Click the image for details As e-commerce and online retail enter a growth phase, traditional retail enterprises have faced high costs, high competition, low returns, and expansion difficulties since 2011, leading to a wave of store closures in the traditional retail industry. As the competitive environment changes, there must be business formats that better suit consumers. In the first issue of 'Qiming Strategic Review', mentor Liu Qiming will explore the future trends of China's retail industry from the following four themes.

  1. The impact of e-commerce on offline retail ➤ The impact of e-commerce on the retail industry and possible directions for future new retail In the past five to eight years, internet-based e-commerce has had a significant impact on offline retail. The most affected are traditional department stores, mainly because the products in department stores highly overlap with e-commerce, so their original advantages are gone. Coupled with high rents, department stores are struggling. Next are large supermarkets. The main impact on large supermarkets is the shrinking shopping radius, making it difficult for them to cover their previous catchment areas. Shopping malls are also affected but relatively less, as they incorporate consumer experiences such as dining, cinemas, and amusement parks. Currently, the two types of retail least affected by internet e-commerce in China are: first, small supermarkets focused on fresh food, especially those positioned on fresh produce, which continue to grow. All data shows that only one retail format has truly grown against the trend without being affected by the internet, and that is the convenience store. 2015 data shows that convenience store sales in China still achieved a growth rate of 24%, and the number of new convenience store openings grew by 22%. ● Convenience stores and vending machines are the next big opportunity in China's retail industry.
  2. Why e-commerce has no room to develop in Japan Japan, the birthplace of convenience stores globally, why hasn't it seen large e-commerce platforms like Taobao and Tmall as in China? Japan is also a country with a population over 100 million, with a small land area and high population density. Why hasn't e-commerce emerged in Japan? The traditional explanation is that Japan's retail supply chain is short, with no or few intermediate links, unlike China where most retail follows a general agency model. For example, in China's apparel industry, each province has a general agent, below which there are city agents and franchisees, ultimately leading to high prices at the retail end. In Japan, companies operate directly, eliminating intermediate links, so terminal prices are relatively low, and thus e-commerce hasn't emerged. Mr. Liu analyzes from another perspective why Japan hasn't seen e-commerce, with the core factor being the high prevalence of convenience stores. Japan's fastest economic growth was mainly from 1975 to 1995, which was also the period of highest growth for convenience stores. During this time, convenience stores grew rapidly; in 1975, Japan had 2,000 convenience stores, but by 1995, 20 years later, it had become over 46,800. So when the internet emerged, the convenience store layout in Japan was already complete. In such an environment, it was impossible for large e-commerce to emerge as a new force, which is why Japan hasn't seen e-commerce.
  3. How to operate convenience stores in China and in which cities to lay them out The emergence of convenience stores follows a pattern related to a country's per capita income, living and consumption habits, and age structure. Overall, the peak period for convenience stores is when per capita GDP is around $5,000, and the mature period is when per capita GDP reaches around $10,000. China's per capita GDP has now exceeded $8,000 (National Bureau of Statistics: 2016 China's per capita GDP was 55,412 yuan, $8,866). ● Mr. Liu Qiming's view: Convenience stores in China's retail industry are currently at a true starting point! To judge whether a city is suitable for convenience stores, from a strategic competition perspective, the following variables should be considered: first, the economic development maturity of the region, i.e., per capita income; second, lifestyle; third, population structure. For example, Shenzhen has the youngest population structure in China, with an average age of only 37. The younger the population age structure, the more suitable it is for developing convenience stores. Additionally, a city's climate and traffic layout are also reasons for prioritizing convenience store development. The warmer the climate, the easier it is for convenience stores to develop. From this perspective, we can conclude that Shanghai is more suitable than Beijing. Beijing has a quarter of the year with very cold weather, and its traffic layout has overly wide roads, making it difficult for people on one side to cross to a convenience store on the other side, which also restricts the effective layout of convenience stores. Of course, the competition index is also important. To assess a city's convenience store competition index, one can refer to the ratio of convenience stores to population (total regional population ÷ number of existing convenience stores). Currently, Japan has one convenience store per 2,000 people. This is the most mature format globally. Taiwan has one convenience store per 2,300 people. In China's major cities, the level is about one convenience store per 4,000 people. Therefore, there is huge room for development of convenience stores in China. The three major global convenience store giants entering the Chinese market are all Japanese companies: the first is 7-ELEVEN, the second is Japan's LAWSON, and the third is Family Mart. These three have also chosen Shanghai as their key layout.
  4. Is the convenience store format suitable for internet entrepreneurs to start a business? Can internet elites combine convenience stores for entrepreneurship? The next big opportunity for convenience stores will be the emergence of China's new retail convenience store 2.0 format, which is also the true success of O2O, and the best implantation is through convenience stores. Because convenience stores first have offline presence and then lay out online. The offline new retail convenience store 2.0 approach involves the following integrations: first, payment integration, introducing WeChat and Alipay for product payments, which is the most basic internet introduction. Second, O2O online-offline interaction, such as based on chain convenience store apps, selecting products online, placing orders, and picking up or having them delivered. The third level is the integration of machine artificial intelligence with convenience stores, where one-third of the store consists of vending machines, scanning codes to select products and paying directly. The ultimate vision might be convenience stores where robots provide services inside. The above is the sharing from the first issue of 'Qiming Strategic Review' on the next future of new retail. This issue's thought: If you are a Chinese company producing and selling FMCG products, how would you combine the future of new retail and innovate your business model with convenience stores and vending machines? Source: Zhice Fangyuan FMCG Marketing Consulting -END-