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China is the next frontier for western retailers. But up until now, most ambiitons of European brands and retailers are being taken to China. But what do they hope to achieve in the new digital empire?

Great Wall of China
© aphotostory – Shutterstock.com

You only have to glance at the numbers to understand China’s dominance over the global e-commerce market. But the country has not even hit its potential, as there are an estimated 676 million Chinese people not yet connected to the Internet, and analysts predict that turnover will increase twofold by 2021. Between the over 765 million highly connected Chinese people and glowing future prospects for the Chinese markets, European brands and retailers are aligning themselves with the Chinese digital leaders to try and build the future of e-commerce there. Though these alignments are only taking place in Asia for the moment, they could soon be seen in Europe.

European Retailers And The Digital Empire 

In 2016, online sales reached 4.7 trillion Yuan in China ($720 billion), of which $17.8 billion was made in a single day on just one platform, Alibaba. Last November 11th, during the yearly Singles’ Day, Alibaba beat its old records with more than $8 billion in transactions in only 50 minutes across its different platforms: Tmall, TaoBao and AliExpress. Of course, there is controversy around these figures, and while these numbers have not been audited and we have not seen any retrospective real sales figures, it was still an event with no equal.

This was firstly due to the brand involvement. According to Daniel Zhang, CEO of Alibaba, nearly 15,000 brands from all over the world took part in the ‘Shopping Festival’ with over 47 million shoppers taking advantage of the sales. Opening the door to international brands during Singles’ Day, deemed ‘Double 11’ by Alibaba founder Jack Ma, Alibaba plans to conquer the global world of e-commerce. The Chinese brand has introduced a strategy of sales days that have become associated with certain themes. We now have Double 9 (9/9) that promotes wines and spirits, and 12/12 that advertises ‘end of year sales’. Alibaba has also signaled that they want to bring this sales format abroad; Lazada, a marketplace base in south-east Asia – and of which Aliababa has an 83% stake – successfully took part in 11/11 for the first time in 2017.

Jack Ma at the Computing Conference

Jack Ma at The Computing Conference (Source http://www.alibabagroup.com)

Extending beyond their digital beginnings, Alibaba has also shown interest in the world of physical commerce. Indeed, while 84% of Alibaba’s revenue is generated on online platforms, the above strategy is not just limited to online activity. In fact, in 2016, the company invested in the local marketing for Chinese campaigns allowing local producers to have access to the online tool. Furthermore, in 2017 the company heavily invested in physical retail with the recent launch of the highly connected Hema supermarkets.

The investment was strengthened even further during Double 11 presentations, and realised with their co-investment of $2.9 billion with French brand Auchan in the Sun Art Retail Group, aligning with their ‘New Retail’ concept. This concept turns away from traditional separate channels and rather completely redefines the way of interacting with customers and uses technology and data in a far more pervasive way. Physical stores and the online world can essentially become one. In-store, customers can buy, dine and order products straight from the shelf, scan them with their mobiles to receive more information - including price, select them, pay for them directly through Alipay and automatically retrieve them once ready, whether they would prefer to take them home with them themselves, or have them delivered straight to their home. By using the technological tools collected from their online origins as well as their affiliates Alipay and Cainao, Alibaba can control the buying process from beginning to end, as well as the customer data that comes with it.

This user experience was sure to seduce, intrigue and whet the curiosity of Western brands and retailers. These new alliances between digital leaders is therefore understandable (there isn’t only Alibaba in China) and traditional European companies are taking note: yes, Auchan aligned itself with Alibaba in the SunArt deal, but more recently, Carrefour also followed suit entering into a deal with Tencent, the social media giant and owner of Wechat, and Yonghui, a local supermarket chain that will join the French distributor’s Chinese affiliate.

So what are their objectives? Well first and foremost to master and tailor a ‘phygital’ customer experience. Wilhelm Hubner, Managing Director of Auchan, remarked, ‘China is currently the most emblematic market in retail, and we continue to reaffirm our position, year after year, as a major player in ‘phygital’ commerce.’ The brand has invested heavily in the region, and in 2017 they launched their own connected convenience shopping solution, Auchan Minute. Their completely automated 18m² shops offer up to 500 convenience products, both food and non-food alike. With their neighbourhood network, Auchan is entering city centres and consolidating its position across the region. 

Tencent, omnipresent in Chinese people’s digital lives thanks to Wechat, an app that is used by hundreds of millions, and Alibaba competitor, has just announced a deal with Carrefour. ‘Our goal would be to combine Carrefour’s distribution expertise with Tencent’s technological savvy and their capability for innovation,’ announced the French group. This step, laid out in  Alexandre Bompard, the new CEO’s, transformation plan, should allow Carrefour to boost their market share in China, where sales are losing speed. But this is also a chance to learn from China about interaction models that are likely to be rolled out on Carrefour’s main markets, where integrating digital remains an untested field.

This shift by European leaders in distribution can also be seen more subtly in other retailers. More and more brands are competing for pieces of the pie that is China and its millions of highly connected consumers. During her state visit to China last week, Theresa May met with the other giant in the world of online retail in China, JD.com. The latter has pledged to sell £2 billion worth of British goods to China over the next 2 years. JD.com is also looking to conquer Europe, with the opening of offices in France, and a plan to open offices in London in April. This also follows an agreement between China and the UK’s Department of International Trade facilitating the selling of British goods in China. 

A Grip On Data

Between favourable government policies and the BATXs desire to assert their superiority over the digital black gold, China will very soon be the world leader in data collection. And the country has definite plans to achieve its ambitions, $2 billion will be put on the table to build a hub of manufacturers, start-ups and universities dedicated to AI. And this AI, already in use in all areas of the sector, from the base technology to apps used daily, should bring the Chinese economy 150 billion yuan ($23.9 billion) by 2020 and 400 billion yuan ($63.7 billion) by 2025.

During the WeChat Open Class Pro in Guangzhou on January 15th, WeChat announced that it had over 980 million active monthly users on its app. Meaning that there will soon be one billion people using the WeChat platform, which combines social media, instant messaging, mobile payment, e-commerce shopping, identification tools and more. With WeChat, Tencent is proving that you can combine the whole user experience in one system, giving them an enormous data set to play around with. Since January 2017, the app opened its platform to different partnerships and to several startups who are able to create their micro-programmes within the WeChat interface. So there is now an extensive ecosystem of features that can all benefit from Tencent’s immense data set.

While China is taking the European challenges linked to the GDPR into account, the Chinese government is instead counting on profiting off of that kind of data with the proposed ‘Social Credit System’. The project, set to go live in 2020, purports to give a confidence rating to each individual based on personal data collected by the government. The Chinese citizens, civil servants or companies who are given high confidence ratings will have access to certain privileges, such as private schools, better service, easier access to credit, and more. On the other hand, those with bad ratings will be negatively impacted. Eight private companies are already testing out this algorithm, among which Ant Financial, an Alibaba affiliate, who are testing this through Sesame Credit, a system for evaluating an individual’s social credit.

Two radically different approaches when you consider that Europe is heading towards an intensified ruling, with the much feared GDPR, but also several other laws and initiatives involving online privacy. It shows a quickly widening gap between the two powers whose stakes have become political. It remains to be seen which side will be most influential, but we can only imagine what kind of opportunities could rise from interactions and partnerships between the two. History is set to be written. 

Nenad CetkovicAbout the author

Previously managing director at 01net, Affilinet and more, Nenad Cetkovic has been overseeing Lengow’s international development since 2012 to expand the company in Europe and in Asia. A specialist in new media, and audience and business development, Nenad Cetkovic is also an advisor for early stage startups and Board & Advisory Member for several Internet companies. 

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About Lengow

Lengow is the e-commerce automation solution that helps brands and distributors improve their performance, automate their business processes, and grow internationally. The Lengow platform is the key to strong profitability and visibility for products sold by online retailers around the world on all distribution channels: marketplaces, comparison shopping engines, affiliate platforms and display/retargeting platforms. Since 2009, Lengow has integrated more than 1,800 partners into its solution to provide a powerful platform to its 3,600 retailers in 45 countries around the world.