Alibaba Has Been Talking About "New Retail" for Over a Year. What Did It Actually Do on Singles' Day?

Everyone is talking about it. No one can explain it.

"The core of New Retail is the joining of online and offline, the joining of people, goods, warehousing and delivery, the joining of the virtual and the physical. In the future, 60-80% of retail in China will be New Retail."

Jack Ma, Alibaba founder, on the night of November 11

"I think New Retail has only just begun — you could call this a first, preliminary demonstration of it. A year after we put forward New Retail as a business philosophy, we're using Singles' Day as the occasion to show some of what we've been trying."

Daniel Zhang, Alibaba CEO, on the night of November 11

"The core of New Retail is using digitization to achieve digital management of both online and offline, so that the whole management process and sales process become quantifiable, traceable, assessable and optimizable."

Hou Yi, Alibaba senior vice president and CEO of Hema Fresh, on the afternoon of November 11

Taobao Toutiao is a complete case study in New Retail.

An answer posted by Koubei's official account on Zhihu

Go by Alibaba's own statements and you would be hard pressed to work out what the "New Retail" it has spent a year talking about actually is.

The chase for numbers on Singles' Day has not stopped. But at the Singles' Day media center, Alibaba's executives spent more of their time talking about "New Retail." No matter which business they ran, every one of them brought up the concept Jack Ma introduced last year.

The accounts from Alibaba's partners and its frontline staff were even more varied.

At the Hema Fresh demo store in the media center, a QDaily reporter tried paying by facial recognition at a self-checkout terminal. A staff member said: "This is part of our New Retail too."

At the Tmall pop-up store in Shanghai's Joy City mall, Clarisonic set up an augmented reality (AR) stand that let shoppers see on screen how the makeup would look on their faces. A staff member said: "Everyone is talking about New Retail these days — this is our brand's attempt at it."

Dennis Van Oossanen, vice president of retail for Nike China and one of Alibaba's Singles' Day partners, said his company's New Retail work with Alibaba was about "analyzing and understanding the purchasing behavior of members on our flagship store, so that in the future we can serve our consumers better."

In his Singles' Day wrap-up speech, Daniel Zhang said this year was "Year One" for New Retail as a whole, and that Singles' Day was a showcase of what the partnerships had produced.

So what kind of New Retail did Alibaba actually put on display that day?

Judging by Singles' Day, Anything Can Be Called "New Retail"

On this Singles' Day, billed as the "launch of New Retail," Alibaba booked 168.2 billion yuan in gross merchandise volume.

Last year, while executives from Alibaba's various businesses gave their talks and walked through their operations, a giant number ticked upward on the screen behind them. "Right now our gross merchandise volume has already reached XX billion" was surely the line heard most often in the room.

This year that atmosphere of watching the number at every moment was gone. The phrase on everyone's lips had become "New Retail."

Between presentations and speeches, what the media center's big screen showed most was the "Shanghai New Retail Cloud Map," which tracked how hot transactions by Shanghai shoppers were on Alibaba's platforms in real time. Hema Fresh, Alibaba's offline fresh-food supermarket, was picked out on the three-dimensional map with an eye-catching yellow marker.

The Singles' Day gala was held in Shanghai this time. Alibaba's explanation was that Shanghai is the "bridgehead" of New Retail.

In February this year, Alibaba named its first "New Retail" strategic partner: Shanghai's Bailian Group.

Hema Fresh, the offline supermarket now treated as the model for New Retail, opened its first store in Shanghai nearly two years ago. Shanghai is also the city where Hema Fresh is thickest on the ground.

Hema differs from other fresh-food supermarkets in many ways. The goods on its shelves, for instance, are the same items at the same prices as the ones you can order through the app for delivery within 30 minutes. Each store keeps only a small restocking warehouse; the merchandise on the shelves is itself the stock for online orders.

Shoppers in the store are steered toward paying and checking out through the Hema app. The store does have a lane where staff will settle the bill for customers paying cash, but the great majority of in-store orders still go through the app. Users hand over their personal details and get, in return, an entry point on their phone for fresh food delivered to the door.

This Singles' Day, Hema Fresh CEO Hou Yi talked about home delivery and procurement.

By his figures, the first batch of users at the Shanghai Jinqiao store, which opened in January last year, still shows a retention rate between 55% and 60%. And since the start of this year, that store's home-delivery orders have outnumbered orders from people who walked in, with the online side growing faster as well.

In his speech, Hou Yi said the Ririxian ("Daily Fresh") brand sold in Hema stores had in effect created a "New Agriculture": produce bought straight from farmers' growing bases, packed and shipped straight to Hema stores, which cuts out the spoilage that the middle links create. Because all the consumption data sits in one system, Hema can produce and manage against orders.

"I am proud to say today that because we have New Retail, I believe a matching model of New Agriculture will emerge alongside it," he said.

Try the product in the store, then order it through the app for delivery; the same goods, prices and stock online and off; procurement run against orders; paying by face when you forget your phone — all of this is what Hema calls "New Retail."

For the 60 pop-up stores Tmall opened with brands during Singles' Day, "New Retail" is something simpler: a marketing campaign that lets people handle Tmall store goods offline.

Every pop-up has an interactive big screen, which Alibaba's people call a "cloud shelf." Visitors can grab brand coupons on it and browse the goods in the brand's Tmall flagship store.

To buy anything, they have to take out a phone, scan a QR code with the Taobao or Tmall app, and add the item to a cart.

Unilever laid on more than a dozen interactive activities at its pop-up in Shanghai's Global Harbor mall, all of which required showing an order from Unilever's Tmall flagship store to join in. Ms. Tang, the aromatherapist running the essential-oil DIY booth, does not work for Unilever, but over the five days the pop-up was open she "sold" quite a few OMO detergent sets.

"You need an order number [from the Tmall store] to play here. You can buy detergent — it's 11 yuan in the flash sale, and you'll use it anyway." The booth drew a crowd, and she repeated the line many times. "If you don't want detergent, you can also search for this shampoo." She reached for a shampoo bottle on display beside her, opened the cap and let us smell it.

At the Clarisonic pop-up, apart from one vending machine selling beauty devices, nothing on display could be bought on the spot. The same went for Guimi Meizhuang x OnlyLady, another beauty pop-up on the same floor. When a QDaily reporter checked this with a staff member there, she picked up a bottle of hydrating mist, sprayed it into the air, leaned her face into the cloud and said as she breathed in: "Offline is for you to get a feel for it. If you want to buy, scan the code and go to the Tmall store. Here, you smell it too."

The Jing'an Kerry Centre in Shanghai, where the SK-II pop-up stood, does not even have an SK-II counter. If you wanted the product in your hands right away, you had to cross the street to Jiuguang Department Store.

The "Tmall Ideal Life House" set up on the plaza at Tongying Center in Beijing's Sanlitun offered a fuller experience. A shipping container had been fitted out to look like a home — living room, study, bedroom, bathroom, kitchen, all of it — but every item had a QR code next to it that you could scan to order from the Tmall store. In that offline space, the goods were there only to be looked at.

Uniqlo, always a standout in Singles' Day sales, is the flagship case among Alibaba's "New Retail" apparel partners.

This Singles' Day it guaranteed the same goods at the same prices in its Tmall store and its physical stores. The two stock pools are now linked as well — after ordering, customers can collect the clothes in a store, and if something doesn't fit, they can swap sizes or have trousers shortened on the spot.

On the afternoon of the 11th we met Tao Yuling and her husband at the Uniqlo flagship store on Shanghai's Huaihai Road. The couple looked to be in their fifties. They had bought a down jacket and were eyeing a pair of trousers that the Tmall flagship store also carries. They had come in because their daughter told them the trousers were out of stock in Uniqlo's online shop.

At Uniqlo, Tmall customers are pointed toward collecting their goods in a store, where they are also handed coupons to bring them back again.

Uniqlo says its own research shows that shoppers want the online shop and the physical stores to run the same deals at the same time. It called the whole Singles' Day promotion an "O2O New Retail experience."

Plenty of physical-store brands have also turned themselves into logistics nodes, sending couriers out from their shops to deliver Tmall orders.

At Longemont in Shanghai's Zhongshan Park, every item from the menswear brand Mark Fairwhale carries an internet-of-things RFID tag. Online orders ship from the nearest store, and when a store runs out of a size or a color, the customer can buy it from the Tmall store instead. The setup dates from the June 18 shopping festival.

Before Singles' Day, Zuo Jingdong, general manager of Mark Fairwhale's e-commerce division, said that linking user accounts alone had let them build up and sift out tens of thousands of core members fast. "For a brand, New Retail is a bright streak of gold in the sky. I hope it lifts our results," Zuo said.

Wyeth formula stores and the 50,000 stores of the apparel brands under the Bestseller Group have all become shipping nodes. Watsons offers in-store pickup at 1,700 outlets nationwide.

"Catch the Cat," a game Tmall has now run three years running, is also described as part of New Retail: during set windows, users head out to the malls to play this Pokémon-Go-like game and can win big cash coupons.

According to the official strategy guide, the doorways of certain brand stores partnered with Tmall were the easiest places to catch a cat and collect the reward. Put plainly: coupons used to pull people into physical stores.

"New Retail" also covers data partnerships. On the eve of Singles' Day, two "smart stores" built by Nike with Alibaba opened.

Walk into the Nike stores at Shanghai's Daning Plaza or on Hangzhou's Binjiang Avenue and you can open Nike's Tmall flagship store inside the Taobao app and buy with one tap using your membership code.

All of that order information flows into what Alibaba calls the "Brand Databank," which lets a brand see what its offline shoppers previously bought in its Tmall store and market to them accordingly.

Beyond these consumer-facing tie-ups, Alibaba's "New Retail" also takes in Tmall convenience stores: its Lingshoutong platform does up neighborhood corner shops and helps owners who used to keep their books by hand manage stock and understand their customers.

Tmall convenience stores have at the same time become a new channel for Alibaba's fast-moving consumer goods wholesale business in tier-two, -three, -four and -five cities. Some Taobao-native brands, Be & Cheery among them, have started working with Lingshoutong on packaging made specifically for convenience-store shelves. Alibaba says it has converted 600,000 Tmall convenience stores so far.

Go through all these examples and it is hard to say what "New Retail" is. Apart from Hema, almost every effort labeled "New Retail" has been around for years, usually as physical retail's answer to the shock of e-commerce.

The one thing that is certain is that Alibaba's "New Retail" is headed offline.

Every Physical Retailer Talks About "New Retail," But Their Ties to Alibaba Aren't That Close

Alibaba's partners are not the only ones talking about "New Retail."

JD.com aside, retailers call what they do "New Retail" whether or not Alibaba has any money in them. Fruit at your door in half an hour is "New Retail"; setting next week's food-delivery menu a week ahead is "New Retail"; and an unstaffed corner shop whose door opens to your face is, of course, "New Retail" too.

JD.com founder Richard Liu moved quickly to put forward his own term, "Boundaryless Retail," for the business model that joins online and offline, and said this year's event was the first "Boundaryless Retail" Singles' Day.

The physical retailers riding the buy-buy-buy fever of Singles' Day alongside Alibaba are not handing everything over to it.

At Longemont on November 10, what we saw more of was attempts to keep shoppers offline.

At the Luolai Home Textiles counter, the Singles' Day posters hanging everywhere carried no QR codes, only product numbers and discounted prices. "Whatever is online, we definitely have in the store at the same price — buy it online right now and it might not even be in stock."

The discounted goods laid out in the store were exactly the models Luolai was promoting in its Tmall flagship store, except that online buyers had to wait until the 11th to pay the balance, while in-store buyers could carry them home at once for the same price.

Across the mall, alongside Taobao's Singles' Day campaign, we also saw QR codes everywhere pushing Longemont's own membership program.

In the malls of Bailian, Alibaba's strategic partner, the posters more often urged shoppers to scan a code, follow Bailian's WeChat official account and sign up as members for perks like free parking and paying with points.

Hema aside, it is hard to say how many brands will hold the same prices in store and online once Singles' Day is over. The cost of running a physical store is nothing like the cost of running an online one.

Only recently, Walmart, which had promised the same prices online and off, raised the prices of goods on its website in its home market. Few physical retailers can match the operating efficiency of a company with more than 2 million employees.

Matching prices online and off reaches into a brand's internal management and into how store staff are paid. One partnership cannot solve it.

Jason Ding, a partner at Bain & Company, told Forbes: "They already have huge logistics networks and long-standing supplier relationships, and they resist Alibaba's deeper involvement."

A retailer in Suzhou has felt the same. An anonymous spokesperson for the company told Forbes that Alibaba's ideas sound somewhat unrealistic, because following them would wreck the company's entire supply chain — an expensive process with no guaranteed return.

"To me, New Retail is more of a concept. Nobody knows how to do it. We are all feeling our way," the same person said.

During Singles' Day, brands running joint campaigns with Alibaba of course talked up the benefits of the partnership and the part "New Retail" played. But such tie-ups are not exclusive. Even while pushing users toward their Tmall flagship stores, more of these brands also want customers to scan the QR code for their WeChat official account.

Rolling Out a Big Concept Before Working It Out — What Is Alibaba in a Hurry About?

Alibaba's business grows more sprawling by the year — e-commerce, cloud computing, logistics, entertainment, gaming. But what Wall Street cares about, and what holds up a market value of more than $470 billion, is still the core e-commerce business.

At Alibaba's annual Investor Day in June, group CFO Maggie Wu forecast revenue growth of 45%-49% for fiscal 2018. That is very fast for a company whose annual revenue already tops 150 billion yuan. Alibaba's stock jumped 13% after the forecast, its biggest one-day gain since the 2014 listing.

Wall Street looks at Amazon in much the same way. From July to September this year, Amazon took in $43.7 billion in revenue, up 34% — its fastest growth in five years. The stock rose 7% after the report, back above $1,000, adding about $30 billion in market value.

The difference between the two is that besides e-commerce Amazon has a cloud business earning more than $1 billion in profit every quarter, while Alibaba's cloud computing is still losing money. Alibaba's profit comes from e-commerce and nothing else. In the third quarter, its cloud computing, film and entertainment, and innovation businesses lost 4.4 billion yuan between them. Opening more Hema stores and converting more Tmall convenience stores will both cost enormous sums.

As long as it is defined as an e-commerce company, the only thing that can lift its share price is e-commerce results — more revenue, more profit.

Two years after saying it no longer cared about gross merchandise volume, Alibaba spent the last hours of Singles' Day handing out cash coupons to Taobao members with a Taoqi score above 1,000: 1,588 yuan off any purchase of 9,888 yuan or more, no category limits — an iPhone X, aerospace commemorative banknotes that are legal tender, even gold. The number still matters a great deal to it.

Meanwhile, Alibaba can no longer pull in that many new buyers.

Data released by China's Ministry of Commerce and Ministry of Industry and Information Technology shows the number of online shoppers in China has grown more slowly for four years running. As of June this year, 500 million Chinese internet users had bought something online, with year-on-year growth down from 20% four years ago to 10%.

E-commerce platforms manufacture several shopping festivals a year and announce sales in the tens or hundreds of billions of yuan for each of them.

That can easily create the illusion that e-commerce has China's retail market cornered.

In fact, growth in China's total online retail sales has also slowed for three years running. The 5.5 trillion yuan of online retail sales in 2016 accounted for only 19% of China's retail market. The remaining 80%-plus is what drives Jack Ma, Richard Liu and their peers so hard toward offline retail.

In the end, whether the talk is of merging online and offline, of building offline supermarkets, or of doing up mom-and-pop shops, what Alibaba wants the concept of "New Retail" to solve is still the problem of growth.

And then there is the permanent problem: WeChat.

The torch cash-coupon campaign that sat on Taobao's homepage for 20 days ended with more than 300 million interactions. For any small company that would be a fine result; for Alibaba, which had just reported more than 525 million active users for the latest quarter, it is not good news.

Today nearly everyone who goes online with a phone opens WeChat every day. Its latest figure for daily payments is 600 million. Alipay does not publish a payment count, but WeChat's daily payment count already exceeds the number of people who use Alipay in a whole year.

The momentum WeChat has built is simply too great. One of the lines we heard most at every pop-up store on Singles' Day was: "You have to scan this code with the Taobao or Tmall app." People reach instinctively for WeChat to scan any QR code in front of them.

For the pop-ups that could not sell anything directly, perhaps their most important job was to get people using Taobao's "scan" button a little more.

WeChat is not only where marketing, payment and scanning get decided; it also carries off more user data. It is JD.com's largest source of traffic, and it keeps this Tencent-backed company in the fight against Alibaba.

Beyond supplying traffic and payments to e-commerce companies such as JD.com, Meilishuo and Mogujie, neither WeChat nor Tencent as a whole has done much in retail.

But the user habits are there and the data is there, and a company worth $500 billion cannot stake its growth on a rival doing nothing. Alipay once built out the whole payment flow, spending years making it simple to link a bank card and pay by phone — and then WeChat, on the strength of its user numbers and user habits, overtook it in offline payments in two years.

Before e-commerce growth runs out, taking user time back from WeChat and getting more money out of each shopper matter equally.

At which point the physical retailers that once feared Taobao and Tmall have become the "New Retail" partners Alibaba is courting. As they take foot traffic and data from Alibaba, their offline stores bring Alibaba traffic and data in return.

Alibaba may not have worked out how to do this yet, but it has already had to start moving under the banner of "New Retail."

Zhu Kailin, Xuan Hailun, Chen Siyin, Li Huina, Luo Cong, Xie Jinping and Chen Siyin all contributed to this article.

Cover photo by Gong Fangyi