The move by ecommerce platform JD to penetrate rural China through physical stores is a fascinating one. For those who missed it, JD announced in March it plans to open 10,000 home appliance stores across China via a franchise model. This aggressively expands a strategy that has to date seen the company open 1,700 in rural areas covering 450,000 villages in total. A month after another statement came, saying JD was to establish more than 1 million convenience stores, with half of them in small cities.
Historically we have seen ecommerce growth often driven by giving consumers access to products and services where physical retail is limited. Here we see JD flipping the approach by understanding that it can reduce purchase barriers and increase its own brand exposure by providing consumers a physical experience. As with Amazon over the last decade it is great to see an online retailer innovating to try and establish a competitive edge.
While we can only guess as to JD's motivation, there are certainly some key factors in today's market that provide clues.
First let's look at a potential barrier to business growth; as a digital-only business, JD faces huge pressure and expense in driving traffic to its ecommerce property, given the fragmentation of media in China and the ease of switching across ecommerce platforms. By broadening its footprint through physical stores, it is both putting a face to its offering and increasing awareness. The added benefit is that a store presence provides the opportunity for additional services and ‘try before buy’ options for challenging or new categories.
On the business driver side of the equation we also note the potential white space in omnichannel retailing. Many retailers are succeeding in physical retail or in ecommerce, but few provide a true integrated and seamless experience across both. While retailers and brands have been quick to shift focus to ecommerce, the reality is that physical retail still represents the majority of shopping trips for most categories. By assessing how and why shoppers shop the way they do and the reasons behind their channel choices for different occasions and categories, retailers like JD can create flexible pathways to suit their shoppers’ needs.
Thus any retailer that can understand shopper needs and provide retail as a service—wherever, whenever, and totally on 'my' terms—could be representing the winning strategy of the future. We can learn from models in the US that put servicing at the center of their approach to driving sales. Companies like Walgreens, Target, and Walmart have long recognized the value of providing for the omnichannel shopper through mobile, ecommerce, and physical store integration.
As JD expands into the physical realm it should, however, keep a watchful eye on how retail in the US has evolved in recent years under pressure from ecommerce and changing consumer habits. There have been a number of ‘big name’ retail bankruptcies this year, yet wages and therefore spending power has been increasing for middle and low-income families. The impact of ecommerce and in particular the influence of increasing mobile purchasing is also significant; something we are familiar with in China. Further indicators include the over-supply of malls and the shift in spending from consumables to meals out with friends and family. So as JD shifts its mix of retail availability and services it must also pay close attention to consumer and shopper needs and behaviors.
Overall we see the actions of JD as a positive step forward. Its moves point to a desire to become omnipresent for shoppers, and if its future-proofing strategy continues to be shopper-centric, it is sure to gain ground on larger competitors. And who knows, when it comes to the future of retail and in particular the use of technology, we may see JD continue to innovate using drones or self-driving cars connected to automated warehouses, allowing products to be delivered wherever and whenever they are needed.
As retailers seek ways to increase their reach and as shoppers desire ever-improving shopping choice and convenience, this could be a win-win for all.
Gareth Ellen is regional planning director and COO China at Geometry Global