For a glimpse of the future of retail, look at what’s happening in China

IMD Professors Winter Nie and Mark Greeven identify the five stages of development in the Chinese retail market that will allow your company to ride the country’s retail revolution.
50 min.
April 2021

“For years, Chinese entrepreneurs have been obsessed with learning from the west – particularly the US – and people may ask, is it learning or copying? What we have learned is merely copying the US business model will rarely make someone successful in China,” says IMD Professor of Leadership and Strategy Winter Nie.

“We find lots of innovations in digital retail and digital commerce. In fact, we find more and more companies that are not from China – like Starbucks or Nestlé – looking at China and saying ‘Look what’s happening there, we need to be part of that development, that potential revolution.’” says Mark Greeven, IMD Professor of Innovation & Strategy.

China’s retail market started evolving at high speed even before COVID-19.  The pandemic acted as a catalyst for global companies to move toward digital transformation. The landscape in China has now moved well beyond the simple e-commerce models we have seen in the west, and it gives a glimpse of what’s next in global retail. IMD Professors Winter Nie and Mark Greeven have identified five stages of development within the Chinese market to date.

Many people think of Alibaba and e-commerce when they think of Chinese retail. It’s important to note that this is not considered an innovation, but it is rather stage zero of development of the Chinese new retail. The next stages move beyond simply the monolithic e-commerce platform.

Lifestyle e-commerce is the first stage. This is based on the idea that people want experiences and services – from ordering breakfast to finding the right movies to watch – all of the things people do as they move through their day. Now commonplace in China, these services are delivered on a super-app and they are location-based.

OMO retail is the second stage. This is the merging of online retail with the offline world. It is a seamless integration of the online and offline experience that started with supermarkets (focusing on fresh seafood and fresh produce), but has moved to other sectors.

Social e-commerce is the third stage. This really changed the market in China. Lower-income Chinese consumers wanted to be part of the e-commerce world but had been left out because they couldn’t afford Alibaba-type shopping. To serve these consumers, Pinduoduo figured out how to use a social group-buying approach and turned it into a game. It became very popular because it was enjoyable and more like entertainment, and it caught on with consumers at higher income levels as well. This platform has now exceeded Alibaba and is the largest consumer platform in the world.

Livestream Retail is the fourth evolution. This is celebrities selling products. E-commerce became so ubiquitous in China that consumers struggled to make selections, so personalities or influencers have stepped in to make recommendations for them.

Invisible Retail is the ultimate sublime selling. This is where an ordinary person is featured in a video doing some most extraordinary things while living his or her life, but does not make any recommendations whatsoever about purchasing products. It works because it stirs our yearning and taps our emotional needs. Even though there is no link or direct recommendation of products, consumers that watch these videos or covet this lifestyle want to buy the products.

It is important to emphasize that all of these evolutions have been heavily reliant on algorithms and data analytics, and that the most successful companies have integrated both online and offline retail.

If you would like to take a deeper dive into how Chinese companies are changing the retail landscape, the book The Future of Global Retail: Learning from China’s Retail Revolution by Winter Nie, Mark Greeven, Yunfei Feng and James Want will be released later this year.


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