Retail + Industrial = The New Retail

What exactly is “New Retail” and why is the biggest and most successful online retailer in China buying a traditional department store and mall operator?

19 Apr 2017

The New Retail
It wasn’t too long ago in 2012 that Jack Ma (King of Online Retail) and Wang Jianlin (King of Traditional Retail) almost made the landmark historical RMB 100 million bet on China’s national TV in the heat of an intense debate.

The challenge? Wang Jianlin offered to give Jack Ma RMB 100 million if online consumption surpassed 50 percent of total retail volume in 10-year time. In return, Jack Ma must agree to give Wang RMB 100 million should online consumption fall short of 50 percent of total retail in the same period.

Jack Ma ultimately demurred.

On hindsight, it was a smart move. He would have been a step closer to being RMB 100 million poorer had he made the bet. Fast forward half a decade later, and one can only wonder if the epic challenge flashed across his mind when he made the announcement to acquire Intime Retail.

October 2016. Alibaba Founder and Chairman, Jack Ma, in his letter to Alibaba’s shareholders, set the stage for Indus-(Re)tail 4.0. He called it the “New Retail” concept. Shortly after in January 2017, Alibaba announced a bid to acquire Intime Retail, a leading department store and mall operator in China.

What exactly is “New Retail” and why is the biggest and most successful online retailer in China buying a traditional department store and mall operator?

Jack Ma went on to explain in his letter that “Pure e-commerce will be ….. replaced by the concept of New Retail – the integration of online, offline, logistics, and data across a single value chain.”

Showmanship aside, one big question remains to be answered. What changed Jack Ma’s mind? What does Jack Ma, the king of online retail, plan to do with Intime Retail, a physical retail giant?

That brings us back to the concept of “New Retail”.

How does “the integration of online, offline, logistics, and data across a single value chain” bring Alibaba closer to its vision of “New Retail”?

We can probably find the answer in the evolution of consumer expectations. The modern consumer craves experience. They do not just want to use a product or service. They want to enjoy the product and service.

Experiential products and services have common traits. They are of excellent quality, provide a solution for consumers, available on demand, affordable, and most importantly they deliver an experience. Pure E-Commerce checks off most of the boxes. However, they are unable to deliver an experience for a product and/or brand.

In the traditional retail model, products are mass produced. Mass produced products are usually not customisable. As a result, retailers usually end up delighting some customers while disappointing others. It is impossible to please everyone – as the saying goes.

Industry 4.0 changed everything. Products and services can now be customised based on the whims and fancy of consumers. The ideal integrated retail, manufacturing and logistics model hypothetically allows consumers to walk into a retail outlet, interact with the products and services, customize the products and services that appeal to them, and have it delivered straight to their home on the same day. All for a reasonable price.

The new SingPost eCommerce mall is already attempting some of the integration by combining retail with logistics. It is scheduled for completion around mid-2017, and allows consumers to browse products and services in store, purchase the product, and arrange for delivery. Thereafter, the consumer can continue to enjoy their retail experience, watch a movie or have a meal without having to bother about bulky shopping bags.

What does this mean for Industrial Real Estate?

Firstly, the “New Retail” model will drive overall retail trend towards new experiential retail malls, where retail and logistics offerings will be integrated to offer a new age shopping experience to delight the modern consumer. As a result, modern logistics facilities should offer flexible leasing solutions and good network infrastructure to be effectively plugged into the increasingly advanced retail ecosystem.

Secondly, the malls of tomorrow may not have to be in standalone retail developments. Mixed developments consisting of retailers located in factories and warehouses or vice versa may become more common, as retailers up the ante of their ‘experience’ to differentiate their products and services. This is not a new concept. Car manufacturers such as Mercedes Benz have experiential factories in Stuttgart, Germany, where potential customers not only get to interact with the final products but they also get to experience everything from the history of Mercedes Benz, to the actual production of the very car they are buying.

Finally, retailers in the “New Retail” mall will leverage on the new infrastructure model to reduce their warehouse requirements in the mall. The “New Retail” model will drive strong demand for efficient manufacturing and logistics facilities located near consumers in gateway cities. These industrial facilities will be different from the factories and warehouses of today, with a strong focus on efficiency to clock the fastest delivery time to consumers.

The integration between retail and industrial(including logistics) is taking place now. It is no longer an academic exercise, it is reality.

This is the future, this is “New Retail”.

Welcome to the world of tomorrow, Welcome to Industry 4.0.

Live Long And Prosper!

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