4 Ways China Is Reaching New Retail Heights

China’s total retail sales are expected to exceed $5.2 trillion this year, according to worldwide retail and e-commerce forecasts by eMarketer. The country is also on a path to surpass the U.S. as the world’s leader in retail sales by 2021.

Driving its growth? A culture of digital innovation, experts said.

“China is shifting from a ‘made in China’ economy to a ‘created in China’ economy,” said Andrea Myles, CEO and co-founder of the China Australia Millennial Project (CAMP), which connects entrepreneurs in China and Australia. “They’re still making things in China, but now they’re creating them there as well, which means the innovation spend is now in the trillions. It’s a transformation that’s being accelerated by government funding.”

We take a look at some of the tactics cementing China’s reputation as a global retail powerhouse.

Finding New Ways To Reach Remote Customers

Chinese retailers are continually finding new ways to reach rural customers who rely on their mobile phones to access the Internet and buy online.

Alibaba, for example, is investing $716 million into the rural market, in part by transforming economically challenged areas into thriving retail hubs through its creation of “Taobao villages,” where residents can sell a wide range of products. Annual transactions on Taobao, Alibaba’s giant online retail site, now exceed $1 million yuan, according to China Internet Watch. The drive is part of President Xi Jinping’s goal of wiping out poverty by 2020.

Meanwhile, JD.com, one of China’s biggest online retailers, has been using drones and autonomous delivery robots to reach customers in more remote areas. Jun Xiao, president of JD’s logistics lab JD-X, says it’s one way the company is innovating to make logistics more accessible, reliable, and cost-effective. With further development and expansion, the company hopes to cut logistics costs in rural areas by as much as 70%.

Embracing Online To Offline (O2O) Retail

Also known as “new retail” and “boundaryless retail,” the use of technology to merge online and offline commerce is sweeping China. Innovations such as facial recognition and digital payment systems are transforming the landscape.

For example, at Alibaba’s Hema supermarkets and JD’s 7FRESH supermarkets, customers can scan barcodes with their phones to learn all about a product, pay for their groceries digitally, check out using facial recognition, and have their groceries delivered to them at home within 30 minutes.

Even traditionally offline retail experiences, like buying a car, are getting in on the O2O action. Last year, for example, Ford opened a 42-car capacity ”auto vending machine” in the city of Guangzhou, in southern China. The building is equipped with an advanced authentication system, allowing customers to browse car models on the Ford app, choose the car they want to test drive, pick it up from the unmanned vending machine, and drive it for up to three days.

The experience creates a no-pressure sales situation, one where if customers are interested in purchasing the car, they can contact a Ford dealership that can facilitate the purchase.

Investing In Social Commerce

“Chinese consumers behave very differently,” said Jack Yin, managing director at Publicis Sapient China, speaking at the Adobe Symposium in Sydney last June. “We are more mobile users. Mobile penetration is higher than average, and we spend a lot of time on social.”

The predominance of mobile in China has led to a surge in social commerce, which now accounts for 20% of China’s online retail market and is predicted to grow to 30% by 2020. As a result, many Chinese brands now build their presence in social e-commerce platforms like Pinduoduo.

Pinduoduo combines the interactivity of social media with a bulk-selling, online retail experience. The platform offers a broad range of brands and products, from groceries to home appliances, and encourages users to share products of interest via their social media accounts. From there, other interested parties can form a “shopping team” with the sharer to reduce the price on their purchases—sometimes by up to 90%.

Turning To Strategic Influencer Marketing

Yin also noted that the Chinese customer journey on social can be very different, with users more directly influenced by their peers than in other regions of the world.

“In the Western world you might type in, ‘What is the best food in Sydney?’ and get some results from Google and find some brands. In China we ask our social network … and then we jump right into e-commerce,” Yin told CMO by Adobe.

On WeChat—China’s answer to Facebook—and Weibo—China’s largest microblogging platform—digital influencers have tremendous sway, and their livestreams can have a huge e-commerce impact. Sometimes those influencers aren’t even real people.

Luxury fashion retailer Gucci recently partnered with an AI-generated virtual influencer named Erica for the WeChat campaign “Why are you scared of me?” The campaign was designed to encourage intellectual dialogue around consumers’ relationships with AI and robotics and featured a sponsored post from Erica dressed head-to-toe in items from Gucci’s seasonal collection. It’s a novel concept, and a successful one, too: The campaign post reached over 10,000 page views quickly after release.

Myles calls China “the world’s new economic centre of gravity,” referring to China’s rapid digital innovation. She says businesses can benefit from looking at what is on the rise in China’s retail sector.

“If you’re working in this day and age you need to get your head in this space. You need to be thinking far and fast ahead. With the momentum of change taking place in China, we need to look around corners about what demands from our customers are coming down the pipeline and who is going to disrupt our companies.”