communities, retail stores often serve as a lifeline, and over time, residents develop a sense of dependence on them. Whether it's Mr. Wang walking in and finding the Hongtashan cigarettes the owner has already prepared for him, or Ms. Li, after working late and finding her fridge empty, buying a few packs of instant noodles from the store still open downstairs—these moments of thoughtfulness are something neither supermarkets nor online shopping can replicate. Since we can't do without them, let's try to improve them. The ultimate goal of all business activities is to get closer to consumers, meet their needs, and achieve repeat transactions. Enhancing customer stickiness is often mentioned by entrepreneurs, but how? Besides improving the supply chain, customer experience is gaining attention, and improving service may be a required course for every retail store in the future. "Retail stores have weak self-sustaining ability. Alibaba's role is to support them through a system and services," said Guo Kunkun, head of Alibaba's City Partner program. Even after years of e-commerce development, online shopping is only heard of in many places; lack of operational skills makes people hesitant to try it. Additionally, the intangible nature of the internet makes store owners wary. City Partners have become a more reliable presence in a sense. They work on a community basis, helping retail stores in their areas join Retail Link (零售通) and place orders on the platform, earning rebates on the products they wholesale. For platforms, the saturated online market has led them to seek offline growth. Data shows that offline retail accounts for 90% of total retail sales, while online retail only 10%. From extensive rural expansion two years ago to penetrating cities beyond first-tier, both Alibaba and JD have invested heavily in human and material resources to extend their reach. This helps channel下沉 (channel sinking) while increasing e-commerce's offline presence. Transforming retail stores Although both aim to sink e-commerce channels, JD follows its usual self-operated model, bypassing distributors to supply directly, with its own logistics as a strong advantage. Alibaba, staying consistent with its style, provides services and builds a platform. Individual retail stores have low bargaining power, but when City Partners aggregate all retail stores and negotiate collectively, the advantage is clear. On the other hand, a traceability initiative is about to launch, eliminating layers of middlemen to secure price advantages while ensuring product quality; otherwise, it would only accelerate failure. For suppliers, when retail stores order through the platform, the logistics and labor costs for a single brand can be spread across multiple brands, saving idle resources. Expanding retail stores in second- to fifth-tier cities is not easy. "To reach a cooperation agreement, you must first earn their trust," Ke Lei has her own methods for stubborn store owners. She often visits to become familiar, helps sell goods when the owner is busy, and interacts on WeChat Moments. Over time, relationships are built. Now, Ke Lei and Zhu Jie, the store's purchasing manager, have become old acquaintances. Once relationships are established, maintaining old customers is also important. "Visit often, even just to say hello, so they feel you haven't forgotten them." With supply and customers, choosing the right products is also crucial. Guo Kunkun, head of Alibaba's City Partner program, explains that in most retail stores, 30% of products are high-consumption items like cola and cleaning supplies, which account for 60%–70% of sales. These don't need much selection. However, each province and region has differentiated consumption. Alibaba's big data mainly helps City Partners with product selection. For example, the product selection department uses Taobao data on regional consumption capacity, major purchase categories, and offline FMCG sales data to analyze suitable products for the region, supporting City Partners in understanding consumer preferences. Additionally, City Partners provide feedback based on their observations and store owners' reactions to help refine future product choices. A City Partner in Anji County, Huzhou, focuses on imported food, which is a new category for many retail stores and carries some risk. To address this, Retail Link sets a minimum order quantity for combined wholesale products; once reached, delivery is arranged, avoiding inventory issues. Another common problem for retail stores is after-sales service. Alibaba has implemented a triple compensation mechanism, which raises the entry barrier for suppliers joining Retail Link and prepares for future product endorsement. "Currently, imported food is the focus, but next we will cooperate with distributors to introduce more products, fully meeting retail stores' one-stop shopping needs," Guo Kunkun said. The next step will enter the 3C (computer, communication, consumer electronics) field. Apart from chain stores, mobile phone stores are rare in big cities, but they still hold a significant market share in second- to fifth-tier cities. This is partly because consumers can experience products hands-on, and partly because fixed-point after-sales repair offers convenience. In addition to optimizing channels, City Partners will also provide financial services in the future. It is reported that the traditional bank credit model involves salespeople visiting enterprises to inspect fixed assets, then assessing and deciding loan amounts. In the future, City Partners can take on part of the offline credit inspection function. Combining City Partners' offline credit checks with Alibaba's big data (transaction and business information) can form a reliable credit assessment, greatly improving the efficiency (cycle) of SME credit. Partners can become an important part of the credit link in financial services. Through partners, these retail stores can easily access financing and other services within the entire B2B financial ecosystem. The Retail Link business is not without problems. Although Cainiao Logistics handles delivery, complaints still occur, mainly in the food category. The reason is that traditional distributors have their own warehouses, and for fragile items, truck transport is safer than individual parcel shipping. It is understood that the business will next build its own warehouses and establish a precise logistics system to ship products directly from nearby warehouses to retail stores. Going to a supermarket means wasting time finding parking and waiting in line to check out. Going to a hospital for treatment usually takes a whole day. Perhaps one day, when retail stores' business matures, Alibaba will integrate platforms like Alibaba Travel and Alibaba Health into retail stores. Maybe you can get a health check-up and buy medicine in your pajamas at the store downstairs, and also book a seven-day trip to Japan.