Let's Get Phygital: Alibaba on China's Post Pandemic Retail Opportunities

China has long been heralded as the market for Western brands to break into, given the size and scale of Chinese shoppers, many of whom are younger and more digitally savvy than elsewhere. With the average age of Chinese consumers sitting at 34 – 10-15 years younger than in the US – “the engagement rates and opportunities that brands can generate in China are far greater,” says Mei Chen, senior director of international business Alibaba. “Brands can produce more innovative marketing to drive sales and connect with younger consumers.” With Chinese New Year falling at the end of January (22nd), there’s vast potential for foreign brands – particularly as borders reopen after an extensive local lockdown exacerbated by the pandemic. 

Biggest changes to retail in China since the pandemic

“The pandemic accelerated digital utilisations across the value chain and across the whole retail industry,” says Mei Chen. “Whether across sectors like luxury, cosmetic, beauty and home, every single industry has had to expand efforts for reaching consumers - with the premium markets having to work extra hard to satisfy expectation.”

Mei Chen calls it a transformational upgrade within the luxury industry, which had to move to a more digitalised approach and away from its previously traditionally-run method that thrived on physical retail stores. Before the pandemic, premium brands would offer exceptional in-person treatment, like giving customers a glass of champagne on arrival to welcome them in-store. But of course, as e-commerce became more popular, these brands had to find a way to translate these services online.

E-commerce has penetrated the lux market – and personalisation has provided retailers with a tool to maintain this luxury treatment and capture the customer’s attention. Like many others, this trend emerged before the pandemic but has expanded out of necessity. As a result, there has been a renewed focus on craftsmanship and inviting consumers to understand the heritage of brands so that they know the brand’s handiwork. 

Meet Timo - Alibaba's virtual influencer

As physical retail shops went from high product sales to almost zero quickly, brands had to rethink their strategy to ensure they could still shift stock at full price. 

“We did a lot of live stream sales so people at home would continue buying products,” says Mei Chen. “Livestreaming has existed for many years, and it doesn’t require a huge budget or operations - just a phone – to showcase new collections and products.”

These simple approaches appealed to tech-savvy consumers and retailers who could pivot quickly gained new online followers. 

China at the forefront of digital innovation

With a young average consumer base in China, there’s scope for brands to secure lifetime value from shoppers. “Some 65% of consumers are under the age of 34 in China,” says Mei Chen. “They are more digitally and tech active – and already spending between three to four hours a day online – therefore, they’re happy to explore new tech-led retail initiatives. You can monetise that content, knowing that’s what consumers are hungry for. If you can engage customers when they’re young and retain their loyalty, you can probably have a 40- to 50-year timeline to strap value out of them,” adds Mei Chen. 

As the Chinese market opens up, a hybrid approach will become more relevant, with a symbiotic relationship between online and physical space developing. 

Mei Chen calls this ‘phygital’ – where the physical and digital offerings merge: “It’s becoming a growing trend in China in the retail space, blending the best of both.” 

The biggest test is whether brands can understand their consumers and be available to meet their expectations wherever they are. Currently, Chinese customers expect brands to deliver products within a 24-72-hour window and want high-quality customer service.

Conversion rates with younger consumers are primarily driven online – “with Gen Xers and millennials making up more than 70% of our luxury consumer base. They are digital natives seeking seamless, unified shopping experiences that include good returns policies.” For example, Alibaba offers a seven-day no-questions-asked policy, providing quick logistics and aftercare services, such as the iconic red resoling of its partnered Christian Louboutin shoes. It’s these value-added services that bridge the online experience with offline.

“We are a deep tech company,” says Mei Chen, “We already had many innovative technologies before the pandemic, most of which were developed internally. And we know that we have to continue leveraging these to reach consumers. We’ve inbuilt 3D shopping into our web platform, which allows customers to see all angles of products before they buy, and AR shopping so that they can try things on virtually. It’s useful for specific products like engagement rings.”

This tech has reduced Alibaba’s returns by more than 90%. As a result, consumers can make more accurate purchases, and brands can monetise this space.

More immersive retail experiences are on the rise thanks to the emergence of the metaverse and the success of Alibaba’s new online virtual influencer Timo, rolled out through its digital shopping platform, Luxury Pavillion. “Timo is a digital influencer; it has personality, character and helps bolster younger consumer interactions by representing brands and presenting our newest collections,” says Mei Chen. “It keeps the digital experience feeling premium and exclusive.”

 

International appeal and entrance to china market

As foreign brands seek to enter the Chinese market, how they link their digital assets and experiences with their products matters. Interest from the luxury market in digital collectables (also known as NFTs) only highlights this willingness to explore innovation.

The opportunity to explore new avenues should excite Western brands, but it will be new ground for them, given China’s advanced use of technology in retail. 

Digital tech experiences provide scale without the upfront costs of opening a physical store: “Most brands want to tap into commerce opportunities that are scalable without investing hundreds of millions to enter the market,” says Mei Chen. “But you want to invest the right money from the get-go.”

With restrictions lifting and more Chinese people travelling again, there will be an increase in supply and demand as Chinese travellers shop internationally and experience new brands in London, Milan, Paris or further afield.

“That demand will only continue to increase as they return home,” adds Mei Chen. “Chinese shoppers tend to make two yearly trips to Europe or the US which involve huge shopping sprees so they can discover new brands and trends. These brands then have a great opportunity to engage them throughout the rest of the year and maintain that dialogue by investing locally also.”

But international brands need to understand Chinese consumers to ensure they can meet their specific requirements and adapt offerings to the market’s sensibilities.

With the turn of the Chinese New Year at the end of January, international retail brands have completed several activations knowing how locally important the family-driven date is. 

But there are many more calendar opportunities for brands, with Mei Chen citing three Valentine’s days in China dotted throughout the year.

It’s important for Western brands to explore omnichannel possibilities, test out new technologies and optimise on trends to implement within an already competitive Chinese market successfully.