From Digital to Physical Commerce: Lessons from China’s Ecommerce Market

Apr 16, 2018

Article ImageThe Chinese e-commerce market is the largest in the world. In 2016, Chinese online sales reached $770 billion, including $100 billion in international transactions. With an average of $882 spent online per shopper, per year, in cross-border ecommerce transactions, international online shopping giants like Alibaba are surprisingly turning their focus from digital to physical commerce.

Yes, you read that right. On the heels of a 56% revenue jump in third-quarter digital commerce transactions, Alibaba is planning to open 30 new Hema stores in Beijing by the end of 2018. Customers can browse store aisles and, with the help of a mobile app, get additional product information for any necessary research and product comparison. From there, customers can pay for their purchases using Alibaba’s mobile payment solution, Alipay. The stores are rounded out with a dining area where food is made to order in an in-store kitchen. It is a complete, convenient, and mobile-driven food shopping experience—and a prime example of digital-to-physical commerce convergence.

For brands, it’s a huge opportunity to watch and learn from Alibaba’s reverse retail strategy and how the chain integrates the worlds of digital and physical commerce. Consider this: 1.5 million people live within a three-kilometer radius of Alibaba’s five current Hema stores. That means customers can make a purchase in a brick-and-mortar store using their mobile devices. And Hema can deliver groceries as quickly as 30 minutes after a customer places an online order, capitalizing on both digital and physical commerce transactions.

While the addition of new Hema stores is making a significant impact, it’s not the only change in China’s commerce market.

The Changing Digital Commerce Market

In the past few years, China’s cross-border e-commerce market has exploded, but it is not necessarily in China’s Tier 1 or Tier 2 cities. According to McKinsey, there are now 74 million more online shoppers in Tier 3 and below cities, and total e-commerce spending passed Tier 1 and 2 cities in 2015. Not only that, in 2017, China expanded its warehousing pilot program from 10 to 15 cities, allowing foreign companies to stock and store items locally in order to expedite cross-border online shopping.

Essentially, cross-border e-commerce is giving these shoppers unprecedented access to products of all types, and brands recognize the opportunity. While Alibaba’s 2017 e-commerce market share was 60% to 70% for domestic transactions, it was only 25% in the cross-border market. By looking beyond the Tier 1 cities and finding a specific segment of the market that isn’t dominated by an e-commerce giant, foreign brands are capturing the attention of a market ripe for growth.

However, in the meantime, Alibaba is making its next move.

Digital Commerce to Physical Commerce: Brick and Mortar Not Dead

Brick-and-mortar is dead, or at least that has been the mantra of the last several years. From stores like Macy’s closing many of its physical locations to brands like Bebe shuttering all its retail stores and redirecting customers to its website, it’s easy to see why brick and mortar is viewed in a negative light. However, physical comdata-drivenl locations aren’t dead; they are simply evolving. Brands that stay at the forefront of digital commerce transformation will thrive in these new physical commerce environments.

In light of this, on the other side of China’s booming cross-border e-commerce market is yet another shift: the addition of a physical commerce footprint for the traditional digital commerce players. E-commerce giant Alibaba recently announced an additional $1.3-billion investment in a new retail strategy that combines online and offline. As part of this strategy, Alibaba purchased a 15% stake in Beijing’s Easyhome Furnishing, which comes on the heels of last year’s investments into Sun Art, In Time, and Suning—which are all brick-and-mortar retailers.

The Next Frontier: Seamlessly Integrated Digital and Physical Commerce

We can learn a lot from the Chinese market and from the recent moves by Alibaba. Clearly, brands are adjusting digital commerce strategies to capture dollars from untapped regions, but it also shows that online isn’t the only answer to providing a great customer experience. While retailers are shutting down traditional brick-and-mortar stores, Alibaba is finding opportunity in digital-to-physical commerce convergence where others are fleeing. It is all data-driven. By injecting a wealth of customer data and insight into its physical commerce locations, Alibaba is creating new and exciting customer experiences in non-traditional spaces.

With millions of potential customers within a small radius, you can bet that Alibaba is leveraging purchasing data—whether online or offline in the store—to guarantee that every Hema store has the right mix of products available at exactly the right time. Not only that, look for Alipay and other mobile technologies to be integrated into Alibaba’s brick-and-mortar acquisitions. For example, Easyhome Furnishing customers may soon be able to snap photos of their living rooms then use their phones to virtually place furniture to make sure that the selected pieces will fit—all right there in the store.

In reality, brick-and-mortar retail is still a wide-open market. By integrating digital commerce tactics and identifying ways to leverage technology to create a better, more seamless experience, brands can revitalize their retail strategies and capture additional streams of revenue. It is no longer about plucking an item off a shelf or rack and carrying it to the cash register—it’s about engaging and enlightening customers every step of the way. When marketers rethink the traditional process, they can draw customers in with convenient, personalized experiences.

In the world of changing commerce strategies, it’s critical for brands to offer a seamless, personalized shopping experience. But the only way to do that is to know your customers, what they want, and what makes their lives easier. If brands take notes from China’s changing commerce landscape, they can find digital commerce inroads and breathe new life into physical commerce. By taking a data-driven approach and finding that right mix of digital-to-physical commerce, brands can gain the right insights to cultivate relationships with customers—online or offline.

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