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In China, Smart Retailers Are Looking Beyond O2O

Giants like Alibaba are investing heavily in omnichannel

May 25, 2017 | Retail & Ecommerce

The development of China's ecommerce sector has been unlike any seen so far, largely due to its mobile-first consumer base, adoption of new social commerce models and the prevalence of digital payment systems in the country.

One result of that development has been the growth of the online-to-offline retail sector, in which online consumers are given incentives to make offline purchases. This year, O2O ecommerce sales in China alone are expected to total RMB521 billion ($78.4 billion), according to iResearch Consulting Group.

But there are signs that merchants are attempting to move beyond the O2O model to embrace a concept that cannot be ignored in retail: omnichannel.

According to a survey conducted by PricewaterhouseCoopers (PwC) last September, consumers are now doing more of their daily or weekly shopping on a mobile device than at a physical store. In fact, 52% of the digital buyers polled in China had shopped on a mobile device on a daily or weekly basis, compared with 46% who had done so at a brick-and-mortar store.

Frequency with Which Digital Buyers in China vs. Worldwide Shop, by Channel/Device, Sep 2016 (% of respondents)

The inevitable tilt toward digital media by shoppers means that retailers and brands in China must move beyond O2O and invest in omnichannel, which allows customers to connect with merchants on their terms, when and how they want to.

"[Omnichannel] is an evolution of online-to-offline, moving from having an online store and driving traffic to an online store, or vice versa, to truly interconnecting online and offline," said Nishtha Mehta, founder of CollabCentral Consulting, a firm that specializes in omnichannel marketing.

Ecommerce giant Alibaba is a prime example of a once pure-play ecommerce platform that has come to see the necessity of establishing a real-world presence to maintain its growth.

In January, the company spent as much as $2.6 billion to take Chinese department store chain Intime Retail Group private as part of an initiative it calls “New Retail.”

The move gives Alibaba the potential to remake offline retail using lessons learned from ecommerce, such as more efficient inventory management techniques.

In turn, stores supplement online retail offerings by giving consumers a physical location from which to pick up purchases.

In-store shoppers can also use apps to make purchases, further blurring the line dividing online and offline retail.

"The 'new retail' idea is that Alibaba is trying to build a network, an ecosystem," said Mehta. "They are trying to acquire different offline assets and a net of physical stores so that they can integrate with their online infrastructure and cloud computing data to provide a seamless integrated service."

—Rahul Chadha

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