Technology Lessons behind China’s 30 Billion Retail Fiesta

Exploring New Retail, Payments and Blockchain technology behind the recent Double-11 festival in China

Yes- people do celebrate Bachelors’ Day in China, in big money fashion.

Source: CNBC

In our most recent trip to Hangzhou, China for the Money 20/20 conference, everyone has been talking about the Double-11 festival- a shopping fiesta to ‘celebrate’ bachelor’s day with shopping discounts first started by on Alibaba’s in 2009.

Total Gross Merchandise Volume (GMV) of the Double 11 Festival across Alibaba’s sales channels. Source: China Internet Watch

Coming into the 10th anniversary of the Double-11 Festival- sales figures have risen off the roof, exceeding US$30.8B in merely 24 hours. The sales figures are impressive, but the seamless integration of omnichannel sales + promotion and supply chain support (what is dubbed the ‘New Retail’ by Jack Ma) was what caught everyone’s attention:

  • (one of China’s leading delivery platform) fulfills Starbucks’s online purchase orders and supports delivery in major Chinese cities during the Double 11 festival.
  • Promotions across the online Tmall, Taobao, Lingshou Tong (the tech platform powering 200,000 mom-and-pop convenience stores) , physical stores such as InTime malls, Hema (smart supermarket chain) and EasyHome (furniture operator) all worked together to promote the shopping festival.

Power of New Retail― the integration of online, offline, logistics and data across a single value chain

During the 2018 Double-11 festival, it was Japanese brand Uniqlo that became the best selling fashion retailer on Tmall, and also the fastest brand that past the US$15M (RMB100M) sales mark in 2 minutes 53 seconds. Uniqlo broke out merged well with its immersive shopping experience-

  • Free alteration service- all purchases from Uniqlo’s online sales from the Double 11 festival can be altered at any of their 500+ retail stores in China. This addresses one of the major hassles of fashion e-commerce which is to return clothing if it doesn’t fit.
  • Pick up anywhere (‘门店自提’) — any purchase orders from T-Mall during Double-11 can be picked up at any Uniqlo’s physical stores. This denotes that Uniqlo has achieved full integration of online/offline inventory database which made the shopping experience fully integrated and supported by the necessary inventory management.
Users just need to scan QR code to get discount coupons, gets loaded on its Uniqlo app and redirects traffic to online checkout on Uniqlo’s stall on Source: Sohu
  • Digital experience- coupons that are available for online purchase can also be used in its offline stores. This made sure there are no frictions between online/offline purchase behavior.

Uniqlo’s Double 11 festival’s success reveals a broader trend of tapping into the offline retail:

Source: PwC

While e-commerce was all the rage in the past few years, actual retail sales figures in China showed that offline retail is still raking the majority of sales volume in 2018. Therefore, retailers in China have been empowering their offline retail stores with their online presence and technology to ‘tap the 80%’ (by GMV).

To do so, Alibaba’s Tmall and Taobao app users receive location-based store recommendations and discount notifications through their Taobao or Tmall app on their mobile devices, driving traffic to offline stores. Even better, if customers picked products in a physical store but don’t wish to carry them, they can simply conduct the purchase in the app- home delivery details just need to be entered at the first purchase, and delivery in major cities in China is already very fast, taking from 15 minutes to merely 3 hours.

Also trending in China is the element of social commerce, best signified by Pinduoduo’s recent listing at NYSE after its group purchasing (among friends’ network in social apps like Wechat) mode took off in non-Tier 1 city- so what happens when you blend social commerce into physical shopping experience?

Source: Technode

In one of the Alibaba pop up shops that took part in Double 11 Festival, photo studios in the shop have been set up where staff can quickly put on professional makeup on a customer and takes pictures in an in-store studio setting with its product that can be shared on social media network, effectively turning every customer into micro influencers to their friend groups.

In case you are wondering- Alibaba’s competitors and Tencent (collectively known as the BAT) are pursuing similar strategies- JD partners with Tencent to launch the Unbounded Retail concept- coupons released by JD can be used in the brand’s online JD store, WeChat stores, as well as offline stores, while consumers’ memberships and corresponding discounts can also be converted freely online or offline.

Retail and Payments- “Alipay or Wechat”?

“Zhihu Bao or Weixin”? is the inevitable question that every shopkeeper asked us at checkout in any store in China.

In fact, most things, if not all, can be paid by mobile payment in Tier 1 cities, which creates a very seamless UX for everyday users. For instance, our team booked a pick-up from the airport to our residence in Hangzhou during the recent conference but had to cancel the booking in very short notice. Upon cancellation, the payment was almost instantaneously returned to our Wechat pay wallet, a process which would have taken ages with traditional settlement infrastructures.

For illustrative purposes only. Our experience with reimbursements is that they are almost instantaneous although the system usually quotes up to 5 days. Source: Baidu

Another seamless experience with payment is an automated check-in/out process we experienced with the full-service travel app CTrip- VIP members that booked hotels through CTrip can head straight to the hotel room, bypassing the check-in/out and deposit paying processes. With the advancement of a new mobile payments system integrated with the hotel technology infrastructure, the hotel simply does not need to record your personal details manually nor take another deposit from your credit card at check-in, because these all can be obtained from your payment profile and e-wallet! And for the checkout, as you can imagine, you just close your hotel door and leave! In China, they call it “閃住”!

It’s no secret that payments have taken China by storm. China skipped the credit card age altogether- its credit card penetration rate was <15% in 2014. With a mobile-first habit, and a tech-savvy consumer base (86% of Chinese customers have used mobile payments before, while the global average is 24%), Alipay and Wechat Pay have become the preferred retail payment methods especially for high volume — low transaction value payments. During the double-11 festival, Ant Financial reports that up to 60.3% of the transactions are completed with biometric payment features (facial recognition or fingerprint payment checkout)- a further testament of the level of sophistication on mobile payments in China.

With retail and payments tied together creates massive opportunities also for retailers and broader financial institutions (think banks and credit institutions) in China.

JD’s microcredit platform. Source: JD Finance

Take JD Finance as an example, after 10+ years of processing merchandise sales. Payments and supply chain over its e-commerce platform, they amassed massive amount of financial data on SMEs- as it turns out, JD has a much better grasp of SME’s financial conditions (cash cycles, timeliness of payments etc)- therefore they pushed out the SME Microcredit program in 2017 which enables each SME on its platform to access up to US$150K (~RMB1M) in loan per application for that can be released in seconds. To date, US$36B (RMB 250B) worth of loans issued to 100,000+ SMEs, solving a major pain point for SMEs that previously had to take out loans at interest rate 30% above central bank benchmark rate because traditional financial institutions factor in more risks than they should on these companies.

The years of experience in handling retail payments also translate into opportunities to export fintech know-how to traditional financial institutions such as banks and credit unions to fine tune their risk models. Again leveraging on its massive payment related datasets, JD launched the Big Dipper service to help banks update their risk models with the 600K+ risk control variables derived from JD’s 400M users' transaction data points.

Source: Click Ventures

The reach of Chinese payment technology extends beyond China- as the number of outbound Chinese tourists grow, it is a natural transition for overseas merchants and payment infrastructure to adopt Chinese payment technology. In a recent conference, Wechat Pay announced intentions to move into Singapore and Malaysia markets where mobile penetration rates are above China (Singapore- 73%; Malaysia- 53%, China- 41%); Ant Financial is building payment ecosystem with local partners in India (Paytm), Korea (Kakao Pay), Malaysia (Touch & Go) in Asia and enters a JV with Elang Mahkota Teknologi to roll out a mobile payment service in Indonesia… the examples of China payment tech’s outbound expansion rolls on- bottom line is, be sure you have an Alipay/Wechat pay installed in your phone in near future.

Blockchain, Retail, and Payments

If you think China’s blanket ban on ICO killed blockchain innovation in the country- think again. Alibaba filed as many as 90 blockchain related patents, surpassing even IBM.

Source: Ant Financial. Snapshot taken during the Money 2020 conference

During the double-11 festival, the Ant Blockchain made its debut, tracked the sources of up to 150M products sold during the 24-hour window and recorded them into the blockchain. Their blockchain capabilities extend beyond mere indexing- Ant Financial rolled out a BaaS (Blockchain Backend-as-a-Service) platform that utilizes smart contracts to support e-signature, contract management and more.

Cross-border remittances with Chinese payment apps became much quicker with blockchain as well- remittance settlement become a matter of seconds when the digital ledger keep check and balance, in contrast to traditional way of having multiple back-and-forth communication across related parties to confirm payments have been sent across; payments also become fully traceable on a single blockchain which speeds up payment auditing, traditionally requiring all parties cooperation to submit payment data- similar projects such as IBM World Wire Blockchain has already been set in motion, but China’s blockchain development in the payment space is certainly in the same keeping pace with the rest of the world.

Check out our Deep Dive into VC Funding in China keynote presentation at Money2020 Hangzhou to learn about latest investment trends in social commerce, electric vehicle, media and more!

Source: Click Ventures

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