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Global Consumer Insights Survey 2018 China Report

China’s next
retail disruption:
End-to-end value
chain digitisation
Foreword China’s retail market outlook
Source: PwC analysis
Michael Cheng 2017 – 2021

Asia Pacific & Hong Kong/China 8.05 9%

Consumer Markets Leader 7.38

6.21 6%
Hardly any week goes by without news on the invention or adoption of new consumer technology, 5.18
videos of some internet celebrities (Wanghongs1) going viral on social media, or major 4.50
announcement by retailers to redefine customer experiences – this is the intensity and speed at
which China’s consumer landscape is evolving. 1.83 21%
1.25 1.51
0.67 0.86 1.03
In August of last year Amazon announced it was buying Whole Foods and, as many investment
2016 2017 2018 2019 2020 2021
analysts and retail leaders rushed to make sense of the deal, USD 11.6 billion2 was wiped off the
market value of other competitor grocery retailers in just under 24 hours. Those in the US may eCommerce retail sales (USD trillion) Offline retail sales (USD trillion)
have been left surprised by this move but that shouldn’t be the case. The strategy of internet giants
acquiring offline retailers was already happening in China. The future of global retail is happening
here now.
China’s eCommerce penetration by category
Sheer scale makes China a must play, must win market. China has eclipsed the US as the largest Source: Goldman Sachs, Euromonitor and PwC analysis
retail market in the world. China’s National Bureau of Statistics reported that for Q1 2018, total
retail sales of consumer goods reached USD 1,436.8 billion, up by 9.8 percent year-on-year3. In the Electronics and
60% appliances
US, the estimated quarterly retail sales for Q1 2018 was USD 1,306.7 billion, an increase of 4.5% 55%
55% Clothing and
year-on-year4. 51% shoes
China is also the world’s biggest eCommerce market with online sales in Q1 2018 reaching USD 43% 44%
307.4 billion, an increase of 35.4% year-on-year. In the US, online retail sales in Q1 2018 reached 40%
USD 123.6 billion, an increase of 16.4% year-on-year. Singles’ Day continues to break records, with 35% 38% Beauty
Gross Merchandise Value (GMV) increasing 39% to USD 25.2 billion in 2017, versus a combined 31%
value of USD 11.6 billion for Black Friday and Cyber Monday in the US. Yes – scale makes the China 26%
opportunity strategically significant but it is retail innovation that truly puts it in a category of one. 23%

1. Wanghongs, meaning internet celebrities, are Chinese key opinion leaders that have attracted
a large fan base through relying on social media. They typically monetise this fan base through 15% FMCG & grocery
endorsements, brand sponsorships and also selling prdoucts via their own eCommerce stores. 10% 13% Luxury
7% 8%
2. Amazon’s new Whole Foods discounts wipe out nearly $12 billion in market value from grocery 6%
sellers, 24 Aug 2017, CNBC
discounts-wipe-out-10-billion-in-market-value-from-grocery-sellers.html 8%
3. Total Retail Sales of Consumer Goods in March 2018, National Bureau of Statistics of China 5%
4. Quarterly Retail E-commerce sales, 1st quarter 2018, The U.S. Census Bureau
2016 2017 2018 2019 2020 2021

China’s next retail disruption: End-to-end value chain digitisation 2

In 2017 we first discussed this theme in our report “eCommerce in China to have up-to-date information on them and personalise their experiences
– the future is already here” which identified how digital had transformed accordingly, compared to 42% globally. We are also now seeing the
the front-office of retail: sales channels and marketing. It also revealed application of AI technologies that enable more effective targeting, however,
that mobile commerce, secure platforms, and big data analytics, among brands must be careful to strike the delicate balance needed to protect data
others, were becoming key investment areas for global retailers to thrive. privacy, consumer trust and network security.

This shift from Digital Retail to “New Retail” is being characterised by data- New retail is not just transforming consumer engagement but the entire value
driven and customer centric approach, further enabled by digitalisation through chain. Retailers are building smarter, more flexible and multiple-purpose
the entire value chain. As we saw with eCommerce, China’s internet giants are supply chains capable of orchestrating inventory across online and offline
the primary drivers of this trend pushing traditional retailers into a new period channels. Data is being used to make product development more demand-
of disruption through rapid capability building strategies via build, partner and based and also shorten time to market. Sourcing traceability, particularly
acquisition models. via blockchain, is also becoming increasingly important to enable greater
consumer trust.
As the world’s biggest and arguably most important consumer market, China is
now home to 784 million smartphone users and now social media, mPayments E-commerce has disrupted retail and to stay competitive in the industry and
and eCommerce are ubiquitous parts of the shoppers journey5. uphold the brand credibility, retailers could invest more in various channels to
enhance convenience, improve customer experience and strengthen personal
PwC’s latest Global Consumer Insights Survey 2018 (“GCIS”) found that in data protection. While retailers and brands identify business opportunities
terms of shopping habits, 50% of Chinese consumers (compared to the global through the data driven shopping habits and capture economic value through
average of 22%) buy products online weekly and 59% of them are likely to buy data, it would also be wise to not lose sight of the core competencies of your
grocery online (compared to global average of 21%). Chinese consumers are brand that maintain its competitive advantage. After all, complacency is a
also leaders in mobile payments as 86% of them have used mobile payments recipe for being disrupted. Proactive focus on maintaining and building the
to make purchases (compared to the global average of 24%) thereby creating distinctive capabilities to deliver on the value proposition is a disruption-proof
a near cashless society. Our research also finds that Chinese consumers winning strategy.
continue to be first movers at the forefront of new innovations: 44% would
consider a drone as a delivery method for a low value product versus 22% I strongly urge you to read this insightful report which explains the evolution
globally. from Digital Retail to New Retail. For businesses already operating in China it
explains the ways to play in this rapidly changing consumer environment, and
This intense digital connectivity has led to proliferation of big data which is for those looking at inspiration it offers a perspective of China as the future of
being used to optimise how brands create compelling customer experiences global retail innovation.
and also transform retail business models. On the consumer side, data driven
marketing has now become so common that it is changing expectations of
engagement. Our research found 67% of Chinese consumers expect retailers

5. PwC’s Entertainment and Media Outlook 2018

China’s next retail disruption: End-to-end value chain digitisation 3


27 Key takeaways
24 – 26
28 Contacts
16 – 23 What it takes to
Digital retail matures succeed in New Retail
5 – 15
into New Retail
Key growth trends in
China’s retail market • S-Curves of retail
• Post 80s and 90s • Digitisation of the
shoppers value chain
• Categories: Health, • Platforms and walled
premiumisation, lifestyle gardens: online and
and interactivity offline
• Urban clusters and
mega cities
China’s next retail disruption: End-to-end value chain digitisation 4

Key growth trends
in China’s retail

Looking beyond the macro headlines for
breakout growth
At the macro level China’s retail market is
forecast to grow at a compound annual growth
rate of 9% from 2017 to 2021, still robust but
slower than 12% from 2012 to 2016. Below these
macro figures significant growth opportunities
still exist. Here we explore the Post 80s and 90s
generations, products and services catering to the
trends of health, premiumisation, lifestyle and
experience, and key growth opportunities with
city clusters.

China’s next retail disruption: End-to-end value chain digitisation 5

I. Digging deeper to understand the
post 80s and 90s generations

Over the past 5 years a lot of emphasis has been placed on the Chinese To really understand the Chinese consumer businesses need to invest in
millennials. There are good reasons for this, with a population of proprietary analysis that blends both traditional quantitative research
approximately 410m there are more millennials in China than the with qualitative insights. Brands are taking inspiration from the design-
entire population of North America. Almost every brand is looking to thinking approaches pioneered by the internet companies and we
target the Chinese millennials and as a result there is a fierce war for are now seeing a greater emphasis on techniques like: ethnography,
a share of their attention and wallet. In order to engage consumers behavioural economics and gamified consumer testing. These
we need to understand them. Typically we see three main challenges approaches help to gain a richer, fuller and more bespoke understanding
with how brands or retailers are approaching this in China. of consumer behaviour, desires and paint points.

Over the last 12 months, PwC has helped many brands in this way and
has interviewed more than 1,200 consumers from across all city tiers
• Firstly, the term millennials – covering birth years of early and regions. For a global fashion retailer with over 150 stores in China,
1980s to early 2000s – is a Western segmentation model and it is PwC interviewed ~100 young female shoppers and identified their
important to take a localised approach which divides generations demand for shopping experiences that are entertaining and practical,
by decade e.g. post 80s and 90s. beyond “just another in-store + digital app combination”. Based on the
insights, PwC designed a gamified community-based retail experience
• Secondly, some companies are still focusing on the “digital that addresses directly the personas’ needs and wants, which made the
savviness” of the Chinese millennials, trends which are now clients revisit their vision and assumptions.
so pervasive that they have become truisms. While traditional
demographic segmentation methods could be useful in providing
directional insights and structuring quantitative market sizing,
they often fail to capture the underlying rational and emotive
motivations that really drive decision making.

• Thirdly, there is no such thing as “an average 28 year-old female

young professional”. Without the life and colours of personas,
it is very difficult for brands to practically design products and
services with the Chinese consumers’ needs and wants in mind.

Key growth trends in China’s retail market 6

We are increasingly seeing that viewing the Chinese shopper through
the lens of the Innovators (21% of consumers), Fast Followers (52%) What online media do you regularly use to find inspiration
and Laggards (27%) enables us to identify some of the most significant for your purchases?
differences in behaviour. Innovator personas are those that are the earliest Source: PwC’s Global Consumer Insights Survey 2018
to uncover new trends and take pride in inspiring those around them –
Innovator Fast Follower Laggard
typically the fast followers- through sharing on social platforms. Laggards
are those which are slow to adopt new fashions or technologies.

For example, Innovator personas are ferocious consumers, 41% expect to 53%
spend much more in the next 12 months (versus 18% average) and 23% Social networks
shopping on their mobile daily (versus 9%). They are also much more likely (e.g. WeChat, 57%
to use multiple digital platforms and formats to find inspiration for those Q zone, Sina Weibo)
purchases, with livestreaming and blogs particularly popular. 42%

Visual social
(e.g. Youku, Bilibili, 18%
Do you feel confident about your personal financial situation in terms Ingkee)
of your shopping spend plans for the next 12 months? 7%
Source: PwC’s Global Consumer Insights Survey 2018
Don’t know
Multibrand websites
4% No, I am already holding back spend 44%
4% (e.g. Tmall, JD)
3% to see what happens
18% No, I expect to spend much less 30%

31% No, I expect to spend slightly less


Price comparison
43% I expect to spend around the same 35%

Blogs 9%

41% 32% Yes, I expect to spend slightly more

Innovators look for
inspiration across a wide
variety of social platforms
Individual retailer
5% Yes, I expect to spend much more 20%
Innovators Fast Laggards 19% 19%

Key growth trends in China’s retail market 7

There is obviously no single
Innovator persona however,
our research finds them
within multiple demographic
segments or contexts. Here
are three examples of post
90s and 80s personas which
we see as being indicative
of the innovative modern
Chinese consumer.

JR and Sophia
The Wellness
The Sassy
New Mom
The Post-90s
Key growth trends in China’s retail market 8
JR and Sophia

The Age
27 and 28

disposable Both around RMB 16,000

Wellness income
Both single

Explorers City
JR is originally from Xiamen and
currently living in Guangzhou,
Sophia is born and raised in
“Help me understand Education College (in Tianjin and Beijing)
how I could live a JR works for an internet
advertising company and
healthier lifestyle Occupation
Sophia is a secretary at
and have more fun real estate agency
Running, outdoors,
training.” Interests healthy eating,
following sports
• Loves “learning through socialising” – actively
share experiences and learning from the workout
JR and Sophia met through their local groups and sports fan clubs they belong to
ASICS running group, and have been identifiers
• Follows and attends events hosted by gyms e.g.
training together with their close- SuperMonkey and Versus and sports brands to
workout in a social setting and learn about new
knit group of wellbeing-enthusiastic
wellness trends
• Live a well-balanced life and be a well-being role
model amongst their peer groups
• “Buys for a purpose” – it’s not just about the
Purchasing products, but also how the products fit into their
behavior lifestyle and their pursuits, supports sustainable
products and brands that are socially conscious
• Lack of more bespoke sports brands that fulfils their
Pain points
expectation of looking good while working out
• Sharing their experience with new fitness programs,
and their analysis of a China Super League soccer
of delight
game on Baidu forums and Dongqiudi.
• Highly values recommendations from fellow
wellness enthusiasts in the running group based
on their personal experiences
• Informative, educational brand-sponsored content

Key growth trends in China’s retail market 9


The Sassy Age


disposable Household RMB24,000

Modern income
Married with a new-born

New Mom City

Born and raised in Shanghai
Studied marketing in Shanghai
Ying is a finance manager at
“I believe I could have Occupation
a multi-national consumer
goods company, currently on
it all – family, career, maternity leave

and friends” An avid organiser, enjoys

organising playdates, family
outings, weekend trips to
nearby provinces for friends. • Family-first, but also cares about and
Ying is a young mom who just had Interests
Teaching herself principles willing to invest in her own interests and
her first child. As dedicated as Ying of interior design in Persona
is to her son, Ying also makes sure preparation of renovating identifiers
• Quality conscious, willing to pay a premium
she leaves enough time for and their dream home. for the quality-guaranteed products
investment in herself. • Having it all – happy family, successful
career, and fun social life
• Connects with other young moms on
LaMaBang (辣妈帮) to follow useful
Purchasing threads on looking after a new born, and to
behavior receive tips and deals for baby products
• Casually browses Tmall and as
daily habits – opportunistic buyers
Pain points • Time-poor: lack of time to look after herself
• A family holiday in the Philippines that gave
her plenty of time of rest and stroll on the
Moments of beach
delight • Documenting the child’s infancy through
daily photos shared in the family WeChat
• Trusts her own decision making, but
will reference reviews in mom groups
(LaMaBang, BabyTree) when it comes to
baby products

Key growth trends in China’s retail market 10


The Post- Age


RMB 6,000 (monthly allowance from

90s Trend-

setter City

Originally from Beijing,
currently studying in Shenzhen
Studying in Beijing
Occupation Student
“Fashion is a hobby Online shopping, fashion,
and passion” music, food and weekend trips • Trend-setter amongst her friends, makes up
her own mind
Persona • Style lover, master of online clothing
Mandy is passionate about fashion. identifiers shopping – knows every brand, merchant,
daigou that is available and has mastered
She is a smart shopper and sees her the art of buying limited edition items
investment in style not only as a • Establish her own style, build up a collection
way for her to express, but also to Goals of signature items, and be seen as a trend
establish herself as a trend setter setter amongst her peers
amongst her social circles. • Uses daigou to purchase from brands
that are not available in China, and to buy
imported products (from Korea/the US/
Purchasing Europe) at the lowest price possible
behavior • Sells her own second-hand items (clothing,
handbags) on Xian Yu, and resells face
masks she bulk bought from Daigou to her
• Finds it difficult to find unique pieces
Pain points on main online shopping destinations –
“everyone is wearing the same thing”
• Successfully buying a limited edition
Supreme suitcase after months of saving up
Moments of
and finding a family friend that could queue
delight up for her and purchase from the flagship
• Follows fashion influencers on WeChat
(e.g. Baoxiansheng, Becky Li) for styling
Purchase inspiration and to discover new brands.
influencers • Browses Net-a-porter, Farfetch,
LaneCrawford, Xiaohong Shu (Little Red
Book) daily for fashion inspiration

Key growth trends in China’s retail market 11

II. Growth categories: premium, Compound Annual Growth Rate of various products and services in

health, lifestyle and interactivity China, 2016 – 2021

Source: PwC’s Entertainment and Media Outlook, Euromonitor

Many of these trends are similar to what brands Premium vs Mass Interactive vs traditional
and retailers have seen globally however, as is Premium beauty 14% Livestreaming 29%
often the case in China, the speed and relative and personal care
impact of the change is more dramatic. For Mass beauty and Traditional media
6% 5%
example, our Global Consumer Insights Survey personal care consumption
shows that during the last 12 months 52% Salon professional
of Chinese consumers have spent more on 9% E-sports sector 24%
hair care
experiences versus last year (e.g. travel, dinning Video games/
Shampoos 3% 6%
out and events) compared to 26% in the United Consouls
States. Within the “Experience Economy” we
Mobile / O2O
also see that while in the United States eating Premium jeans 5% 20%
out and travel dominate, Chinese consumers
have a much broader perspective. Similarly, Economy jeans 2% TV advertising 1%
culinary classes (40% versus 7%) and self-
improvement / education (34% versus 17%)
are priority areas that have relatively limited
demand in the United States.
Lifestyle vs Necessity Health vs Unhealthy
Fresh coffee 17% Sports nutrition 25%

Instant coffee 4% Carbonates 4%

Sports footwear 12% Fresh food 12%

Footwear 6% Ready meals 2%

Eating out 12% Air purifiers 12%

Grocery 7% Cooling 8%

Key growth trends in China’s retail market 12

How retailers are transforming to cater to new consumer trends

These demand side shifts are having a

transformative impact on how retailers are Grocery Shopping Malls eCommerce
reinventing their overall customer value
proposition across merchandising portfolio, Clear shift to imported packaged food Existing luxury malls in Tier 1 cities Luxury brands are finally embracing
and hard-to-find products with unique and first mover high quality malls in eCommerce as consumers become
format and environment. Below are some flavours or attributes. Tier 3 are some of the key archetypes comfortable buying premium goods
of the key changes we see across grocery, outperforming the sector. online.
shopping malls and eCommerce.
e.g. Ole’ is a new banner under the China e.g. Grand Gateway Shanghai Mall e.g. JD is expanding its presence in the luxury
Resources Vanguard and targets white-collar undergoing a renovation and increasing the by launching Toplife with experiences that
Premiumisation workers with high quality imported products. luxury brand penetration rate to ~45% from include in-house fashion consultants and
30%.6 premium delivery services with couriers
wearing suits and white gloves.

Increasing fresh food assortments and Strengthening positioning as family Health and nutrition product categories
organic ranges as traffic drivers and value spaces by promoting clean air and countries with associated provenance
proposition differentiation. environments. (Australia and New Zealand) booming on
cross border eCommerce.

e.g. Yonghui, one of China’s best performing e.g. Wanda worked with air purification e.g. Blackmores, an Australian health
grocers, generates 45% revenue from fresh companies and keep shoppers up-to-date on supplements company, saw direct sales to
food, highest amongst industry peers7. indoor air quality with digital screens. China increase 71% 2016-178.

Upgrading physical environments and Increasing tenancy area given to activities Content shifting from purely transactional
in-store ambience. New formats now like culture and art, cooking classes, to blending social engagement, brand
include: cooking stations, eating areas children’s care and theme parks and storytelling and education, and lifestyle
and coffee shops. other entertainment. aspirations.

e.g. 40% of Alibaba’s Hema supermarket e.g. Commerce accounts for only 25% of the e.g. Little Red Book acquired 60m+
area is given over to cooking and dining 470,000 sqm Nanning Wanda mall which registered users through building a social
areas. includes an interactive children’s park, a commerce fashion site that helps consumers
movie theatre and an indoor pedestrian discover new products and brands based on
street with a five star hotel. in-depth customer reviews and high quality
6. High-End malls in top cities are where the Chinese
go to buy luxury, offline, 5 Sep 2017, Jing Daily Emergence of omni-channel grocery Integrating “Experiential Retail” Retailtainment now firmly established (especially ship-from-store) and digital- technologies (e.g. VR, AR, facial with interactive shopping festivals that
are-where-offline-luxury-spending-really-happens/ only retail innovations including: staffless recognition) to offer unique interactive use emerging technologies like AR and
7. Yonghui Superstores – the vanguard of China’s stores and manless shelves. experiences. VR to enable consumers to interact with
grocery market, Nov 2017, Fung Business celebrities and interact with games.
e.g. All of the products in Alibaba’s Hema e.g. Guangzhou ZhengJia shopping mall e.g. 11/11 gala show attracted over 400m
Retail_in_Action_issue10.pdf Interactivity
store can be activated with digital content or establish VR experience center with over viewers – nearly 4 times the number of
8. Blackmores, Swisse and the battle of China’s
keyboard warriors, 3 Jan 2018, The Australian added to basket. Estimated 50% of total sales 1,000 square meters. viewers who watched Super Bowl.
Financial Review via eCommerce, 10x industry average.

Key growth trends in China’s retail market 13

III. Urban clusters and City clusters are separate regional economies with varying

mega cities of opportunity degrees of opportunity

Source: National Bureau of Statistics of China

In 2017, 800m people (58% of the population) lived in China key city clusters Harbin
cities10, numbers too large for practical (versus economic)
China’s cities – the largest urban population in the world. purposes. Secondly, China is a geographically large Changchun
Urbanisation has been a key macroeconomic trend fuelling and culturally diverse country with each region having
growth and many retailers and brands have responded by distinct consumption habits and preferences (similar Central-Southern of
developing go-to-market strategies through a city tier lens. to Europe), none of which are captured through a city Liaoning
For example, McDonald’s has over 2,5009 stores in China tier lens. As a result, we are seeing more focus on Beijing Shenyang
but differentiates the format by tier. Large premium stores strategies that view the China market through the lens
under the concept of “Future 2.0” are often in Tier 1 cities of city clusters – one through which opportunities are Shandong Peninsula
and include high-tech experiences including a self-order captured at the intersection of region and city tier. Yantai
machine with functions that include the ability to customise Shijiazhuang
PwC’s recent Chinese Cities of Opportunity 2018 Qingdao
flavor choices, while smaller and simpler formats are found report, jointly released by the China Development Central China
elsewhere. Likewise, Decathlon’s stores in Tier 1 cities are Research Foundation, identified 12 key clusters11 Luoyang Zhengzhou
Yangtze River Delta
Guanzhong Plain
typically 4,000 sqm and include experiential environments which represent ~80% of China’s GDP and will urban cluster Xian Nanjing
like a children’s playground area but lower tier stores are form the basis for future economic growth.
smaller and simpler at 1,500 sqm. Here retailers and brands look to localise go-to-
Wuhan Wuhu Hangzhou
market strategies (typically channel, format,
Going forward developing effective strategies to capture merchandising and supply chain) at the Chongqing
Chengdu-Chongqing Nanchang
growth in lower tier cities will be increasingly important. cluster level which take into account more Economic Zone
Morgan Stanley estimates that between 2016 and 2030, specific economic opportunity and regional Changsha Fuzhou

92% of future consumption in China will come from Changsha-Zhuzhou-Xiangtan

infrastructure, competitive landscape and
Western Taiwan
outside Tier 1. In our experience, while city tier strategies consumer preferences. Straits Economic Zone
offer a practical lens through which to align resources Guangzhou
with population size and wealth their simplicity can also Hong Kong
be a limitation. Firstly, while there are 4 Tier 1 cities there
are approximately 45 Tier 2 cities, 70 Tier 3 and 90 Tier 4 Pearl River Delta

City Tiers Retail Sales Growth (2016-17)

9. McDonald’s to double number of China restaurants, 8 Aug 2017, Financial Times Tier 1 >10%
10. Top 15 ‘new first-tier’ cities in China, 15 May 2017, China Daily
Tier 2 7-10%
11. Yangtze River Delta, Pearl River Delta, Beijing-Tianjin-Hebei Region, Western Taiwan Straits Economic Zone, Shandong Peninsula, Tier 3 <7%
Central China, Wuhan, Changsha-Zhuzhou-Xiangtan Region, the Guanzhong Plain urban cluster, Chengdu-Chongqing Economic Zone,
the Central-Southern of Liaoning and Harbin-Changchun urban cluster. Bubble size indicates the % of National GDP

Key growth trends in China’s retail market 14

The food sector has been one of the first to adopt a cluster In addition to urban clusters, China is also home to four influence they have on setting national, regional and global
approach. Taste preferences are highly dependent on mega cities: Beijing, Shanghai, Guangzhou and Shenzhen. trends. For example, Adidas’ revenue in Greater China grew
regionally defined cultures, and supply chains must be built Mega cities are significant as symbols of the country they’re 29% year-on-year12, and sales in Shanghai during the first
to maximise penetration and minimise wastage within store located in but also for their significant economic and six months of 2017 were EUR 100m, more than Austria and
clusters. For example, KFC offers spicy and chilli powder cultural influence at the regional, national and global level. Switzerland combined13.
when consumers purchase a burger in Sichuan whereas Some brands are responding to this by putting mega cities
in Guangdong province, herbal teas are provided to suit at the heart of their global go-to-market strategy. Here a
regional tastes. Similarly, Youyou, a spicy snack brand, disproportionate focus of investment is put on a limited
sells sour flavouring in Eastern China, numbing sensations number of cities with localised marketing, merchandising
Western China, and red oil in Chongqing Province. In and research and development. The aim is to more quickly
the fashion sector we also see brands introducing greater respond to shopper needs and build direct-to-consumer
flexibility in both merchandising and product development to engagement. Winning in these cities is seen to be significant
cater to distinct buying patterns in North and Southern China given both the direct opportunity size and also the
as a result of distinct weather patterns and fashion trends.

12. Adidas delivers strong operational and financial performance in 2017, 14 Mar 2018, Adidas Group
13. Sporting goods manufacturer Adidas focuses its marketing on six major cities, 17 Aug 2017, Key growth trends in China’s retail market 15
“ Digital retail
matures into

New Retail
Over the last 5 years China’s retail market has
experienced a digital growth miracle but its
impact has mostly been on the front office:
sales channels and marketing. We are now
entering a period of new retail which will be
far more transformation, digitising the entire
value chain.

Digital retail only

impacted the front office,
new retail will transform
the entire value chain Product Sourcing and
eCommerce Digital marketing Supply Chain
development production

Digital retail

China’s next retail disruption: End-to-end value chain digitisation 16

I. S-Curves of retail innovation
Over the last 5 years China’s retail market has experienced a digital growth miracle. Smartphones, social media,
mPayments and eCommerce have quickly become ubiquitous in most urban areas. The impact of these technologies on
consumer behavior has forced companies to change how they sell and market to shoppers. Yes, the digitisation of China’s
retail market has been dramatic but it has mostly been one of front-office transformation.

From where we sit today, these changes have felt like we are accelerating along a linear trajectory however, innovation is
an arc. The time between hot new trends turning into platitudes is collapsing and these experiences reflect where we sit
on the S-Curve14 of innovation. At 5 years old, digital may feel like a new trend but it is already reaching maturity. Mobile,
social and eCommerce are now reaching the top of their S-Curves and so too is digital retail.

mCommerce and mPayments are no longer trends, they are ubiquitous characteristics of retail in China The end of Digital Retail is the
Source: PwC’s Entertainment and Media Outlook and iResearch beginning of New Retail

Mobile commerce as % of Mpayment users % of

ecommerce smartphones

84% 85%
81% 83%
80% 81%
77% 79% 76%

61% 55% The end of the

New retail


29% Digital retail

Where we’ve What’s next

been 14% Where we’ve What’s next
been Old retail

2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 Time

14. S-Curve is a measure on the speed of adoption of an innovation. It is often used in the technology industry to describe a product lifecycle.

Digital retail matures into New Retail 17

PwC’s New Retail digitisation transformation framework

II. Digitisation of

Integrate physical
digital a
the value chain

analytic achine

isa n a

tom ctio
il a

We shouldn’t misinterpret the end of digital

cus produ

IoT and
retail to mean change will slow however,


M taffl

ma dular
as one era matures so another emerges

an es


le s

ss sh
to replace it. This is new retail. Whereas



st elv

ilit in p
or e

digital retail was mostly a front-office

es s

ab a
ce kch
domain new retail will be far more

tra loc
Om rce

transformative, impacting the end-to- ni-
cha me
end value chain. We see New Retail nn Sales Sourcing and l c om
el f ita ing
being characterised by 3 key areas: ulfi
lme channels production
B dig sourc
nt B2 co-
• genuine consumer-centric
Short fo
operating models; rm vide
o, housing
livestrea ted ware
consum ing and Automa cs
er partic oti
• digitisation and integration of ipation and rob
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Digital retail matures into New Retail 18

Sales: Channels become integrated,
formats more diverse

What interests you to shop during the major online shopping

festivals (e.g. 6.18 and double 11)?
Source: PwC’s Global Consumer Insights Survey 2018
Digital Retail New Retail Examples

Product price deductions 82% Alibaba’s Singles’ Day

Transaction orientated, Entertainment led with an
transforming from a
Shopping focused on serving value increasing emphasis on
discount-led shopping
missions and convenience buying hard to find, distinctive or
season to an entertainment
Exclusive services for festival (e.g. no occasions niche products and brands
interest installment, product 37%
Hyper growth new
Large platform increasingly
Festival-only exclusive Large pure-plays and platforms: Kaola (Cross-
27% eCommerce curate content and new
products and packaging market places dominate by border), Xianyu (Second-
landscape players emerge which
providing endless choice hand) and Pinduoduo
focus on distinct niches
(Daily discounts)

Access / pre-ordering of new products 24%

7FRESH, grocery
Online and offline largely Connected payments
store, is a combination of
independent channels and logistics at the core
Channels supermarket, restaurant,
linked only through mobile of integrated online and
Brands creative marketing campaigns 20% distribution center and
O2O marketing offline formats
online store15

New features and technology

launched by eCommerce platforms
(e.g. like Virtual Reality, Augmented
Reality or Online-to-offline)

Festival specific events 9%

Interacting with friends through social

6% 15. opens its first offline fresh food supermarket, 5 Jan 2018, Xinhuanet,
media (e.g. via Social media campaigns)

Digital retail matures into New Retail 19

Marketing: Exponential increase in
content, targeting more precise

Chinese consumers are much more willing to share data

and have high expectations they will receive a personalised
experience because of it
Source: PwC’s Global Consumer Insights Survey 2018 Digital Retail New Retail Examples

59% L’Oreal generates 33%

Focusing on value and
Agree Prioritisation of top- of China revenue online
performance media
line growth: reach, (versus 8% globally16) and
29% Metrics including end-to-end
Happy for a retailer to engagement, traffic and has a razor sharp focus
identify when I am nearby ROI and multi-channel
conversions on ROI across media mix,
and send me personalised attribution
offers buying and creative

37% Exponential increase in Douyin, a short form

Brand and product
digital content emphasis video app, with powerful
Formats and content all optimised for
on ultra-short formats (<5 editing capabilities reached
content the intersection of mobile,
67% seconds), live broadcasts 100 million monthly active
social and video
and consumer participation users within 1 year

I expect a retailer to have up 34%

to date information across all
channels (e.g. in-store, Kuaizi, a marketing
online, social media, home Category of one targeting, technology start-up, uses
delivery etc.) 5%
Demographic or behavioral hyper personalisation AI to generate creative
Disagree segmentation and targeting and delivery of dynamic content and then optimise

33% content combinations to increase
marketing effectiveness


I am comfortable for a 34% Chinese consumers are much more willing to

retailer to monitor my
shopping patterns and share data and have high expectations they will
8% receive a personalised experience because of it

38% 16. CAGNY Investor Conference presentation, 23 Feb 2018, Loreal Group
China United States (US)
Digital retail matures into New Retail 20
Product development: Bigger Sourcing and production:
use of data analytics, shorter Demand planning, modular
time to market production and sourcing traceability

Digital Retail New Retail Examples Digital Retail New Retail Examples

Yili, a Chinese dairy

company, uses digital Cainiao forecasts
Data driven demand
analytics derived Forecasting based on demand volatility
Medium-term product management
Emphasis on data from multiple owned historicals, POS data, and provides data
development cycles Forecasting including joint forecast
Time to analytics, demand and third-party and marketing / sales intelligence to logistics
using historical data and with customers,
market signals and shortening sources to inform judgment; very limited partners’ to optimise
to inform future planning application of machine
of R&D cycles product development, co-planning with inventory levels at
projections learning for advanced
reducing time to supply chain partners warehouses and
demand forecasting
market from 18 to 3 delivery nodes

Mars collaborated Greater data

Mondelez enables
with Alibaba’s “New availability enables
In-house R&D Co-creation models Focus on scale consumers to
Research Manufacturing” unit differentiation via
with emphasis on including partners efficiencies and unit customise the
and to co-design and Production approaches like
localisation of global (eCommerce) and end costs as basis for colour and design of
development develop a unique modular production
for China consumers competition special edition Oreo
chilli-infused Snickers methods and mass
packaging on Tmall
bar17 personalisation

Kraft developed JifJaf

Alibaba, Fonterra and
Niche and occasion a new cookie sold Compliance as Traceability becoming
Large campaign Blackmores create
based segmentation exclusively online and hygiene factor created as a differentiator
Testing and launches coupled with Quality and a blockchain food
with use of online as a targeting young adults through brand equity, enabling complete
launch mass distribution on trust traceability solution
testing bed or to grow who wanted a unique packaging and assurance of origin
all channels to enhance consumer
buzz taste from a quirky product quality and supply chain
challenger brand18

17. Alibaba now product designer, as well as seller, for brands, 19 Apr 2018, Alizila
18. Kraft Heinz’s new chocolate sandwich cookies might seem familiar, 25 Apr 2018, Adage Digital retail matures into New Retail 21
Supply chain: Minimising costs while
maximising flexibility and value

Retailers may offer various options for For the majority of your online
how you receive your goods. Which of purchases, how soon do you expect
the following services are most attractive your goods to arrive?
to you if offered at no extra cost? Source: PwC’s Global Consumer Insights Digital Retail New Retail Examples
Source: PwC’s Global Consumer Insights Survey 2018
Survey 2018 Operations enable new
Sourcing and Li & Fung’s digital
customer value through
logistics support supply chain service
34% expanded offerings and
29% customer expands to focus on
Same day Operation services; operations
experience through pre-production and
delivery Same day design is integrated into
speed, efficiency, design including virtual
39% new business model
and low costs product development
6% development

Free return Vendor integration, Danone partners with
shipping 36%
Minimal physical shared infrastructure to improve
Next day footprint to models and multi- coverage in southwest
support low fixed purpose assets, focus China including
8% Infrastructure
costs, focus on on customer experience building a shared
Delivery at 19%
high utilisation of / value, warehouse as warehouse in Chengdu
a specific fixed assets a showroom and pick to optimise online and
time slot 8% up place offline distribution19

Two days
13% and Walmart’s
Package 29% Optimising Inventory planning, integrated inventory
tracking inventory visibility, and availability and order management
management for which comprehends system optimise
efficiency and and supports all fulfilment by ships
12% velocity in the channels flexibly and online customer orders
2.7% Three to five
online channel effectively from central warehouse
In-store business
or Walmart stores20
pick-up days
7.7% 43%
19. JD Logistics, Danone Join Hands to Build Shared Warehouse, Optimize Distribution, 22 Nov 2017, Yicai Global
China United States (US) 20. Walmart and expand strategic cooperation, 25 Jul 2017,

Digital retail matures into New Retail 22

III. Platforms and walled gardens: Value chain share breakdown for Chinese tech players, 2017(%)

online and offline Source: Stat counter; emarketer; china internet watch; Tech node iresearch china;
Alibaba group; Website Research; PwC Analysis
Alibaba Tencent & JD Baidu Others
China’s internet giants were at the heart of digital retail and they have also been the ones
to usher in the New Retail era. New Retail is an Alibaba term but both Tencent and JD also
pursue similar strategies described as Smart and Borderless Retail respectively. In order to
move into offline retail the internet giants are not going alone but pursuing a number of
highly publicised build, buy and partner strategies. Tencent
We are still in the early days of New Retail but the competitive strategies of the internet Alibaba
players help us understand how the market might evolve. There are two internet 32% QQ
ecosystems in China: Alibaba, and the Tencent and JD alliance. While each have evolved music
41% Cainiao
from different core competencies they have built independent ecosystems that span the Tencent 48%
Ele ma Alipay
entire value chain of online consumer experiences. Consumers in the Tencent ecosystem Tencent 52%
54% 54%
can seamlessly move from the discovery of a product endorsed by their favorite KOL on 57% Tmall
WeChat to a transactional environment in JD. That same consumer would be blocked from Youku
transferring across WeChat to Alibaba’s Tmall. In China, seamless consumer experiences Baidu
(and data) only exists if we stay within the “walled gardens” of the internet giants. We also 78% 12%
expect the internet giants to continue to enforce the walled garden approach offline. For
example, Walmart, which has a strategic partnership with JD, recently announced that it
was no longer accepting Alipay in Western China in favor of WeChat Pay describing the
choice as “offer the best all-round shopping experience for our customers”21. 5%
19% KuGou
Solving big problems and removing inefficiencies is at the core of how the internet giants iQiyi 28%
look at opportunities and the only way for them to move the needle on USD ~500bn market 14% Other
valuations. China’s offline retail market is worth around USD 4.5 trillion and presents a 5%
significant opportunity, however the aim is not to become retailers in the traditional sense Meituan
but rather identify opportunities in the retail value chain where they can solve problems, Waimai
build solutions and create new business models. For example, Alibaba’s Hema has emerged 30% Kuwo
30% Tenpay
as the iconic example of the modern grocery shopping format: consumer orientated, digitally 10% 38%
connected and smart logistics enabled. The expertise and capabilities developed here are 25%
now being deployed in Sun Art Retail Group, a leading hypermarket operator with over 450 Shenma
Others Baidu
38% music 4%
stores, as part of a USD 3bn equity investment. We also see similar strategies being deployed 9% Others 35% Non
in the shopping mall and homeware sectors. It is not hard to foresee a future whereby the 29% eCom
Chinese internet giants create Retail as a Service vertical-specific (Grocery, Fashion, Home, Haosou
6% Others
etc.) business models for the retail sector. In this scenario, brands and retailers plug into Others 17% 4% 16%
cloud-based solutions to enable next generation applications in: supply chain, product Others
development, and production and sourcing. These strategies are similar to the Industry 4.0 7% 8%
approaches being developed by companies like GE’s Predix or Siemen’s MindSphere.
Search Digital Social Online Online Online B2C O2O Mobile Logistics
Advertising Media Video music gaming  Commerce Commerce Payments
21. Walmart ditches Alipay in western China for Tencent’s WeChat, 27 Mar 2018, Financial Times Demand generation Entertainment Commerce Fulfilment

Digital retail matures into New Retail 23


What it takes
to succeed in

New Retail

China’s next retail disruption: End-to-end value chain digitisation 24

1. New retail is full stack digitisation. See everything through
the lens of business impact, customer experience and
technology enablement
2. We are still in the early days
of New Retail. Separate vision
All brands and retailers need to consider how digitisation will impact their total value chain. Of course technology from reality, aspiration from
and data will be part of the solution but jumping in too early risks digitising existing ways of working versus
unlocking opportunities for breakout innovation. We recommend companies first look to consider how this new
execution, and PR (Public
era of retail enables them to do things differently. This could mean transforming how they connect and serve Relations) with ROI (Return
consumers, where they play in the value in the chain, and the new profit pools they can capture. Doing this on Investment)
typically means bring together individuals and teams that have different perspectives: strategy, creative and
design, and innovation and technology. These teams also need to be backed up by leadership and organisational
roles needed to drive the effort. For example, when Li & Fung – a global supply chain company with over 100 years
of history – was developing its 3-year plan it brought together business, technology and creative teams to ideate a
vision that would radically transform its business model, versus simply digitisation existing processes. The result We are constantly bombarded by press announcements
was an asset-light strategy that integrated all elements of the supply chain into a new digital platform and partner and case studies of innovation in China’s retail economy. In
ecosystem. Here data is captured, shared and analysed across the value chain enabling Li & Fung to provide this environment it is easy for brands and retailers to feel
customers with the insights needed to make smarter, faster and more effective business decisions. anxious they are not keeping up. It is true that innovation
and competition is relentless here but it is also important
to not mistake PR with ROI. In reality, most of the claims
like: 360 degree view of the consumer, online-to-offline
channel attribution, or real time inventory optimisation
etc. are either small scale pilots or product brochure wear.
Most brands and retailers in China are still struggling with
massive challenges of data fragmentation, quality and
completeness. As we know however, things move incredibly
fast in China and vision can quickly turn to reality. We
recommend that companies do not leap frog to emerging
technologies until the fundamental building blocks of
cloud, mobile, eCommerce and analytics are in place.
There are also huge opportunities to be captured through
changing how brands operate in the era of new retail, not
just what technologies are used. For example, one leading
sportswear brand is responding by completely reorienting
content creation, campaigns and new product launches
around China’s eCommerce calendar.

What it takes to succeed in New Retail 25

4. Ecosystems and partnerships are
3. Internet players have the becoming increasingly important but
ambition (and cash) but not all don’t neglect to build core capabilities
the answers, collaborate early that create competitive advantage
but be careful about picking sides

Previously digital retail meant the front-office activities

The internet giants have unprecedented consumer of eCommerce and digital marketing. For many brands
reach, digital talent, and technology and analytics and retailers in China this meant outsourcing most of
capabilities, but they are still newcomers to offline the execution to Taobao Partners / Third-parties (TPs)
retail. The last 4 years have shown us that the brands eCommerce services providers and digital / media
that have benefited most were those that collaborated agencies. For example, a leading sportswear brand with
early and helped shaped the future. For example, USD ~1bn eCommerce revenue has 100+ team outsourced 5. Everyone in the organisation
back in 2016 Nestlé was the first to use Alibaba’s big to a TP. As digital now comes to define everything a brand
or retailer does it is critical to assess what capabilities
needs to be digital, in everyway
data platform to personalise the shopping experience
on Tmall – a solution that is now almost ubiquitous. (existing or new) need to be built in house; otherwise what
Nestlé’s eCommerce growth in China outpaces the food is left? Agencies and partnerships will always be part of
and beverage average with some categories like coffee the delivery model but not at the expense of outsourcing
and biscuits growing 50% and 80% during the first half competitive advantage. PwC recently worked with a leading Digital retail is retail. Instead of the prior decade’s
of 201722. We believe the winners in New Retail will consumer brand on helping them tackle this strategic obsession with business-IT alignment, brands and retailers
be those that also collaborate early to shape the future question. First we helped them breakdown the opportunity must now pursue a more balanced approach to digital
of their category. For example, we recently supported landscape into a limited number of clear priorities: O2O transformation, one that now puts the organisation and
a multi-category retailer and an internet company platforms, personalisation marketing, and B2B digital employees at the centre. All functions, departments and
design a shopping mall experience for the modern commerce. We then built a capability-driven strategy that grades need to be supported to enable them to develop a
Chinese consumer. As we have seen in the grocery identified the operational and technology requirements fundamental of digital competence. This means creating
sector however strategic relationships with the internet needed to execute. Future considerations to how the a culture of innovation, constant learning and technology
giants often come at the cost of exclusivity. There is no business operates included: investments in eCommerce- adoption. For example, Nestlé’s Digital Acceleration Team
one size fits all answer here but we would recommend specific supply chain capabilities, development of an in- (DAT) takes young leaders from international markets –
a cautious approach, particularly to long-term house data management platform for programmatic media, including China – into the global headquarters where they
agreements in a market that is as dynamic as China. and new partnerships with B2B aggregators. receive immersive training and work on innovative digital
projects for period of 8 – 12 months. These leaders then
return into their home markets where they help to drive
change and spearhead digital transformation. In a similar
way L’Oreal has put digital at the heart of the organisation’s
DNA transforming culture, talent and daily operations.
L’Oreal now has over 1,700 digital specialists and has up-
22. Nestlé Investor Seminar, 26 Sep 2017, Nestlé skilled 16,000 employees globally.

What it takes to succeed in New Retail 26

Integration of strategy, creativity and innovation will
help you to achieve your value proposition

Key takeaways Technology and data will be part of the solution but don’t neglect
to apply strategy, creativity and innovation expertise to rethink Prioritise structural growth
how this new era of retail enables brands to connect and serve opportunities
The emergence of New Retail in consumers in a completely new way. Develop an ecosystem
China is impacting retail at the global strategy that prioritises partnerships as a mechanism to build Capture double digit growth
level. This report describes the trends capability or develop new go-to-market models. Continuously opportunities through aligning
that are visible to us. Here are five scan the horizon for new innovations by working with China's the customer value proposition
takeaways for your consideration. vibrant start-up community including those internet giants. behind key demand side
drivers: premiumisation, health
and wellness, lifestyle and

experiences, and interactivity.
Focus on consumer-centric innovation Look for opportunities to
further tailor go-to-market
Take inspiration from the internet companies by combining customer insights with models by city cluster or
design-thinking approaches to develop new products and services that cater to the modern create hyper localisation by
Chinese consumer. Focus on catering to a limited number of personas and solving for developing specific strategies
specific pain points, or moments of delight. for China’s mega cities.

4 5
Don’t neglect to build and maintain core Build a digital organisation
capabilities that create competitive advantage
Instead of the previous decades obsession
In the past, digital execution meant outsourcing with business-IT alignment, we must now While digitalisation has clarified
most tasks to eCommerce services providers (TPs) pursue a more balanced approach to digital the consumer’s needs and wants in
and digital / media agencies. However, as digital transformation, that puts the organisation, terms of personalisation, brought
now comes to define the entire value chain, employees and the customers at the centre. efficiencies to operations and
brands need to assess what critical capabilities It should be viewed as the means to deliver accelerated gratifications, brands
(existing or new) need to be built in- house. enhanced products and services which must not lose sight of their core
Consider the impact of digital transformation the consumer values and at the enterprise products and services that built
across the entire retail value chain. Continue level, it is to ensure agility and adaptation its identity. Catering to consumers
to invest in digitising sales and marketing but to change. Invest in developing digital that make their lives better is a
also focus on using data analytics to unlock talent across the entire the organisation. sound strategy through adapting to
greater speed, innovation and efficiency This is likely to include up-skilling all change, embracing innovations and
within supply chain operations, new product employees to a minimal level of Digital being trendsetters, however, having
development, and production. IQ, embedding analytics expertise into sound fundamentals and embracing
existing functions like marketing and the right partner is key to longevity.
eCommerce, and creating entirely
new domain areas in cyber security
or digital supply chain.

Key takeaways 27
Michael Cheng Author
PwC Asia Pacific & Hong Kong/China Consumer Markets Leader Tom Birtwhistle
+852 2289 1033
Special thanks
Rachel Chan
Sally Huang
Kelsey Lau
Artin Lin
Esther Mak
Tom Birtwhistle Sanjukta Mukherjee
PwC Digital Consulting Director Jan Nicholas
+852 2289 6358
Kanon Wong
Echo Wu
Cindy Yen
Jennifer Yep
Frank Yu

In this year’s survey, we reached out to more than 22,000 online shoppers across 6 continents in 27 territories
across the globe. This report draws on insights from our quantitative study of the shopping behaviours of 901
Chinese consumers and over 1,200 consumer interviews as part of various project work. In addition, we also
bring perspectives from our experience working with international and local retailers, brands and internet
companies. Our China survey sample was slightly skewed towards males who represented 55%. From a
demographic perspective 58% were aged between 25 and 44, 79% have an annual household income above RMB
70,000 (US$10,000), and 66% are in full-time employment. From a regional breakdown, 32% live in Tier 1 cities,
PwC’s Global Consumer
47% in Tier 2, and 21% in Tier 3. The study is part of PwC’s Global Consumer Insights Survey (formerly called Insights Survey 2018
Total Retail Survey), which in 2018 is our seventh consecutive study of online shoppers.

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2018 PricewaterhouseCoopers Limited. All rights reserved. PwC refers to the Hong Kong member firm, and may sometimes refer to the PwC
network. Each member firm is a separate legal entity. Please see for further details. HK-20180521-2-C1