As June begins, a new round of retail warfare has commenced. Unlike past e-commerce-dominated battles, this year offline channels have joined the fray, with Alibaba+Suning, Feifan, and Feiniu successively making their moves, making the once-monotonous retail war more compelling.
The retail war has spread from online to offline, not only representing the industry's forward direction but also a crucial self-rescue measure amid crisis. Retail giants clearly understand that pure online or pure offline sales models can no longer meet long-term development needs; an omni-channel strategy integrating online and offline is the viable path, and platform merchants must quickly adapt to this new change.
Notably, WeChat business (Weishang), which was continuously criticized last year, has now seen the market return to rationality and is showing a trend of rising against the trend, potentially becoming an indispensable force in channel transformation in the future. If optimistically estimated, China's retail industry will be divided into three parts: e-commerce, physical retail, and WeChat business, accounting for 30%, 40%, and 30% respectively.
The mobile internet wave is sweeping across all industries, and the battle for retail channel transformation has quietly begun, with no merchant able to stay aloof.
E-commerce: After the Demographic Dividend Fades, Turning to Offline
In March this year, Alibaba's total transaction volume for fiscal year 2016 exceeded 3 trillion yuan, surpassing Walmart to become the global retail leader. This is not only a major milestone in Alibaba's development history but also a landmark in world retail history, with its greatest significance being the victory of the digital economy.
Some people simplistically equate the digital economy with the virtual economy, but I do not agree. Alibaba is not content with merely playing the role of an online channel; it hopes to become the infrastructure of the new commercial era, driving transformation across the entire process of product R&D, production, supply chain, sales, marketing, and after-sales. This is a process from quantitative to qualitative change.
As mentioned earlier, the retail industry can only have a future if both online and offline flourish. The soaring online transaction volume does not guarantee Alibaba's peace of mind; the disappearance of the demographic dividend forces it to pay any price to conquer the offline city. In fact, Ma Yun, skilled in strategic layout, has long realized that offline will become Alibaba's next breakthrough point. After gradually integrating Intime, in August last year, Alibaba invested 28.3 billion yuan in Suning, the latter being the largest and most successfully transformed traditional enterprise in China's retail industry.
After 10 months of integration, Alibaba and Suning jointly announced that they had achieved "deep integration into blood and nerve endings." By successively connecting online and offline systems such as e-commerce, logistics, after-sales service, marketing, finance, and big data, the two have achieved half-day delivery in six cities including Beijing, Shanghai, and Guangzhou, and provide services such as in-store pickup and nearby store delivery. As the integration matures, the future plans of Alibaba and Suning have also surfaced, boldly claiming to drive the total social retail sales from 30 trillion to 300 trillion yuan.
While Alibaba and Suning display their retail ambitions, their rival JD.com is not idle. Last year, JD.com took the lead in forming an alliance with Alibaba, announcing a strategic investment in Yonghui Superstores, which operates 360 large and medium-sized supermarkets in 17 provinces, with fresh produce as its advantageous category. As is well known, the upstream of the fresh produce supply chain is complex with many links. JD.com, which started with a self-operated model, faces high supply chain integration difficulty in operating all categories of fresh produce. By leveraging Yonghui's advantages in fresh produce procurement and cold chain logistics, JD.com can compensate for its supply chain shortcomings in the fresh produce category.
More importantly, Yonghui can continuously strengthen JD Daojia, JD.com's key retail O2O business. JD.com Vice President Deng Tianzhuo once stated that JD.com's O2O would not touch heavy supply chains, only provide solutions, with logistics as the core, mainly using crowdsourced delivery with self-built delivery as a fallback. Yonghui's hundreds of community-based stores can serve as natural warehousing and delivery nodes in JD.com's distribution system. After JD.com's delivery teams are integrated, a complete logistics system can be formed to win the logistics battle and meet users' immediate and fragmented consumption needs.
Physical Retail: Forced to Move Online Under E-commerce Impact
The decline of traditional retail is no longer news. The frequent store closures have made shopping malls, department stores, convenience stores, and other retail formats feel insecure. As early as 2014, the downturn in traditional retail began to show signs. Data shows that by August 2014, China's total social retail sales reached 16.61 trillion yuan, a year-on-year increase of 12.1%, of which large retail enterprises' total commodity sales were 8.3 trillion yuan, with a growth rate of 9.7%, 2.4 percentage points lower than the total social retail sales. This low-speed growth trend continued into 2015. The fundamental reason for the fading glory of traditional retail is the shift of user cognition and consumption habits to online, putting unprecedented survival pressure on offline retailers.
Among retail formats, department stores have been hit hardest by e-commerce. Their business model is essentially a real estate business, not involving supply chain management, focusing on site selection, merchant recruitment, and membership management. This model of collecting rent by sitting on property has almost no resistance against e-commerce. E-commerce platforms with low "rent" and considerable traffic have dealt a heavy blow to department store recruitment, and internet companies' expertise in collecting and analyzing user information and behavior data is an advantage that department store membership management systems cannot match.
Against this backdrop, traditional retail has initiated self-rescue models, with the basic approach being: digitization of SKU and membership management, integration of online and offline shopping scenarios and processes, and emphasis on user experience. However, different retailers have adopted different breakthrough strategies. Suning chose to ally with Alibaba to compensate for its unsatisfactory online sales; Wanda chose to partner with Tencent and Baidu to form Feifan E-commerce, but constrained by deep-rooted traditional thinking, its performance has been mediocre nearly a year after launch.
In fact, whether it's Alibaba-Suning, Tencent-Baidu-Wanda, Intime-Alibaba, or Yonghui-JD.com, they all send a clear signal: more and more supermarkets are starting to step out of their own systems and seek cooperation with internet companies, becoming the mainstream approach for supermarket transformation. Another example is Wumart, which abandoned the idea of independently operating online and cooperated with fresh e-commerce Duodian. Duodian can help Wumart reshape processes including procurement, merchant management, and packaging, and provide "1-hour delivery" service to ensure seamless online and offline shopping experience for users.
In addition to supermarkets and internet companies dividing work and cooperating, there are also supermarkets that independently build O2O business frameworks and develop apps, only exchanging some resources with e-commerce at the business level. Joy City and Rainbow Department Store are typical representatives. However, for supermarkets to rely solely on their own strength and attempt to snatch food from Alibaba and JD.com with a self-operated e-commerce model is difficult and unsustainable. Setting aside the need for a mindset shift, self-operated e-commerce is only a supplement for supermarkets; their own orders cannot support operating costs, and they must rely on offline to subsidize online, making profitability almost impossible.
Of course, there are also cash-rich retail giants that directly acquire e-commerce platforms. The most typical example is Walmart's full acquisition of Yihaodian, seen as an important measure to strengthen its online presence. However, the comprehensive integration of two massive systems is extremely difficult, with many variables in supply chain, SKU, users, payment, and after-sales. Notably, just before acquiring Yihaodian, Walmart piloted an O2O platform called Sugo in Shenzhen, planning to roll it out nationwide. Once promoted vigorously, it will inevitably conflict with Yihaodian, and how to coordinate the two platforms for its own benefit will determine the fate of Walmart's retail O2O.
WeChat Business: Rising Against the Trend After Continuous Criticism
Amid the vigorous channel transformation, WeChat business, which was once extremely popular, cannot be properly recognized by the market. This is not surprising. After nearly two years of wild growth, the drawbacks of WeChat business have gradually emerged: unclear product sources, opaque prices, and ineffective after-sales have made users keep their distance. Practitioners also feel helpless about unsold goods and low profits. Especially when CCTV fiercely criticized the chaos of WeChat business in May last year, various negative voices arose, making it seem as if WeChat business was on its last legs.
In my view, WeChat business will not disappear; on the contrary, it has extremely strong vitality. Fierce market competition has led to rounds of reshuffling in WeChat business, purifying the industry while allowing truly competitive platforms to survive. These will become important channels for merchants' sales and membership management.
For a long time, WeChat business has lacked a clear definition, even being equated with "selling goods on Moments." Actually, that's not the case. WeChat business is a new type of e-commerce where enterprises or individuals open stores based on social media, i.e., mobile social e-commerce. Selling on Moments is C2C WeChat business, while B2C WeChat business with platform endorsement is the future. C2C WeChat business will eventually become individual distributors for B2C WeChat business.
Clearly, selling on Moments is not a long-term solution. Third-party shopping platforms that deeply integrate WeChat's social relationships for sales, and self-operated malls developed based on WeChat, have become the mainstream of WeChat business. The former has given rise to Mengdian, Weidian, and Youzan, while the latter supports a large number of WeChat third-party developers.
For merchants, the sound distribution systems of platforms like Mengdian and Weidian are their magic weapon for promoting products and brands. The distribution system is key to their sales; once lost, it will inevitably severely impact sales. Although there is currently no sign of WeChat blocking external links from Mengdian and Weidian, it more or less gives merchants a sense of insecurity. In contrast, WeChat mall can completely put merchants at ease, as WeChat's social relationships, membership management, and payment system are all at their disposal, making it increasingly favored by merchants.
Take the umbrella leader Paradise Umbrella as an example. Recently, it partnered with Weiba Renren Store, a well-known WeChat third-party developer, to launch the Paradise Umbrella manufacturer version of Renren Store. The store features 12 categories of goods. Leveraging Paradise Umbrella's strong brand influence and the distribution system of Renren Store, orders exceeded 50,000 within half a month. It is precisely because of the distribution advantages of Weiba Renren Store and the prospects of WeChat business that brands like Tianwo and C&S have also successively launched manufacturer versions of Renren Store.
Why do merchants experience a chemical reaction-like surge in sales after integrating with Weiba Renren Store? I believe the fundamental reason is the system mechanism of one-click store opening, unlimited distribution, and three-level commission sharing. Unlike Taobao's centralized traffic selling, WeChat is completely decentralized, making user shopping more fragmented. 80% of WeChat mall traffic comes from the spread of social relationship chains. How to stimulate users to actively spread becomes the key to traffic acquisition.
Weiba Renren Store's mechanism of sharing and earning commissions greatly stimulates users' initiative to spread, leading to continuous traffic fission, which is beneficial for merchants to attract new customers and activate existing ones. Currently, Weiba Renren Store has served over 450,000 merchants, with small and medium-sized enterprises and individual entrepreneurs accounting for more than 80%. Moreover, the number of enterprises building WeChat malls is growing at a quarterly rate of 68%, indicating significant development potential.
Whether it's Mengdian, Weidian, or Weiba Renren Store, while normalizing WeChat business, they also bring broad market space for themselves. In the future, merchant coverage and transaction volume will reach new heights, becoming indispensable sales channels.
Final Thoughts
Whether the future sales proportion of e-commerce, physical retail, and WeChat business will be 3:4:3, I really cannot be certain. What I want to say is that while merchants emphasize the integration of online and offline, they must not miss the opportunity for channel layout due to prejudice against WeChat business. With the continuous promotion of third-party WeChat developers like Weiba Renren Store, WeChat business will eventually explode.
For retail channels, whether moving from online to offline or from offline to online, the difficulty is considerable. Mindset shifts, talent optimization, supply chain reshaping, and profitability are all unavoidable challenges. How to learn lessons from the pain of transformation and stride forward not only tests the wisdom and decisiveness of founders but also determines the future fate of enterprises.