In conversation with Wharton Professor David Bell: New retail is a global trend but China must have unique local practices

Alibaba has teamed up with Sanjiang Shopping, Yintai Department Store, Shanghai Bailian; Walmart has invested in JD.com; and on the other side of the ocean, Amazon has opened a physical supermarket Amazon Go in Seattle, USA. Online and offline retailers began to touch each other's good positions, and the ancient industry of retail once again became the focus of attention.

In 2016, the hot word in the retail industry is "new retail", and it can be expected that these three words will continue to attract attention and discussion for a long time to come.

Interface News focused on the topic of new retail with David Bell, director of the Senior Management Program at the Wharton School of the University of Pennsylvania and author of The Non-Disappearing Store.

Interface News: What is the background of the development of the concept of "new retail"? How did your personal interest in new retail research come about?

David Bell: When I was a graduate student in business school around 1995, I was studying the impact of pricing strategies on consumers' purchasing decisions by analyzing barcode information provided by partner retailers. This is a very classic problem in the traditional retail field, when the Internet was not really popular, which can be said to be the prehistoric era of e-commerce.

After graduating, I taught at the Wharton School, which coincided with the rapid development of the Internet industry, and the emergence of e-commerce companies such as Amazon also attracted the attention of the academic community. At that time, it could be called the era of e-commerce 1.0, and many people in the industry held an argument that online shopping would eliminate offline physical stores. But for me, growing up and academic career was accompanied by offline retail, and I was concerned about their fate in the new era.

As I researched, I found this simple substitution theory to be untenable. I began to study whether there was a new model for offline and online retail companies to promote each other with the help of digital information technology. I am also pleased to see that there are many companies in the industry today that have begun to try and take this as the focus of development.

After more than a decade of e-commerce development, giants including Amazon or Alibaba themselves have realized that it is not enough to just focus on building online platforms. E-commerce is convenient, informative, and far-reaching, which is an incomparable advantage for offline retailers. E-commerce companies can use big data to depict consumer characteristics and purchase behavior, but it is difficult for them to fully understand the consumer's emotions – what motivates the purchase.

The advantage of brick-and-mortar retailers is interaction and experience, at least for now, digital technology has not been able to allow consumers to fully simulate the sensory experience in offline stores in a virtual space. Although offline stores are under pressure, they are still indispensable in the lives of consumers. But they must change to meet the challenges posed by e-commerce. We've seen a lot of news about well-known brick-and-mortar retailers closing stores or even going bankrupt.

Therefore, new retail can be said to be produced by the combination of online and offline forces – technology companies realize that e-commerce is not perfect, and there is still a lot of room for improvement; while the hot physical retail is eager to find ways to innovate.

Interface News: What is the innovation of "New Retail"?

David Bell: New retail emphasizes the integration of online and offline, which is an innovation in thinking. E-commerce and brick-and-mortar retail are not the antithesis of you and me, but stakeholders with great potential for cooperation. Based on this understanding, we will find that new retail can bring very rich possibilities to this industry. In the picture of new retail, whether it is an online e-commerce platform or an offline physical store, it can give full play to its respective advantages.

In addition to simple purchase transactions, physical stores can also become a space for consumers to experience products. Nowadays, many offline retailers pay great attention to building beautiful showrooms or limited-time pop-up stores, in order to allow consumers to get a unique experience that they can't feel online.

The best example is Apple, although it is already very convenient to buy electronic products online, but fruit powder is still eager for Apple stores. Because the design of the Apple store is very beautiful and unique, the staff of the genius bar in the store can also provide consumers with consultation and after-sales service, which has an important impact on consumers' purchase decisions. In BestBuy Home Appliance City, there is a cool experience center with Samsung, where consumers can learn about Samsung's different products in entertainment, which is much more intuitive and interesting than looking at product parameters on shopping websites.

On the other hand, digital technology can also help offline retailers. Imagine when you enter a mall or supermarket where retailers can connect their phones to find out about your age, gender, and spending habits — information that could come from an online partner. Retailers can use this information to provide consumers with personalized advertising and promotional information. I know it sounds a bit sci-fi at the moment, but it's already a direction retailer is working towards.

Interface News: In the book "The Non-Disappearable Store", you emphasize that "location" is still the most core concept in the new retail era. How to understand "location" in the context of new retail? Has the connotation of this concept changed in the transformation of new retail?

David Bell: For traditional retail, store location is one of the most important preliminary tasks, and it can be said that the location can basically determine the operation of a store. After the rise of online shopping, some brands and online shop owners felt that they no longer needed to worry about location issues, because goods could be sold through logistics networks to the whole country or even the world.

In the transformation of new retail, the meaning of "location" has of course changed, it no longer only refers to physical space, but more importantly, "the location of the consumer". The reason behind this is that the consumption behavior itself is extended, no longer handing over money and delivering with one hand, but a complete process from discovering the goods, experiencing the goods, choosing decisions, paying for the purchase to obtaining the goods.

In the traditional retail industry, this process generally takes place in a closed environment, that is, in a store. Today, consumers carry mobile phones, and they are in both offline physical space and online virtual space. In this series of links, retailers can choose what way and space to contact consumers, which will lead to many combinations and derive different business models, such as offline experience online purchase, or online purchase and offline pickup. This is worth the operator to focus on pondering.

Interface News: So, for retailers, what is the difference between choosing a "consumer location" in the new retail era and the site selection process in traditional retail?

David Bell: In traditional retail, the market size of a region can be measured, and how many consumers can be served by a store and how much radiation is radiated are basically fixed. Therefore, through scientific calculations, the efficiency of opening stores in A and B can be compared in advance.

In the new retail environment, how consumers choose offline space or online space is uncertain, depending on a variety of factors such as consumers' personal preferences and social habits. But there are also ways retailers can exert influence on consumers. For example, Apple's promotion of its payment system has been fruitful, and Starbucks has also encouraged consumers to order online through mobile apps. In this process, enterprises can exert their own initiative to guide and cultivate specific consumption habits through good products and experiences.

Interface News: The examples mentioned earlier are all from industry predators with strong capital strength. So in the picture of new retail, do small and micro enterprises still have a place?

David Bell: The players in new retail are diverse, from online to offline, from industry giants to small businesses.

In the United States, an emerging trend is "local commerce." Whether it is shopping or dining, the vast majority of consumers' daily consumption is still in the local community. While shopping in the community, location-based servicers send a push message to your phone where there are good boutiques nearby, or which nearby restaurant or café is being well received. The size of these merchants may not be comparable to Walmart or Starbucks, and it is precarious according to the traditional business model. But in the picture of new retail, with some simple innovative collaborations, they will have the opportunity to develop a consumer market based on local communities.

Interface News: Today, Chinese entrepreneurs such as Jack Ma are highly enthusiastic about new retail, and Chinese online e-commerce platforms such as Alibaba and JD.com have also begun to cooperate with offline retail enterprises. How do you evaluate the opportunities and challenges that China's new retail development will face?

David Bell: The retail environment in China and the United States is very different. Physical retail in the United States has a history of hundreds of years, but in China, the market economy is a relatively late thing. But China is growing very fast, with department stores, supermarket chains, hypermarkets, convenience stores, shopping malls and other formats emerging in the last two or three decades – in the United States and Europe, this process took more than a hundred years.

As a result of this leapfrog development, China's brick-and-mortar retailers have little historical baggage, and the retail industry is still relatively dispersed in China, unlike the U.S. retail industry, which has formed several relatively large national oligarchies. Therefore, in the process of China's new retail transformation, whether it is a large enterprise or an emerging retailer, there is a lot of buffer space.

On the other hand, China's mobile Internet is very advanced. In the case of WeChat, not only is it a mainstream communication tool, but it can also shop, pay, and share coupons, and it is unimaginable in the United States to have such a sophisticated mobile application with such a large number of users. Compared with WeChat, iMessage is simply weak.

Due to the development of e-commerce and mobile Internet in China, for online companies such as Alibaba, the difficulty of developing offline is much smaller than that of physical retail enterprises to develop online business. In fact, this is also the case in the United States, even wal-mart, an old retail giant, its online business is still not satisfactory; but Amazon and some other small Internet start-ups, their resistance to entering the offline is relatively small.

This is also related to the consumer itself. The main consumers of retailers such as Walmart are older, and their mastery of Internet technology is generally not high. For China's brick-and-mortar retail enterprises, if they want to open up online channels, they must first establish a digital information management system. Due to the relatively short development history of Chinese retailers and the uneven degree of informationization of management, for some Chinese retailers, they face the dual challenges of educating consumers and improving their own degree of informatization.

Interface News: Based on the above differences, what will China bring different from the US experience in the transformation of new retail?

David Bell: It's a very complex issue.

New retail is not a castle in the air, it is placed in a very complex network, involving the policies and regulations of different countries, consumer culture and the level of development of external support industries. In India, for example, where the popularity of credit cards and digital payments is low, and e-commerce is mainly dependent on cash on delivery; the Philippines is an archipelago country, and how to deploy resources and establish an efficient logistics system will be a major challenge.

I must explain that new retail is a global trend, but in the specific practice needs to find a suitable solution for the local, I never think there is a one-size-fits-all model can be applied. China will definitely develop a unique new retail path.