The commodification of services and the digital economy are revitalizing a multi-trillion market

This year's consumption recovery trend, the past November Super Golden Week is a good observation window.

According to incomplete statistics of the circle of friends, at least 5 friends traveled abroad, 3 friends participated in music festivals, 2 friends chose to rent a car for self-driving tours, and more friends had dinner and watched movies with their families...

Just like the three major wedding items, from "watches, bicycles, sewing machines" to "refrigerators, color TVs, washing machines", and then to "houses, cars, tickets" upgrades, Chinese household consumption is also undergoing structural changes. Tourism, catering, accommodation, entertainment and other services account for more than 40% of the per capita consumption expenditure of residents in the country.

In August this year, the National Bureau of Statistics released data on retail sales of services for the first time. So far, reflecting the vitality of China's consumption, there are two indicators of service retail sales and total social retail goods consumption. So, why is the rise of service retail, and how will it affect our lives?

Service retail opens up new tracks

What is Service Retail? According to the National Bureau of Statistics, retail sales of services refer to the sum of the value of services provided directly by enterprises (industrial activity units, individual households) to individuals and other units for non-production and non-business use in the form of transactions. Including retail sales of service activities in the fields of transportation, accommodation, catering, education, health, sports, entertainment, etc.

It can be seen that service retail corresponds to commodity retail. In the traditional impression, retail is to sell goods, cars, houses, home appliances, clothes, etc., mainly selling goods, with some services, such as door-to-door installation. This is commodity retail, and service retail is what services are sold, such as takeaways, shared bicycles, ride-hailing, chauffeurs, hotel bookings, group tours, etc. that have spread throughout our daily lives, these retailers mainly sell services, tour guides provide tour services, drivers provide driving services and so on.

If you sort it out a little, you will find that service retail is the hottest area of the Internet economy in the past two years. From ride-hailing, bicycles, and power banks under the sharing economy, to takeaway and instant retail under home service, they are all in the category of service retail.

Of course, service retail is not only happening in the Internet field, but also in retail brands, especially Internet celebrity brands. The new retail, represented by Hema and Qixian, not only allows consumers to buy seafood, but also obtains on-site processing services from chefs, and also provides door-to-door delivery services for consumers. Known as the ceiling of the supermarket industry, Fat Donglai is a model of service retail. Recently, in order to avoid consumers from queuing up for Internet celebrity mooncakes, Fat Donglai launched a delivery service, but in fact, Fat Donglai became popular by selling services, not just selling goods.

To some extent, these Internet celebrity retail enterprises and new consumer enterprises rely on service retail to get out of the circle.

As far as the eye can see, such cases abound. Last year, McDonald's announced in Yunnan that 42 McDonald's restaurants would open McMc study rooms, providing free learning places, drinking water, WiFi, etc., and now such study rooms have expanded to Guangxi, Beijing and other places. Attracting and retaining students with services is McDonald's service retail.

Driving commodity retail with service capabilities is the common pursuit of Internet celebrity brands. In 2021, Heytea will build an experience store, allowing consumers to see hand-fried ice and make tea with their own eyes; In August this year, Michelle Ice City set up a stall outside the concert; In October, Haidilao announced the launch of in-store hair washing services, Dyson hair dryers, electric massage chairs, instantly on the hot search.

If in the past few years, e-commerce was the standard configuration of Internet platforms with traffic resources, then in the past two years, local life services have become a new business pursued by online and offline enterprises. Online short video platforms, on the one hand, rely on live streaming to sell goods, on the other hand, launch new businesses such as group buying and takeaway, and simultaneously promote commodity retail and service retail. Offline retail enterprises and Internet celebrity brands have also innovated service experiences, opened up new tracks with services, and promoted commodity retail.

Data from the National Bureau of Statistics shows that domestic retail sales of services in the first eight months of this year increased by 19.4% year-on-year, nearly three times the growth rate of retail sales of goods in the same period.

Lifestyle online

The Internet is an important force that has changed the development of human society in the past two or three decades, and the soul of the Internet is online. portals, which change people's access to information from newspapers, television, and radio to online real-time; Mailboxes, games, social software, e-commerce platforms, etc., bring more people's behavior online. In recent years, ride-hailing, shared bicycles, food delivery, etc., have made it easier to use online tools to make it easier to do things that could only happen offline.

Over the past thousands of years, humans who have relied heavily on offline have become more and more inseparable from online. You can go out without a wallet, but you must bring your mobile phone with you to exemplify this. To some extent, service retail is the inevitable trend and latest manifestation of online life.

So how can life be online? From the perspective of demand, "laziness" is the first productive force of human beings, and more and more convenience is the instinctive need of human beings. During the epidemic, consumers' online demand has been further amplified and the process of online life has been accelerated. From the supply side, most of the original commodity retail is stock red sea competition, retailers and brand owners need new incremental opportunities, service retail is incremental opportunities.

Of course, between supply and demand, there is also an important matchmaker to achieve efficient trading between service demand and supply. Taking Meituan as an example, how do these local retail platforms do it?

The first is to help service providers go online. When it comes to retail, it's easy to think of JD.com, Taobao, Pinduoduo, and in fact, e-commerce accounts for just a quarter of total domestic retail. Statistics show that in the first half of this year, online retail sales of physical goods accounted for 26.4% of the total retail sales of consumer goods. Three-quarters of transactions are still completed offline, and physical retail stores such as shopping malls, supermarkets, and mom-and-pop stores are still the mainstream of people's lives.

If you add more than 8 million restaurants, more than 1 million barber and beauty shops, more than 600,000 pharmacies, etc., the huge offline merchants are the theme of China's retail industry. The first step in service retail is to bring these merchants online.

When consumers choose a restaurant, they will first check the reviews and coupons in Dianping; Work overtime will open Meituan to see what to order for supper; When encountering urgently needed supplies but not convenient to buy in person, I will also use Meituan brother to run errands to help me buy them back.

Such behavior has become widespread, and the basis behind it is the online nature of merchants. These merchants are no longer storefronts that you may not notice even if you pass by on the streets, but online stores that are opened on consumers' mobile phones and pushed directly to consumers. Merchants' stores, products, services, prices, evaluations and other information, as well as marketing activities and membership management, are all online and digital.

Second, service product standardization. Service transactions involve a problem of fulfillment and delivery, that is, it is not just advertised, but must also be inspected offline. A key to service retail is to standardize services so that users can make decisions and place orders online with confidence.

On Meituan and Dianping, open a barbershop, you can see the service package being sold, barber level, price, content, duration and other standardized information. In the past, random services that required one-on-one communication in stores have become standardized products for a large number of users online, which greatly improves transaction efficiency.

Third, it amplifies the transaction of long-tail services. Service retail was previously subject to time and space restrictions, and many businesses could not be bigger, such as home appliance maintenance, door-to-door pest control, moving services, etc., mostly in the way of word of mouth and recommendation by acquaintances.

The emergence of service retail platforms has aggregated the consumption needs of a larger range and more people, so that these services are no longer "niche", and small businesses can also become bigger. Coupled with the online and standardized services of merchants that have been realized, the information asymmetry between consumers and consumers has been reduced, so that consumers can place orders with more confidence.

The next step in service retail

China's service consumption expenditure has reached 40%, but there is still room for growth compared with developed countries with higher economic development and more mature consumption. In 2021, of the 15.9 trillion private consumption plate in the United States, 550 million were spent on goods and 10.4 trillion in services, accounting for about two-thirds.

According to the trend of China's consumption upgrading, after meeting the material needs of automobiles, home appliances, clothing and other materials, it will inevitably transform to service-oriented consumption that pursues pleasure and experience, such as tourism, entertainment, leisure, health care and other needs. In the past two years, film consumption, museum fever, music festivals and so on, are a manifestation. Moreover, service retail is a more rigid and high-frequency consumption than commodity retail, and the volume and scale are also larger than commodity retail.

While further expanding the scale and volume, based on the current situation of China's Internet and digital economy, it can be expected that the future service retail will present two major trends: digitalization and integration.

As mentioned above, digitalization solves the problems of online, standardization, and long-tail of service retail, and provides transaction efficiency and scale of service retail. In the future, with the improvement of the digital capabilities of service retailers, as well as Meituan Dianping, Douyin Kuaishou, Xiaohongshu, Amap, Baidu Map, etc., various digital platforms will empower service retailers, and the overall digitalization rate of service retail will be further improved.

Taking local life services, an important sector of service retail, as an example, iMedia data shows that the scale of China's local life service market in 2020 was 19.5 trillion yuan, and it is expected to grow to 35.3 trillion yuan by 2025, while the overall online penetration rate of local life in 2021 was only 12.7%. This means huge growth potential.

In the horizontal direction, increase the digitization rate and reach more merchants; Vertically, the digital depth of service retail has been further enhanced. The two will jointly promote back-end changes such as service supply chain and service process, and ultimately bring front-end consumers a better service retail experience.

While digitalization improves scale, service retail and commodity retail will learn from each other, and the boundary between the two will become more and more blurred. Commodity retailers will go online to serve retail, Bayer not only sells cockroach medicine, but also provides door-to-door cockroach removal services, Nippon Paint, which sells paint, provides door-to-door wall painting services, offline large supermarkets begin to provide delivery services, and so on.

Service retailers will also put up retail products, such as Meituan, which focuses on local life services, and launches Meituan e-commerce to sell physical goods; Content communities, identification communities, Xiaohongshu, and Dewu have also started selling physical goods.

The root cause of the difference lies in consumer demand. In the eyes of consumers, regardless of physical goods and services, as long as they are what they need and can be easily and quickly obtained, they are worth buying. Moreover, goods and services are often not divided, just as buying pants often requires trimming the legs in the store.

It is foreseeable that in the upcoming Double 11, we will see more physical stores enhance their service capabilities to drive retail sales and even sell service-oriented goods separately. Service retail will form a symbiotic relationship with commodity retail, bringing more business opportunities to retailers, thereby driving the development of the local real economy.