The Best Business Models Are Born in the Most Turbulent Times! - 30 Signals That Physical Stores Will Rise in 2017

Click the image for details Remember: The best business models are born in the most turbulent times! Whenever everything is quiet, a powerful new life is brewing, and it will lead the next round of recovery. In the Great Depression, there are inevitably great opportunities. In this era full of changes, reversals can happen at any time. For example, in the PC era, Taobao revolutionized department stores, JD.com revolutionized electronics stores, and Tmall Supermarket revolutionized hypermarkets! But in the mobile internet era, they have become traditional enterprises. Recently, there are more and more cases of physical stores fighting back... Turning Point 1: The Era of Consumption by the Post-90s and Post-00s Begins, Bringing New Opportunities for Physical Stores The comfortable family environment has made the younger generation in China less money-conscious, preferring to spend ahead of their means. They are more receptive to new things, more adapted to mobile internet consumption patterns, and more focused on interactive experiences. Clothing: Pursuing brand personality, highly internet-oriented. Food: Emphasizing specialty and experience, leaning towards fast fashion consumption. Transportation: Valuing both appearance and quality, with brand awareness. Travel: Yearning for freedom, with limited spending power but a love for travel. Entertainment: Strong entertainment capability, open to new forms of entertainment. Today's post-90s and post-00s have vastly different consumption preferences and habits, which is the best time for physical stores to rise. Turning Point 2: Ma Yun (Jack Ma) Increases Investment in Physical Commerce Eight Times a Year Ma Yun is determined to increase investment in physical commerce, adding six times in one year, from cross-border supermarkets, to O2O fresh food supermarkets, to opening coffee shops, to partnering with Pengxin to open experience-oriented shopping malls, and then buying KFC. After proposing the new retail concept, Ma Yun immediately opened a new retail physical store under Tmall: "Just Try Fitting Room" (就试试衣间), covering nearly 2,000 square meters, with 100 popular Tmall clothing, shoes, bags, and cosmetics brands, designed into 5 high-value themed areas. At the end of last year, he acquired Sanjiang Shopping, a regional supermarket leader, and recently is deepening cooperation with Yijia Weide (1兆韦德). Perhaps Ma Yun's investment in physical commerce is just the beginning. Turning Point 3: Food Delivery Models Significantly Increase Revenue for Physical Stores The mobile internet food delivery model is helping merchants increase revenue unprecedentedly. The original store's reach has greatly expanded, business volume has increased significantly, and some stores have seen several-fold growth. Whether it's a roadside shop or a mall brand, they all stand on the same starting line; clicks are the reputation value. Now, some merchants even get 70% of their profits from mobile food delivery orders. Moreover, more and more merchants are operating more rationally, not competing on low prices or discounts, but using delivery platforms to bring online traffic offline, thereby increasing physical store revenue. Turning Point 4: Explosive Growth of Shopping Malls: The Best Period for Physical Store Development In the past three years, Wanda has opened more than 50 malls, and has cooperated with provincial governments to secure large projects, continuously expanding into third- and fourth-tier cities and county-level cities with consumption power. For example, in Shanghai, nearly 30 malls opened in 2016, and this year it is expected to open 58, marking an era of comprehensive explosive growth in commercial real estate. Governments like to cluster business districts. Now there are more and more malls, giving merchants more choices, and naturally more room for rent costs. Turning Point 5: More Sub-brands Emerge, Good Brands Rise as Groups In China, the grouping of domestic catering businesses has become a new force for the rise of physical stores. For example, Grandma's Home (外婆家) has 17 sub-brands, including Yan Xihu (宴西湖), Lu Yu (炉鱼), Chuan Yue (穿越), Chaitian Western Pastry (柴田西点), Guo Xiaoer (锅小二), Uncle 5, Sanqianchi Noodle House (三千尺面馆), Dongshou Ba (动手吧), Zheng Nianqing (蒸年青), Guo Dian (锅殿), Ni Bie Zou (你别走), and Bubu Ramen (哺哺拉面). These distinctive sub-brands have opened up the market and are gradually winning the future. In the retail sector, many fast fashion brands, such as Inditex (ZARA's parent company) with 9 sub-brands, H&M with 6 sub-brands, and sub-brands targeting niche markets, have also opened up. Cross-industry collaborations generate more popularity, and through the main brand's channels and influence, they can also gain better development opportunities. Turning Point 6: The Scene Revolution in Physical Stores Has Arrived Remember that Yoshinoya in Taipei with its minimalist style that dazzled? Remember how McDonald's created a five-star dining experience in Guangzhou to erase the label of junk food? Remember Little Sheep's vegetable forest and meat mountain? Remember the restaurant with extreme movie scenes opened by Huang Xiaoming in Beijing? Remember Taoyuan Juan Village and Gan Qi Shi, which gave baozi shops a new look and played with nostalgia? Remember that KFC "Original+" concept restaurant with Jiangnan style, literary flair, and freshness? Globally, the catering industry is undergoing a new revolution of green, scene, sentiment, and minimalism. Turning Point 7: The State Council Issues "Opinions on Promoting Innovation and Transformation of Physical Retail" The state is also promoting retail reform and upgrading. The era of new retail is coming, bringing both opportunities and challenges. It is guiding traditional sales venues to transform into centers for social experience, family consumption, fashion consumption, and cultural consumption. It is cultivating new market entities that integrate online and offline development. It aims to revitalize existing commercial facilities through market-based methods, reduce the subletting of publicly owned shops, and effectively lower shop rents. It will relax restrictions on the decoration of street-facing shops and cancel unnecessary approval procedures for interior renovation. At the same time, it will create a fair tax environment for online and offline enterprises. Turning Point 8: The List of E-commerce Deaths Announced, Physical Commerce Ushers in the Best Opportunity for Rise The cost of e-commerce is getting higher and higher. E-commerce has developed rapidly for many years, and now its costs are no lower than physical stores: labor 11%, Tmall commission 5.5%, promotion costs 15%, express delivery 12%, after-sales 2%, financial costs 2%, utilities and rent 2%, plus taxes. Without a gross margin above 50%, e-commerce cannot sustain operations. Not only traditional e-commerce giants, but also vertical e-commerce are experiencing a great exodus. In 2016, more than 40 e-commerce companies closed down. The operating costs of e-commerce are increasing significantly, but in contrast, for physical commerce, rent reduction has long been a consensus. In the past two years, even landmark shopping centers are following the trend, giving merchants more concessions, including top malls like Hang Lung, China Resources, and Shui On. Turning Point 9: The Successful Reversal of Physical Bookstores Is Right Before Our Eyes 2016 was a turning point for physical bookstores in China, as they are becoming a fashionable place again. Eslite, Fangsuo, Zhongshuge, Sisyphe, Cat's Sky City, MUJI Books, Xinhua Book Collection, Yanjiyou, Dazhong Bookstore, One-way Street, Together, First Sight Study, and Between the Lines have led this transformation. New physical bookstores have won back the younger generation. They may not buy many books in the bookstore, but they can drink coffee and chat, buy cultural and creative products, and even treat the bookstore as a fashion landmark to "pilgrimage" to. They are also public spaces and cultural salons in the city. Turning Point 10: The Display Value of Offline Stores Is Increasingly Valued by Local Merchants The value of display and experience in physical stores is increasingly valued and has become a powerful weapon for brands to break through development bottlenecks. Some merchants directly open experience stores, just to cultivate the next generation's brand consumption and emotional communication. Some even rent space to create experience-oriented offline fitting rooms. Tmall's big players and Dangdang are all opening physical stores, with the core being to let consumers experience more new products to promote online sales. Dangdang's first bookstore in Changsha is 1,200 square meters, with plans to open 1,000 stores in three years. This shows that for e-commerce, online customer growth may have reached a bottleneck, and if they don't compete in the physical store market, they will truly fall behind. Turning Point 11: Competition Among Chinese Commercial Real Estate Developers Is Intensifying! More Brand Developers Are Willing to Lower Rents for Good Brands and Foot Traffic In Chinese commercial real estate, more than 30 foreign developers and more than 40 domestic developers have mature commercial management teams. This decade has been an era of many heroes. In 2016, 480 malls opened nationwide, and this year it is expected to explode to over 900. Now, more and more developers are willing to trade rent for the foot traffic and influence of merchants, in order to gain long-term mall growth space and overall valuation. Turning Point 12: The Shakeout Between Online and Offline Is Nearing Its End; Japan's Physical Store Rise Is a Case in Point With a global perspective, there are many benchmarks to learn from, and many have already turned around. Japan also had a period of physical store decline, but after several years of adjustment, it has risen steadily again. Today's China is like Japan back then. China's six-year shakeout of physical stores is nearing its end, and the peak of store closures has passed. Many are re-emerging after transformation, adjustment, or international acquisitions. Even Chinese department stores have risen against the trend, and the popular Parkson Youke City Plaza across China is a turning point. In fact, Japan also had a period of physical store decline, but after several years of adjustment, it emphasized humanized details, craftsmanship to create an extension of home, more thoughtful infrastructure, quality first to create unique selling points, and unbeatable after-sales service in malls. It has now risen steadily again. Today's China is like Japan back then. Turning Point 13: Craftsmanship, Scene, Fast Fashion, Sentiment, Details, and Service Are Increasingly Becoming Labels for the Rise of Physical Stores In the mobile internet era, consumers' preferences and pursuits are reflected in real click-through rates. The hottest transformation directions for physical stores this year are Japanese-style craftsmanship, scene experiences with fun or sentiment, fast fashion to meet mass demand, and attention to details and service. These elements are increasingly being applied to the development system of physical stores and have become labels for counterattack. Turning Point 14: Government Promotes Entrepreneurship Wave, Supporting the Rise of Physical Stores In 2015, China registered an average of 11,600 new enterprises per day, with 8 companies born every minute. This may be the largest wave of entrepreneurship in human history. A large portion of them chose to start with physical stores. The entrepreneurship wave will continue in 2016 because it is the general trend. Now, the process of opening stores and government approvals is being simplified, and the business tax reform (replacing business tax with value-added tax) helps reduce the burden on merchants. Physical store brands with fans and influence are more likely to get capital support to help them grow. Many retail executives and managers are choosing to open stores in this wave of entrepreneurship, and even young people who have just graduated can crowdfund to open coffee shops. The commercial real estate entrepreneurship wave is quietly changing competition and the rules of the game, revealing more business opportunities amidst disruption. Turning Point 15: In the Era of the New Middle Class, Culture, Innovation, Experience, and Sentiment Are as Important as Price Price advantage has always been the core of e-commerce's counterattack on physical stores, but now there are more and more middle-class families, the internet connects the world, and even the Chinese aunties who once bought gold are now traveling abroad in groups. Consumers have already undergone a subtle but huge transformation. In the past two years, the hottest commercial real estate projects are Joy City, Taikoo Li, Shin Kong Place, and Eslite. Then China Resources opened "Platform 9 3/4" in Zhengzhou MixC, attracting young people with cultural and creative shops, handmade crafts, trendy clothing, trendy accessories, skateboards, anime, and fun shops. Road King's Black Peach Queen Street is exciting, Fuzhou Sunshine Tiandi created a fresh and artistic 10,000-square-meter "Lejing" (Happy Land), and even Tianhong opened a literary shopping mall, Shenzhen Junshang 3019. Today's physical commerce is all about humanities, innovation, experience, and sentiment. This is what today's consumers truly need. Turning Point 16: Opening Stores Can Make You the Richest Person; ZARA's Boss Sets Off a New Business Trend This year, ZARA's owner, Amancio Ortega, briefly topped the global rich list, with a net worth equivalent to three Ma Yuns. Inditex's brands, with ZARA alone, are enough to generate huge profits. This tells global investors that commercial real estate retail can still make big money; if you can't, it's because you're too low. Wanda is investing in cinemas and children's playgrounds; Greenland is investing in cross-border import supermarkets; Fosun is investing in German fast fashion brand Tom Tailor and Malaysian restaurant chain Secret Recipe, betting on China's consumption potential and future growth, with the opportunity to earn more like Amancio Ortega. Turning Point 17: Behind the Massive Store Closures, a Batch of New Local Brands Are Rising Strongly As we all know, some old brands closed more than 10,000 stores in 2016. But behind the closures, more new brands are rising strongly. In retail, local fast fashion brands like Hotwind, UR, and MJstyle are making a big counterattack. Local designer brands and emerging trendy brands are also attracting attention and continuously squeezing more market share. In catering, these years are the rise of local fast food restaurants and celebrity stores. Grandma's Home, Xiao Nanguo, Suzhou Jiangnan, Pangu Catering, 57° Hunan, Haidilao, and more than a dozen others have the potential to become global catering groups like Yum! Brands. Turning Point 18: Global Popular Online Retailers Are Transforming to Open Physical Stores Last year, Amazon opened its first physical store, located in the University Village shopping center in Seattle, USA, covering about 511 square meters and displaying 5,000-6,000 books. This was the first time in 20 years. It is also the general trend for popular e-commerce in the future. Now, several popular e-commerce companies in Europe and the US that rose through online sales are transforming to open physical stores. In the US, Nasty Gal, ModCloth, Warby Parker, and Bonobos have all accumulated reputation and initial capital online and are now rolling out physical experience stores as a major strategy. Many British high-street fashion e-commerce companies are doing the same. Turning Point 19: The New O2O Business Model with Same Products and Same Prices Weakens E-commerce Competitiveness The real economy was not defeated by e-commerce, but by itself. For traditional brands, the better the online sales, the more offline stores close. Price advantage is the key factor. So, if they cannot achieve the same price online and offline, physical merchants will defeat themselves. Now, there are more and more successful cases of same products and same prices online and offline. Take Uniqlo again. If Uniqlo's popularity on Tmall in 2014 prompted a wave of fast fashion brands to enter Tmall, then Uniqlo's O2O model of same prices online and offline in 2015 will be adopted by more physical store merchants next year, promoting the transformation of physical retail business models. Turning Point 20: New Cross-Industry Play in Physical Stores Drives Their Rise Against the backdrop of Tesco exiting China, Carrefour losing momentum, and RT-Mart starting to close stores, there is a local Chinese supermarket, Yonghui, which opened 231 stores in 2016 and is fully launching a counterattack, relying on new cross-industry play. Yonghui is currently incubating 8 innovative projects: Salmon Workshop, Lobster Workshop, Box Beef Workshop, Wheat Workshop, Yongyuehui, Living Kitchen, Healthy Life Organic Hall, and Jinghou Huakai Flower Art Hall. Yonghui is creating a "supermarket + restaurant" cross-industry mix to attract customers, and even Today Capital invested 460 million yuan in this cross-industry subsidiary of Yonghui. Turning Point 21: The Era of Black Technology in Physical Stores Has Arrived

Amazon recently launched a black technology convenience store where you can just grab items and leave without queuing. Simply start the Amazon Go app on your phone, and all the items you pick up are automatically added to your virtual shopping cart. When you leave the store, sensors automatically notify the system to calculate and charge for the items you took.

Adidas, in partnership with Intel, launched a digital shelf - a virtual shoe wall. By designing a device with a touchscreen and 3D rendering effects, it can display more than 2,000 shoe styles in a limited store space. Customers can not only browse but also place orders directly. Sephora, the world's largest physical beauty retailer, is also using a lot of "black technology" in its North American stores to enhance the in-store experience. The 12 workshop areas are equipped with WiFi, USB ports, iPads, and other electronic devices, allowing customers to watch beauty tutorial videos on-site and find their desired products in a short time. There are also Sephora-exclusive sensors for customers to try 18 perfume scents themselves. Turning Point 22: More International Brands Enter Chinese Shopping Malls, Enhancing the Competitiveness of Physical Commerce Take international fast fashion brands, for example. They started in 2002, gradually changing Chinese values and accumulating reputation. A wave came in 2007-2008, gradually disrupting the industry. The real explosion was in 2011-2013, rapidly expanding to second- and third-tier cities, opening massive stores to capture the market. In recent years, highly competitive fast fashion brands like A&F, SPAO, Forever21, TOPSHOP, and Old Navy are making efforts. Global favorites like bebe, & Other Stories, Urban Outfitters, Victoria's Secret Pink, and Miss Selfridge are also planning to enter the mainland market. Turning Point 23: Physical Stores Are Changing; in Fierce Competition, Those Who Don't Advance Will Retreat Starbucks was once overtaken by COSTA and a batch of themed coffee shops, but change is happening now. With a comprehensive design overhaul and the launch of more sentimental and experiential themed store models, it is gradually regaining recognition. Miniso is something you can't learn; it's not just imitation and low prices. Its mobile internet marketing, design and display, product selection, franchise model, and boldness are its core competitiveness. In less than two years, it has opened 1,100 stores, with revenue of 5 billion yuan last year. Look at Yonghui's premium supermarket Bravo TH: attractive displays, price advantages under strict logistics control, and the Food Plaza outside with various catering merchants that don't lower their standards. Wanda, Longfor, and Zhengda all love it, and it has overtaken a batch of old, unprogressive hypermarkets. Turning Point 24: New Operational Play in Physical Commerce Wins Back Consumers More and more malls are launching new operational play that subverts the experience. Last autumn, Shanghai K11 launched a wheat field model. Here, not only is there memorable artistic innovation, but you can also find the purest memories and the most rustic feelings. Not only foreign commercial real estate developers, but domestic ones have also learned. Recently, Chongqing MixC brought Jiangnan into the shopping center, using black tiles, white walls, blue bricks, and wooden structures to interpret the classics. Too many experience-oriented activities are being launched, and they are bringing back the new generation of consumers who value sentiment. Turning Point 25: More and More Celebrities Opening Physical Stores Have Swept the Industry Han Han's "Nice to Meet You" restaurant, Ren Quan's Sichuan Xiang Tian Xia hotpot, Angelababy's baby cafe, Shu Qi's KIKI restaurant, Gao Yuanyuan's Peach restaurant, Xue Zhiqian's Shang Shang Qian skewers, Jay Chou's French, Japanese, and Northwestern Chinese restaurants... are subverting the catering industry. Edison Chen's trendy brand JUICE, Mayday's STAYREAL, Jay Chou's PHANTACI, Show Luo's STAGE, JJ Lin's SMG, Li Chen and Pan Weibo's NPC, and Chang Chen-yue's WNP... are subverting traditional trendy clothing stores. In recent years, physical stores opened by celebrities are rising in the commercial real estate sector. Hundreds of celebrity-invested stores are rising strongly in mainland China, becoming an important tool for malls to attract customers. Turning Point 26: After the Great Shakeout in the Entertainment Industry, New Brands Rise Strongly As the main consumers of shopping centers shift to the post-80s and post-90s, consumption habits are very different. The KTV format, once seen as a traffic driver for shopping centers, has basically been eliminated, and cinemas and arcades are no longer new. Now, the new generation of consumers is pursuing a more extreme experience. The emergence of new technologies has led to a major shakeout in the entertainment industry. KTV, which was popular for many years, is gradually fading from the stage and about to end its "golden age." Sports halls, theme parks, VR, escape rooms, aquariums, large amusement parks, flight experience halls, zoos, performing arts theaters, and haunted houses are on the rise. The entertainment industry in malls is undergoing a major reshuffle. Turning Point 27: Three Squirrels' Physical Stores Are More Profitable Than E-commerce Even Three Squirrels, which rose through e-commerce, is quietly making efforts in physical stores, and it has been revealed that physical stores are actually more profitable than e-commerce. Currently, this store in Wuhu, Anhui, has a daily average sales of up to 150,000 yuan, with 50,000 people visiting per week. A 300-square-meter snack store that doesn't emphasize buying and selling but emphasizes experience and interaction. When you enter, you can hear the "feeding song" by virtual singer Luo Tianyi. The interior is forest-themed, with one-third of the area set up with leisure seats and a bar counter, and decorated with trees, wooden houses, and other forest elements. The products on display are mainly nuts, dried meat, and other products commonly seen in online stores. Unlike other snack stores, each series of packaging has a story about a little squirrel. Three Squirrels plans to open 100 physical stores in 2017, launching a new offline experience-oriented counterattack model. Turning Point 28: The State Council Promotes a New Strategy for Domestic Demand Premier Li Keqiang has emphasized many times that 2017 is the year for structural adjustment, inventory reduction, and expanding domestic demand. Promoting the security system, shifting from external demand to domestic demand, and from investment to consumption has become the core of development, with the aim of building a new growth model that increases innovation-driven and consumption-driven forces. The two-child policy, moderate tax cuts, and the new rural strategy are all ideas for expanding domestic demand. Such policies will increase in 2016, helping to grow the family consumption pie. Turning Point 29: The Government Has Realized That E-commerce Is Hitting the Rise of the Real Economy Double 11 is a huge loss-making economy. Vicious competition has led China's retail to an era of no profit. Production workshops squeeze out advantageous industries. E-commerce is destroying consumption, destroying the extra consumption brought by shopping itself, and destroying traditional business districts... Is this e-commerce's fault? Not necessarily. This is a global trend, but China's disruption is more intense and the price war is fiercer. But it is undeniable that e-commerce does have an impact on the real economy, which everyone can feel. The proportion of counterfeit goods online is far greater than expected. Recently, "Today's Focus" did a program with shocking content. The Business Think Tank believes that since the government has gradually brought deeply disruptive financial innovation and mobile internet payment systems under strict control and supervision, e-commerce is also destined to not escape. And the change is happening now, and physical stores will ultimately benefit. Turning Point 30: The Government Is Restricting Cross-border Purchasing Agents and Promises to Lower Import Taxes in 2017 Premier Li Keqiang recently mentioned purchasing agents when talking about the rise of the real economy. In recent years, the rapid growth of purchasing agents contrasts with the slight weakness of the real economy. China's annual cross-border purchasing scale of hundreds of billions of yuan cannot be ignored. So, a clear change is that policies on purchasing agents are gradually tightening. There are more and more legal sanctions against purchasing agents who maliciously evade taxes. Next year will be more detailed and stricter. At the same time, import policies are being liberalized. Premier Li Keqiang stated that in the next five years, China will import $10 trillion. The Business Think Tank predicts that to truly boost domestic demand, import policies will be further liberalized in 2017. In the middle of this year, Chen Qizong said that the government had promised to lower import tariffs, and the cold spell in luxury commerce is closely related to import tariffs. Then it was reported that LV was closing stores on a large scale, as Chinese people are used to buying luxury goods abroad or through purchasing agents, so LV's closures are justified. Now, the government has promised at the Two Sessions to lower import taxes. Now, many physical stores are still hesitating because they haven't woken up. They have been competing on price and storefront advantages. In the future, homogeneous products will become less and less competitive. Only physical stores that can provide unique experiences for users will stand out. Under this trend, many e-commerce companies are also being forced to move from online to offline, opening physical stores to provide consumers with a place to experience and make up for their shortcomings. This is the essence of "consumption upgrading." Today's post-90s and post-00s have vastly different consumption preferences and habits. More and more physical stores are playing with competitiveness and choosing to subvert to find new development paths. In 2017, the real opportunity for physical stores has arrived, and traditional physical stores will definitely win! -END-