There is no doubt that the world’s largest e-commerce market is China. Its size is the equivalent of the combined size of the next six biggest e-commerce markets of the United States, UK, Japan, Germany, South Korea and France. How this huge market is embracing omnichannel has been an important topic for the Retailer Payments Practice at Edgar, Dunn & Company (EDC), as this will have implications for retailing in the West. EDC has visited China on numerous occasions over the last five years on behalf of merchants and payment technology clients. Based on our project experience and knowledge of retailing we believe there are six particular areas where China is leading the way in omnichannel retailing:
How Chinese Retailers Are Defining Omnichannel
These six areas of focus are helping Chinese merchants deliver a truly omnichannel customer experience that is supportive of the customer’s journey.
We are starting to see how omnichannel and the close integration of consumer payments is creating a model example. These developments have been transformational and are leading the way in omnichannel retailing. We believe China is the one market where omnichannel is being defined. Large Chinese merchants are providing a seamless, continuous customer experience across any device or location. China has become the benchmark for omnichannel retailing. Merchants in North America and Europe are falling behind this benchmark and their own omnichannel strategies are only scrapping the surface in the provision of a truly integrated shopping experience for their consumers.
What is Omnichannel?
Omnichannel refers to the sales ecosystem that provides the customer with an integrated shopping experience. The customer can be shopping online from a desktop or mobile device, via smartphone, or in a brick-and-mortar store, and the experience will be seamless. From a consumer’s perspective, it appears to be very simple and the logical way of interacting with a merchant. From a merchant’s perspective, it is far from simple and generally very difficult to achieve. Mapping the customer journey from the customer’s initial point of interaction to purchase and the aftercare is a high priority in any omnichannel roadmap.
Too often, merchants think that omnichannel is a substitute for ‘multichannel’, rather than a single, unified experience where insight is gathered and shared across different customer touchpoints of online, mobile, and physical stores. The problem with the multichannel approach is that it often silos each aspect of customers’ journey to purchase, where they should be working together to provide a better experience for consumers and more data-led insight for merchants.
What makes Chinese merchants more omnichannel than their peers in the West?
No Customer Channels
Chinese merchants do not think in channels. They do not serve customers via a channel. In contrast, Chinese merchants place the customer and their payment preferences at the heart of the design of every customer journey.
In the West, the term omnichannel is so vague and so awkwardly-used by merchants when they merely mention that they have an omnichannel strategy, it is immediately obvious that they don’t have one. Frequently, this is simply lipstick on a pig. Too many merchants in the West have not fully appreciated what omnichannel means for their own business and more importantly what omnichannel means for their customer’s journey, their customer experience and the payment experience. Many merchants in the West believe that tokenisation is their solution to an omnichannel strategy. It is only part of the solution. An omnichannel strategy is not just a technology challenge. It is a business and operational challenge.
High Consumer Expectations
All merchants want to be able to respond to high customer expectations. This often defines how merchants grow and improve. We have seen that Chinese shoppers expect more from their offline and online shopping activities and they need to be integrated into a seamless omnichannel journey. There is joined-up thinking. Consumers expect immediate gratification; they will act on impulse and make a decision to purchase quickly and expect to take the product home or have it quickly delivered. One-hour delivery has become standard practice in the major cities of China.
Consumers in the West do have high expectations of their shopping experiences but merchants in the West are consistently failing to meet those expectations. There is a definite miss-match between what consumers want and how they are served. Merchants in the West are not paying enough attention to how consumers are shopping today and how their customer journey is evolving.
Smart Sales Assistants
In the West, a smart sales assistant is usually an oxymoron. Chinese merchants are using IT that enables sales staff on the shop floor to deliver on brand-promise, in-store with real-time visibility of inventory, product information and customer intelligence.
We are starting to see in the West and particularly in the luxury sector, sales assistants being equipped with tablets that are able to check inventory, location alternative product specs in other stores or simply make a purchase transaction for a product to be delivered in-store or to the consumer’s home address. The so-called ‘web2store’ or ‘store2web’ customer journeys are being facilitated and better supported by store sales assistants that are furnished with information at their fingertips.
In the West too often, we see click-and-collect counters in the store located near the customer loading bay that is often not customer friendly and usually combined where the store’s own delivery trucks make their deliveries. Some click-and-collect counters are located in the basement or worse still on the top floor of a large department store. In the future, these will be replaced by all shop floor sales assistants empowered with mobile technology with access to consumer order information. Equipped with a tablet and the right information, they are able to direct the customer around the store or locate the order to exactly where it can be found.
In China, the customer’s smart mobile devices and social networks and the growing importance of in-store technological solutions have already created new opportunities for merchants. As China moves further towards a cashless society as payment companies such as Alipay, WeChat Pay gain ground, we are seeing whole new business models and customer journeys starting to appear.
It’s funny when you read about mobile payment acceptance at merchants in the West, it is considered as an alternative payment option. Mobile payments in the West are nascent. Mobile payments are currently a novelty. Mobile payments are commonly clumsy and always creates friction when there is a dispute, such as a refund or a return of a faulty product. Western merchants are only just starting to learn how best to develop a mobile payment acceptance strategy. This is very apparent when merchants are still accepting cash and have all the associated legacy processes to accept cash. Today, merchants are still using EMV and Magnetic Swipe technology. It is true that contactless technology is the right step towards frictionless payments and smoother payment experience. However, many merchants assume that if they accept ApplePay, they have addressed their mobile payments channel needs. Again, thinking in terms of the channel is not the right way to solve mobile payments. In China, it is not unusual when you go into a small independent shop, it will only accept an Alipay or WeChat Pay via a smartphone device using a QR code. It will be totally cashless. There is not even any chance of using a Visa card or a Mastercard.
The digitalisation of the store is very apparent across many types of Chinese merchants. In China, it appears that if it can be automated and turned into a self-service point of interaction with the consumer then it will be. Self-check-in, self-service ticketing, self-service check-out, self-service ordering and even self-service Starbucks – or simply known as a coffee-vending-machine! Self-service and vending go hand-in-hand in China. This is where the digitalisation of the in-store shopping experience is really merging online and offline commerce.
Digitalisation of the store can cover a plethora of technology each meaning something different for different merchants. Facial recognition, digital payments, express delivery, big data, and personalisation are all being rolled up into an Alibaba coined term ‘New Retail’. New retail is a vision for a digitalised retail experience. New retail will closely examine the different customer journeys and customer experiences to be designed as seamless, fast, and as convenient as possible. It combines the physicality of offline shopping with the speed and ease of online shopping. Alibaba-owned Freshippo is a fantastic and must-see example of New Retail. In China, it is not just Alibaba that is bringing new life into brick-and-mortar retail. JD.com, Suning, 7Fresh, Tencent are also pursuing similar digitalisation programmes of the physical store.
Look at the West and there is nothing that matches the scale of digitalisation of physical stores that we are now witnessing in China. There are examples of retailers, particularly in the grocery sector, where Western retailers are pursuing a digitalisation strategy for their stores. From redesigning the store layout to how customers self-serve and pay for goods, merchants have introduced numerous ‘scan as you shop’ technologies to streamline the shopping process – just take a look at Waitrose, Sainsburys and Tesco. What we will expect to see in the next few years is all of the associated in-store hardware being ditched in favour of a customer app. Similar to Amazon Go which has grabbed the headlines by introducing a checkout-free in-store shopping experience based on a customer app. Amazon does not rely on in-store scanning devices but favours an app on the customer’s own smartphone device which uses the phone’s camera.
Virtual Reality/Augmented Reality
Worldpay, a leading global acquirer, conducted some consumer research a couple of years ago amongst Chinese consumers and found that 95% of survey respondents said they had used VR or AR technology in the past three months. Also, the research found that 84% of respondents said they believed VR/AR is the future of shopping. This version of reality has been realised at JD.com which launched last year an AR ‘beauty mirror’ that can show customers what different shades of lipstick or make-up would look like without actually applying them. JD.com is also introducing a 3D virtual fitting room that enables shoppers to ‘try on’ clothes.
If you had recently been down London’s Regent Street, you may have seen the Ted Baker store promoting its latest ‘Keeping up with the Bakers’ marketing campaign. Shoppers were encouraged to place their hands on the shop window, triggering a camera to photograph their face, the image would then be placed into scenes from ‘Keeping up with the Bakers’ and shared across social media. Participants were also entered into a prize draw to win a £1,000 worth of shopping. This is not VR, but it doesn’t take a rocket scientist to realise this is a stepping stone to the application of VR. Merchants in the West have a long way to go to deploy VR and AR as something that is not just a marketing campaign but integral to the customer experience and their payment experience.
Sephora is another example retailer that has been integrating digital into its customer touchpoints and a couple of years ago, it launched a number of ‘connected stores’ in France. Called the ‘Beauty Hub’, it includes VR that allows shoppers to get a ‘virtual makeover’ to test how different make-up will look without actually applying the products.
These are the six particular areas, based on our experience, where Chinese merchants are defining the customer journey and leading the world in omnichannel retailing. As to what to expect in the next few years will be an effective use of the huge amounts of customer data with the implementation of Artificial Intelligence (AI) and Machine Learning (ML). AI and ML are expected to reduce the burden of data analysis which is often slow and prone to human error. These technologies are anticipated to give the customer intuitive shopping advice and help to locate the right products and services based on preferences and previous shopping patterns.
With so many brick-and-mortar retailers stumbling to deliver in countries such as the US and the UK, it is particularly important for merchants to combine the strengths of online commerce and the latest in-store technologies. It is clear that merchants in the West can learn from the new retail initiatives that we are seeing in China. Merchants that are in this for the long haul must be prepared to invest the resources in an omnichannel strategy that is right for their customers.
The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).