Dec 18, 2020|
In-Depth Report: Omnichannel as a Lifestyle Tool: “The model switch came from China”
by Kelly Dawson
As JD has embraced an omnichannel retail strategy, consumers have benefited from increasingly fast delivery times propelled by the company’s rapidly expanding network of offline stores and an advanced supply chain. Less discussed but arguably equally important is the lifestyle opportunity that omnichannel provides customers to curate their experiences and manage their time— one more way in which JD is putting the customer first.
While most global industries and enterprises including JD have steadily followed the path of digitalization, it’s JD’s recognition of the need for online-offline integration in the face of increasing fragmentation of consumer demand that will be key to future success, said David Roth, chairman of BrandZ and CEO of The Store WPP EMEA and Asia， who accepted JD’s phone-interview from his London office .
“JD is one of the leaders in understanding this strategic challenge,” Roth said.
Online-only retail can only truly work with utilitarian products for which people feel a low emotional connection, and feel low to zero enjoyment picking them up in store, he said. Such products might include toiletries or kitchen cleaning solution, for example.
On the other end of the spectrum are products for which customers feel great enjoyment in touching and feeling, and for which they might even bring a friend or family member along for advice while shopping. With these products, the physical part of buying is an integral part of the customer journey, even if ultimately the final step in purchase is completed online.
JD’s omnichannel approach reflects an understanding that consumers are reluctant to forfeit these experiences, and may in fact feel that a shopping experience has been diminished as a result of missing the opportunity to participate in an offline interaction, Roth said.
JD consumers can now engage in shopping experiences online, offline, through livestreaming, content commerce, social commerce and more. Being able to curate where, when and how to enjoy shopping experiences allows consumers to pick and choose how they will spend their time and energy. In this sense, JD’s approach to omnichannel enables consumers to curate a desired lifestyle.
“See, Touch and Feel”
JD’s omnichannel approach extends across multiple categories and industries, with its over 12,000 offline home appliance experience stores across China serving as a clear example of how offline stores can add value for consumers.
Visitors to JD E-Space, JD’s 50,000 square meter experience store in Chongqing, have free rein to try anything in the store. Customers debating between washing machines are encouraged to take them for a ‘spin’; participate in baking tutorials, and more.
“JD is allowing people to make transactions not only in a functional way, but also in an inquisitive way that allows them to touch and feel and ask questions,” Roth said.
The company plans to open 20 JD E-Space experience stores in first-tier cities across China by 2025. These offline stores play an important role in the company’s expansion into lower-tier markets, where customers are still acclimating to online shopping. Customers can also access post-sales services at the offline stores, which helps provide peace of mind.
“E-commerce penetration in lower-tier markets still needs to be cultivated,” said Shuangxi Wu, head of JD’s refrigerators and washing machines sales department. “The experience stores help them access JD’s rich home appliance product selection.”
JD’s omnichannel strategy is also powering its promise for ever faster delivery, through the Omnichannel Fulfillment supply chain innovation program, which leverages the inventory of multiple types of offline channels including supermarkets, convenience stores and brands’ offline stores in order to drastically shorten delivery time to consumers.
Additionally, omnichannel is playing a role in the expansion of luxury brands into the e-commerce space. Shoppers who want to buy a Prada purse can visit an offline store for the upscale ambiance of a luxury store; and then later purchase the item online through JD, with a guarantee that it will be delivered from the same store at which they viewed the purse.
As always, JD’s omnichannel offerings are backed by an advanced supply chain network that ensures seamless integration of all shopping experiences across categories, with features including price synchronization and more.
Growth of omnichannel
Even as online shopping has exploded worldwide as a result of COVID-19, JD has steadily continued a path of expansion into the offline space. Digitalization remains essential, but without the omnichannel component, retailers will remain one step behind.
In past years, many Western retailers were entirely focused on the desire to exit the physical space, Roth said. “The model switch came from China,” he said. When JD begun opening offline stores, “Western companies were very curious, but I don’t think they really fully understood the change in strategy.”
The Western model has traditionally taken a “hub and spoke” approach, with inventory stocked at a main hub and then delivered to consumers through the supply chain. Western retailers embraced this model, prioritizing efficient supply chain and 100% on-shelf availability.
“The Chinese companies turned that thinking on its head,” Roth said of JD and other Chinese e-commerce companies that have shifted into omnichannel. “They realized that the future of retail doesn’t lie in 100% on-shelf availability, but instead about the speed in which products can get to customers—first with next-day delivery, then same-day, and now even within 30 minutes in some cases.”
Once JD identified speed of delivery as the main priority, the “hub and spoke” model could no longer work, because the distances were too great, Roth said. Expanding the network of offline stores was the smartest solution, resulting in the necessity of an omnichannel model.
“This new thinking was an entirely different paradigm,” Roth said.
Future of omnichannel
Moving forward, the most important question for retailers will be, “How can you serve customers both physically and digitally?” Roth said. “And equally important: How can you integrate the two?”
There will always be a place for offline channels, Roth predicts. “If a company wants to compete, they will need to offer both physical and digital. The balance and proportion between the two will change over time, but the true key to success will be synergy between the two, whether through sharing data or learnings to understand and explore between offline and online.”
He imagines a time in which an IOT-connected world will ensure that utilitarian products like washing detergent will automatically arrive at your home when your supply is low, based on the number of cycles registered on your washing machine.
In contrast, products with higher emotional connection, like fashion, for example, will necessitate the continued existence of offline stores. JD will aim to serve this demand, in recognition that customers have wide-ranging needs.
“For a retailer, the way to measure success is customer experience,” said Chenkai Ling, vice president of JD.com and head of Strategy Development, JD Retail. “Consumers are getting more sophisticated and have higher demands.”
However, there are a class of products that could go in either category—fresh vegetables, for example—and the future of these products will be in the hands of retailers and brands to create emotional propositions that prevent them from becoming pure commodities, Roth said. JD’s SEVEN FRESH omnichannel supermarket offering is rapidly expanding in this space.
As the omnichannel model continues to develop, JD will play an important role, Roth predicts. “JD is at the forefront of creating the pieces of the jigsaw puzzle that makes up this ecosystem,” he said.