Taking sides also takes time, as competition between the two camps will slow down at some point. Because acquired or invested companies need time for 'transformation', and acquisitions cannot continue indefinitely. For Alibaba and Tencent, integrating companies into their systems takes even more time.

Switzerland took 300 years to become a permanently neutral country. During the most critical period of World War II, Switzerland made compromises with Germany to maintain its neutral status. For the current retail industry, maintaining 'neutrality' is equally difficult, especially for leading companies in various sub-sectors. The difficulty lies in the fact that if you don't take sides, you will face 'joint suppression' from companies invested by both camps.

In the supermarket sector, with Better Life (步步高) joining Tencent's camp, it marks that the battle between Alibaba and Tencent for the supermarket sector is nearing its end. Especially on February 5, when Fu Yuning, Chairman of China Resources Group, visited Tencent's headquarters and stated that the two sides have huge complementary space and cooperation potential.

Alibaba camp: Intime Retail, Suning.com, Sanjiang Shopping Club, Bailian Group, Lianhua Supermarket, Yiguo Fresh, New Huadu, Sun Art Retail; Tencent, with JD.com and Yonghui as two key handles, is widely deploying: Yonghui Superstores, Yonghui Yunchuang, Tiantian Orchard, Walmart (JD.com), Vipshop, Carrefour China, Better Life, etc. Now, Tencent has invested 2.5 billion yuan in Heilan Home, bringing the battle to the apparel industry; Alibaba has opened a 'home furnishing battlefield', with Alibaba and its associated investors CITIC and Taikang investing 5.453 billion yuan in Easyhome, holding 15% of its shares.

The rapid pace of equity investments and mergers by the two camps is due to the proposal of the 'New Retail' concept.

I. Why has 'New Retail' swept the entire retail industry? In October 2016, Jack Ma proposed the concept of New Retail at the Yunqi Conference and stated directly: The pure e-commerce era is over; the next decade will be the era of New Retail, and the future must combine online and offline.

What was the situation of physical retail enterprises at that time? In 2016, among 24 listed companies in the top 100 retail enterprises, 16 saw negative net profit growth. In 2015, the average growth rate of sales scale of China's top 100 chain stores was 4.3%, with 31 companies experiencing negative sales growth, the lowest growth level since the statistics began.

The most direct reason for this decline or even negative growth was the impact of e-commerce. At this time, the cost of acquiring traffic for online companies was getting higher, and online traffic had peaked. Jack Ma believed that the potential huge growth space in the future lies in the combination of online and offline.

Online companies believe that expanding offline can apply the same logic as online to offline, improving the operational efficiency of physical retail enterprises. The ability to improve operational efficiency is the core reason why 'New Retail' has swept the entire retail industry. This efficiency improvement is comprehensive and even industry-wide, including products, inventory turnover, logistics, supply chain, etc.

The traditional retail business logic is: 'goods (or services), place (scene), people (or institutions)', that is, produce goods, find the busiest store, and sell to more people. In the PC era, Taobao or Tmall followed the same logic: buy good positions in the online mall, get more traffic, and profit by selling more goods. But in the mobile internet era, all this has changed.

II. Why did Jack Ma take the lead in proposing 'New Retail'? The popularity of smartphones has made every consumer online, able to compare prices online, and even browse Taobao while shopping in physical stores. Moreover, the proportion of online consumption is increasing, gradually becoming a norm, causing a huge impact on physical stores. This trajectory from offline to online purchases is clear: starting with clothing and household goods, then home appliances, then FMCG food, and even decoration materials are increasingly bought online. It is also at this time that manufacturers and brand owners discovered that all branding, promotion, and marketing can be completed through digitalization. And consumers' online purchasing behavior provides a good data foundation for online platform companies, allowing them to reverse-engineer consumer purchase trajectories, preferences, etc., for user profiling and tagging.

For example: What price range of residential area do you live in, and in what rent level office building do you work (address analysis) Are you single or have children, do you keep pets (past purchase analysis) Are you sensitive to promotions (promotion correlation analysis) What products have you searched or browsed the most (interest analysis) In addition, these platform e-commerce companies also have payment tools and corresponding financial licenses, so your economic conditions are also under their control.

These 'data' and the ability to process them are the core of New Retail. After processing this data, it can help manufacturers and related service providers better identify and understand consumers, gain insights into consumer needs, and in turn guide product production and service optimization, and then provide them to consumers in all suitable scenarios (including online and offline). These are exactly what Tmall and Taobao are good at, such as 'Guess You Like', which is why Jack Ma was able to take the lead in proposing the 'New Retail' concept.

'Data' and the ability to process data are exactly what physical retail enterprises lack. Many physical retail enterprises are now undergoing 'digital' transformation, precisely to make up for this. Because with data, it is possible to achieve consumer identification, insight, and service, and finally achieve the goal of reachability. Then, the key elements of original retail activities 'goods-place-people' are reconstructed as 'people-goods-place', giving rise to a new retail ecosystem different from the past. Alibaba believes that New Retail is a data-driven pan-retail format centered on consumer experience. This also confirms that data-driven is the core, and consumer (people) experience is the center. But the essence of retail remains unchanged: providing goods and services that meet consumer needs.

Many retail enterprises need to achieve digitalization of retail ports to move towards New Retail. No matter from which channel, whether online or offline, as long as the transaction is real, data for each transaction and each customer can be accumulated. But it requires long-term accumulation, which is not the hardest part. The difficulty lies in how to form effective analysis and use it well. But for the collection, analysis, and application of 'data', many physical retail enterprises have not yet started, and there is much room for improvement. Of course, at present, the New Retail battle between Alibaba and Tencent has spread to the apparel and home furnishing industries. In the future, leading companies in formats such as apparel, convenience stores, catering, and shopping centers will also 'take sides'.

III. Do retail enterprises have no chance if they don't take sides? Taking sides also takes time, because competition between the two camps will slow down at some point. Because acquired or invested companies need time for 'transformation', and acquisitions cannot continue indefinitely. For Alibaba and Tencent, integrating companies into their systems takes even more time. Especially on January 30, Sun Art Retail announced that Huang Mingduan resigned as executive director, and Alibaba Group CEO Daniel Zhang was appointed as non-executive director and chairman, effective from January 30, 2018. This marks the official entry of the Alibaba camp, and the transformation has begun. During this period, Alibaba has not yet announced any major moves. Of course, Lingshou (灵兽) believes that Tencent and Alibaba will slow down, but 'acquisitions' will continue, and many physical retail enterprises can only become supporting roles. Whoever can make enterprise operations more efficient and more in line with consumer needs will dominate the future. In 2018, perhaps the integration in the supermarket sector will be completed, and regional leading retail enterprises will become the focus of online enterprise integration. If your enterprise is not integrated: first, because you are not good enough or too small, or have no characteristics; second, you have found a viable business model sufficient to deeply cultivate the regional market. Perhaps Fresh Legend (生鲜传奇), which just completed a 200 million yuan financing in November last year with a valuation of 1 billion yuan, is a representative of regional markets with a unique business model. But its scale is too small, and it faces great pressure to open stores. Perhaps it needs to run fast enough to be more competitive. Similarly, behind this, it still needs strong capital support. Don't forget that Alibaba and Tencent are also among the largest capital providers. Isn't that interesting?

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