Amazon is a revolutionary force when it comes to retail in the United States, but it has a long way to go to compete with China’s online behemoths.
That’s according to Neil Stern, senior partner at Chicago-based retail consulting firm McMillanDoolittle. He covered China’s rapid move into “new retail,” which combines new models and existing infrastructure, at the Private Label Manufacturing Association’s Retail Trends Breakfast in Rosemont on Nov. 13.
“How do we link together — in a hopefully seamless way — all the things that are available today from an online perspective and all the advantages and tangible assets we have in retail stores?” Stern asked. “That’s really the key to thinking about what retail is.”
Expected to reach $1 trillion this year, China’s online sales occupy more than 20 percent of its overall retail sales. For perspective, 9 percent of U.S. retail sales occur online, Stern said. He also noted China’s ecommerce market is 1.3 times the size of all of Europe’s ecommerce market and 10 times larger than all of Germany’s ecommerce market.
Nearly half of China’s sales of electronics are projected to occur online this year, and that’s expected to swell to 60 percent by 2021. Just under 40 percent of China’s apparel purchases are made online, but that’s expected to reach 55 percent over the next three years.
Growth in online sales for fast-moving consumer goods and groceries has been slower — about 10 percent penetration — but China’s largest ecommerce retailers have solutions to bridge the gap between online and brick-and-mortar retail.
“It’s hitting every category,” Stern said. “It hasn’t hit food as much, and that’s where a lot of the current online-to-offline efforts are happening.”
Alibaba — the “Amazon of the East,” Stern called it — is leading the way. The company, which has 617 million monthly mobile users, has launched 50 stores under the Hema grocery store concept.
Stern said Alibaba, having no real grocery infrastructure in place beforehand, “started from scratch” to build and improve the grocery store experience. And so Hema was born.
These 10,000-sq.-ft. locations put emphasis on offering fresh seafood and prepared food. Customers get farm-to-store product information by scanning items with their mobile phones and complete transactions with Alipay, Alibaba’s mobile and online payment platform.
However, Hema also doubles as a distribution center, allowing for food and grocery delivery by scooter drivers in 30 minutes for customers living within 3 kilometers of the store.
“The store has the excitement of what a supermarket might be along with the efficiency of what a distribution center is,” Stern said.
JD.com, China’s second-largest online retailer, also builds on the smart store concept with 7Fresh. These 40,000-sq.-ft. stores, closer in size to traditional supermarkets, also put emphasis on fresh seafood and prepared food, mobile-accessible information and 30-minute delivery. However, 7Fresh allows customers to pay through facial recognition and provides autonomous shopping carts, which follow customers around as they navigate the stores.
On this side of the Pacific, Amazon made waves by launching Amazon Go cashierless stores earlier this year. Two are in Chicago, and two more are planned there. Thanks to multiple cameras, customers with the Amazon Go app can scan themselves in, grab what they need and walk out of the store without interacting with human cashiers.
Stern expects Amazon to continue scaling the Amazon Go concept, perhaps applying it Whole Foods. But that’s just the beginning.
“It’s literally changing every three months, every six months,” he said. “The future is moving really fast.”
For CPG manufacturers abroad and at home, it’s a matter of keeping up.