---
title: "In-depth: New Retail Has Arrived, So What?"
description: "The article discusses the hot topic of 'New Retail,' arguing that regardless of the concept, retail ultimately must return to meeting customer needs—who to satisfy, what needs to satisfy, and how to satisfy them. It uses three old sayings: 'There is nothing new under the sun,' 'There is no such thing as a free lunch,' and 'All good things must come to an end.'"
author: "老王"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2017-04-15"
language: "en"
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# In-depth: New Retail Has Arrived, So What?

> The article discusses the hot topic of 'New Retail,' arguing that regardless of the concept, retail ultimately must return to meeting customer needs—who to satisfy, what needs to satisfy, and how to satisfy them. It uses three old sayings: 'There is nothing new under the sun,' 'There is no such thing as a free lunch,' and 'All good things must come to an end.'

_Total 6,176 words, about 15 minutes to read._
Let's talk about the hot topic of "New Retail." The core viewpoint is: **No matter what concept is in vogue, retail ultimately must come back to meeting customer needs—who to satisfy, what needs to satisfy, and how to satisfy them are the three key points.** To discuss this, I'll borrow three old sayings:
**1) There is nothing new under the sun;**
**2) There is no such thing as a free lunch;**
**3) All good things must come to an end.**
Let's package them as the "Three Nothings." Proverbs that have been passed down through generations naturally have their reasons, and my attitude toward them is "believe first, understand later."
After reading the "New Retail Research Report" released by Alibaba Research Institute in March, a 37-page PPT, I can see the research team worked hard; it wasn't easy.
"New Retail" is a topic assigned by Jack Ma, not from the authors' own ideas, so it's hard to write. Boss Ma is a master; ordinary people find it hard to understand masters' thoughts, after all, different perspectives, information asymmetry, and perhaps even different brain structures.
One day he throws out "Five New" at a forum, "I think there's no online or offline in the future; it should be 'New Retail'"—the echo still lingers, and he's off to other things, like entering India or the Belt and Road, leaving the experts at the Hanlin Academy busy for a long time explaining "what the boss actually meant." Because Boss Ma has powerful abilities, a reality distortion field, and can make "self-fulfilling prophecies," similar to the CSRC, the masses must follow his thinking while keeping a distance—too far and you can't hear clearly, too close and you might get splattered with blood.
Alibaba Research Institute's definition of "New Retail": a consumer-experience-centered, data-driven, pan-retail format. More than twenty years ago, some Western marketing concepts were first introduced to China. The "category management" definition seen then was: a series of category optimization activities based on shopper purchase behavior, data-driven, aimed at improving retail category performance.
There is nothing new under the sun; the principles behind good things are universal. Twenty years pass in a blink, and we still return to "customers." Let's set aside "big data," "retail duality," and "pan-retail formats," and analyze from the starting point of business. The survival and growth of retail enterprises depend not on the products sold, but on customers. Shoppers are changing; besides adjusting, innovating, and adapting to customers, what else can retailers do?
So what are customers like now? Their consumption volume, purchase behavior, and loyalty are entry points for thought.
**▍ Consumption Volume: Shoppers' total spending is increasing, but volume hasn't increased much.**
We can't rely on population growth; fewer and fewer people who should use products but don't, meaning category penetration is quite high. In recent years, China's FMCG sales volume growth has continued to decline, but sales value growth is still okay, driven by product upgrades that raise unit prices in various forms, without creating more consumption volume demand. Consumption upgrade is good, but it has its limits; after all, income growth is limited, inflation is obvious, and retailers need to win their growth through more intense competition.
▍ Purchase Channels: Shoppers' purchase channels are changing; those closer to communities are more vibrant.
The result of intense competition is that only the ultimate survive. Where is the ultimate survival of retail channels?
  * Shopping Malls become "ultimate experience," acting as "traffic merchants." Hypermarkets once proposed "Retailtainment," but now you rarely find entertainment in hypermarkets. If you know such people, cherish them; they are nostalgic. Comprehensive retail entertainment experiences are almost monopolized by malls, but malls themselves are not retail formats; they are collections of retail formats, wholesalers of foot traffic, selling traffic to various tenants. This approach is economical and promising.
  * Category specialists occupy "ultimate professionalism," with professional services at the core. Chain drugstores, mother-and-baby stores, and cosmetics stores are representatives. Shoppers seek the most professional products and advice in these stores. High-quality face-to-face service is the core value of this format. Among them, chain drugstores, together with community healthcare and home-based elderly care, form a health module; with societal aging, they are the most promising format. Cosmetics stores: in 2015, there were 155,564 (Nielsen all-store data); the future will see massive mergers and acquisitions, store upgrades, eliminating many retailers, eventually becoming regional oligopolies. Mother-and-baby stores: in 2015, 66,980 (Nielsen all-store data); numbers will decrease, but service content and quality must improve significantly.
  * CVS represents "ultimate convenience." CVS becomes the center of community goods and convenience services, building a five-minute walking radius trade area. In 2008, there was one CVS per 43,143 people on average; by 2014, it dropped to 18,758. In Shanghai, where CVS is most developed, there is one per 5,000 people; Taiwan has about 2,500, Japan about 2,000. In the next decade, China will catch up to these numbers, meaning an eight-fold increase in outlets. Chain convenience store floor areas are expanding, and product categories are increasing, eventually reaching small supermarket scale, while community small supermarkets will mainly follow the fresh supermarket route. CVS is tightly bound to small trade areas, easily forming high customer loyalty, which is its most valuable aspect.
▍ Purchased Products: Shoppers care about brands, but even more about products.
  * From brand-oriented to product-oriented: Post-90s consumers will quickly switch brands for a new function or packaging. Where has "brand loyalty" gone? Brand premiums are decreasing, products themselves become more important, and marketing shifts from brand-oriented to product-oriented.
    * Retailers: Centralized brand displays have an obvious interception effect, reducing shoppers' chances to see small brands—a form of brand hegemony. Some retailers, represented by Carrefour, started "de-branding" early: in stores, you see only categorized products, with brands scattered rather than highlighted. De-branding benefits small brands and private labels, and from the retailer-brand manufacturer game perspective, it's also a way to increase bargaining power.
    * Brand manufacturers: Large brand manufacturers face squeezed living space; advantages from scale are continuously weakened, and various differentiated small brands nibble at every product line. The challenge for big brands is to respond quickly to market segments; this is a bottom-code problem—rather than transforming, it's better to start over. A good path for big brand manufacturers is to become brand incubators, using their R&D, production, and capital advantages to incubate brands for many small entrepreneurs. They can learn from Haier and Handu Yishe's models. That said, in large enterprises under professional manager systems, such transformation risks career prospects, so few dare to innovate. Most big brand manufacturers face slow sub-health and malnutrition, finally ending abruptly with a market emergency, leaving a mess. Small brand manufacturers quickly grow on that mess, becoming new large enterprises, then repeat the cycle. All good things must come to an end; large enterprises that can continuously rebirth are god-like, like IBM—a small probability event.
  * From mass commodities to customized products:
    * Retailer customization: Retailers will customize products based on their surrounding customers' characteristics, continuously increasing private label sales share. As long as retailers reach a certain scale, private labels are definitely more profitable. How do shoppers view private labels? If they recognize the retailer, the brand isn't an issue, so the retailer's service brand is more valuable. Interested parties can look at German retailer ALDI's performance; it operates almost entirely private labels and is rapidly crushing European and American retail markets.
    * Consumer customization: Some categories are "experience-heavy products," like clothing and cosmetics, with obvious personalized needs. Such products will inevitably move toward personal customization—everyone customizes their own cosmetics. You can repeat this three times in your mind [must be personal customization, must be personal customization, must be personal customization]—this is a huge business opportunity. On flexible manufacturing platforms, this is just a combination of semi-finished products, with no substantial technical barriers. Recently, I ordered a pair of glasses on the "Biyao" app; the quality was excellent, the price was one-tenth of an optical shop, and I even had my name engraved on the temple. If glasses can be customized online, why not cosmetics? Retailers can set up customization counters in stores, test on-site, and deliver to consumers' homes in seven days. If someone does this business, don't forget to thank me in a dream.
  * From "big and comprehensive" to "fine and specialized": Consumption upgrades lead to product differentiation, which leads to refined and specialized supply chain division:
    * Entrepreneurs face directional dilemmas: Should they integrate the supply chain to build a one-stop full business system? Or should they divest all non-core businesses and focus on improving core competitiveness? I support more specialized division of labor, which better aligns with economic laws.
    * Production: A series of large manufacturing platforms, through large-scale intelligent and flexible manufacturing, meet the production needs of different brand manufacturers, retailers, small groups, and even individuals. This already exists and is developing rapidly.
    * Logistics: Logistics becomes increasingly independent; warehousing, distribution, and inventory management will be completed by independent institutions, similar to restaurant meals provided by central kitchens, where one central kitchen serves multiple restaurants.
    * The retailer's core task is only to "serve shoppers"; everything else is left to other partners in the ecosystem, who are more professional and lower cost.
**▍ Shopping Experience: Shoppers care about the shopping experience, which is both costly and demanding.**
  * Dangerous opportunity: Service upgrades brought by consumption upgrades are a dangerous opportunity for retailers:
    * On one hand, people care about experience and are willing to pay extra for better experiences, highlighting the on-site experience advantage of offline business, providing basic momentum for online-offline integration and "New Retail."
    * On the other hand, China's offline retail gave e-commerce a huge opportunity precisely because of poor experience. If it wasn't done well before, why should it be done well now? Einstein said that doing the same thing every time and expecting different results is a sign of insanity. What will this round of service improvement rely on?
  * Must compete on soft power: The market is changing, but the elements of customer experience remain the same three: shopping environment, available products, and service received. Environment and products are hardware; service is software, the hardest to manage. Kenichi Ohmae said professionalism is "the ability that even if you tell others the method, they still can't beat you"—that's soft power like service.
  * Requirements for people: If it's self-service, system requirements are high, like Amazon Go; if it's staff service, requirements on people can only get higher. The kind of "sales guide" close to physical labor has no value; they are a "POP + loudspeaker + stock clerk" combo, and not good at any single one. If such a combo guide gives you a pleasant shopping experience, it means you're too lonely and need to interact with humans more. Guides must be excellent consultants; otherwise, it's better not to have them. The foundation of high-quality service is high quality, behind which is high cost; personnel costs are destined to increase.
  * Requirements for service content: High-quality service staff alone isn't enough. Customers have been brainwashed by online shopping; they're used to comparing more, referencing others' decisions, more detailed introductions, and person-to-person service. How can retailers integrate online convenience into offline experience? These things don't have major technical barriers; personnel recognition can be done, location recognition can be done, information can be displayed on customers' phones or other screens. The difficulty lies in needing other comprehensive shopper data; integrating online and offline will be powerful here. There are no technical barriers here; it's entirely a matter of willingness to cooperate between online and offline enterprises—the question is "why should I give it to you?"
▍ Shopper Loyalty: Shopper loyalty is declining and will continue to decline, but the lifeline is loyalty.
  * The more fluid information, the lower loyalty: Americans published a statistic that areas with higher Facebook user density have higher divorce rates. I guess WeChat has a similar effect; I don't have data, but the logic isn't hard to imagine.
  * Loyalty is the lifeline of businesses: Business information will become more fluid, and shoppers' loyalty to a particular store will also decrease, with lots of information enticing customers to choose other purchase locations. Maintaining customer loyalty is the top priority for retailers; for retailers, the outcome metric is not sales and profit, but customer loyalty.
  * Membership systems are a key solution: New membership systems have no cards, no form filling; payment accounts are memberships. From this perspective, WeChat Pay and Alipay have huge advantages. WeChat is already promoting "payment + membership" solutions to help retailers increase members, improve activity, and reduce member churn. Alipay also plays an important role in Alibaba's Retail Link; similarly, when consumers use Alipay at small stores, it means they've registered for membership. But their work is still in the system-building stage and hasn't leveraged their platform advantages to substantially improve retail enterprises.
▍ Shopper Segmentation: Shoppers are also graded; satisfying everyone is not worth it.
  * In 1993, Brian Woolf, in his book "Measured Marketing," said that the top 30% of customers by spending bring 75% of a retailer's sales; the bottom 30% bring less than 3%. This is no different from the data we see in shopper analysis today. "The vital few" is a universal principle, and customer contribution must reflect this. There's only one important thing for retailers: serve the top 30% of customers well, guide everything by improving their experience, and their loyalty is the business result.
  * In the past and present, the offers provided by retailers mostly reward disloyal customers. Those supermarket scavengers who wander between stores are supermarket scavengers; DM is the guide prepared for them. They are not quality users; they only pick discounted items everywhere, consume most promotional resources, and don't contribute profit to the enterprise. Quality customers spend more and are less price-sensitive; they don't pay attention to DM, don't keep printed coupons in their wallets, and don't look at coupons in WeChat card bags. How do we improve their satisfaction?
  * Many American supermarkets hold promotions before Thanksgiving; if customers spend a certain amount in the week before the holiday, they get a free turkey. Shopper research expert Gary Hawkins of Greenhill supermarket proposed a different view: some customers are not heavy users but will buy a lot before the holiday because of the turkey, then revert afterward; others buy a lot regularly, regardless of promotions. If both types get turkeys, it's a "punishment" for loyal customers; the profit from these short-term purchases may not cover the turkey cost, and these promotion-driven customers are "stealing" benefits from loyal customers. This practice of using short-term stimulation to gain traffic is common domestically; can we also learn from this viewpoint?
▍ Shopper Profiling: Shopper information management in the domestic retail industry is still in a rough stage.
To concentrate resources on high-quality customers, two things need to be known: 1) Who are the high-quality customers? 2) What do they need?
  * **Question 1: Who are the high-quality customers?** This question can barely be solved with existing membership systems. Retailers at least know the historical purchase records of a member number; based on purchase amount, frequency distribution, proportion of discounted products, etc., it's not hard to filter out high-quality customers. This can be done. Isn't that good? Where's the "barely"? How is it "barely"? You see, customer Ms. Zhang, with beautiful hair and mysterious wealth, has a high consumption level, but she doesn't spend much in your store. That doesn't mean she's not an important customer, because most of her spending is in other stores; it's that you haven't met her needs well. She's someone else's high-quality customer. This type of customer is an important opportunity for your business growth. Just by looking at your own POS data, you can't make that judgment.
  * **Question 2: What do they need?** This is more difficult. We can guess from correlations in POS data: she might have dry skin, might like set yogurt, might have a two-year-old daughter. Accuracy depends on algorithms and data sources, but both have challenges, especially data sources.
    * **Current data isn't playing its true role.** Many retailers have membership systems, but usually only simple points-for-redemption functions; in shopper analysis and application, they lack both willingness and methods. For example, Xu Fatty discovered oil in his backyard, gushing out daily; he uses it for lighting and cooking, but in the end, he's still poor, a poor guy whose house is blackened by smoke. He disagrees, saying he also sells data to brand manufacturers for category analysis, and you deducted 1% of the payment as information fees; his data is fluid, and fluid data creates value. Okay, let me rephrase: Xu Fatty discovered oil in his backyard, gushing out daily; he loads it on a donkey cart and sells it to villagers for lighting and cooking, blackening everyone's homes with smoke. That's about it; what a waste of precious oil.
    * **Online-offline data integration will create explosive power.** "Online and offline are like two sieves of different sizes, both losing some users." Combining online and offline data can give us more precise consumer profiles. Stores serve consumers in surrounding trade areas; different trade areas have different consumer compositions. Based on shopper recognition technology, retailers can match products at the store level; combined with big data in the BAT system, you can know what products you've bought, what dishes you've ordered, what you post on social media; the system can almost reserve products for individuals, pre-ordering goods and waiting for you to buy. Customers will find that although there aren't many products, they're all what they need—that's a truly **"pleasant shopping experience."**
**▍ There's no such thing as a free lunch; "New Retail" needs action to break the ice.**
  * **Retailers:** Be brave to share your membership and POS data to get external resource support and achieve breakthrough management improvements. The biggest hesitation behind this is trust in partners; this knot needs to be untied by yourself. I believe someone in the industry will step forward first.
  * **Data platform companies:** Alibaba and others are super data platforms; they don't lack data, but they lack industry implementation. On one hand, they tout data as a production factor, saying they'll transform the business ecosystem; on the other hand, they stumble and make small moves without doing anything substantial. They're not professional at implementation, even don't understand it; they don't understand brands as well as brand manufacturers, nor offline retail as well as retailers. What Alibaba's New Retail truly needs to do is **give data for free to retailers with good genes, organize professional resources to help them actually use it, help them see higher sales and profits from it, and help them retain 90% of old customers.** As for how to make money in the future, as a data platform company, you know.
The press conference has passed; Alibaba's New Retail needs to turn a new page and do something. New Retail needs to break static friction; online-offline integration requires a batch of retailers to break the ice and set examples. Alibaba, it's up to you; come on!
**Source: Weizhi**
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