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Adapting to a Digital-First World: 4 Strategies for Physical Stores

In recent years, the role of physical stores has experienced significant changes, driven by consumers shifting their buying habits to online shopping. This transformation has compelled brick-and-mortar retailers to re-examine their strategies and reconsider the role of physical stores in a digital-first world.

To remain competitive, physical stores are now essential in instant delivery services and offer a seamless shopping experience. They should also consider developing high-quality, low-cost private-label products and appeal to pet-loving consumers to capitalise on the booming "pet economy" in China. In this article, we will elaborate on the four strategies employed by current retailers.

1. Hyperlocal delivery could help offline retailers to survive

In recent years, brick-and-mortar retailers in China have undergone a significant transformation with the surge of online sales. In light of the highly competitive retail environment, the integration of hyperlocal delivery services has emerged as a key strategy for retailers to remain relevant and thrive. To achieve faster and more convenient delivery options, many supermarket operators have partnered with leading hyperlocal delivery platforms, such as Ele. me, Meituan, and JD Daojia, to reach a wider customer base. For instance, RTMart, a major player in this space, has reported that almost 30% of its total sales are generated through hyperlocal delivery. Similarly, Wal-Mart (China) has expanded its collaboration with JD Daojia to bolster its hyperlocal delivery offerings and sustain growth. This shift towards hyperlocal delivery can increase supermarkets' operational efficiency, allowing them to augment their sales without physically expanding stores. Nevertheless, despite the promising potential for growth, hyperlocal delivery services such as fresh food delivery currently operate at a loss due to high fulfilment costs, posing a common challenge for retailers seeking to expand their services in this area.

2. Omnichannel will be imperative

In today's fast-paced world, consumers are seeking faster and more convenient shopping options, making it essential for offline retailers to embrace the omnichannel trend. This requires them to offer both physical and online platforms with real-time inventory visibility. Freshippo is a widely recognised example of an omnichannel retailer. However, this article highlights another retailer, Intime, also established by Alibaba. Intime Retail Group has introduced a Mini Department Store format, an innovative concept store that allows customers to sample products in-store, order products through digital kiosks, and receive free home delivery of their purchases. The Mini Department Store only features the best-selling products in each category, selected based on consumer preferences in the local area. Unlike traditional department stores that typically concentrate in higher-tier cities due to their heavy-asset model, the Intime Mini Department Store offers a more agile and cost-effective operation that provides products and services to consumers in lower-tier cities that are used to having no access to products before purchasing online. In addition to the Intime Mini Department Store, Intime has established over 100 mini-collection stores with a similar concept by 2022.

3. Private label offers potential for growth

The perception of local supermarket brands' private label products being lower-quality and inexpensive used to hinder their penetration into the Chinese market. However, gradually recovering from the economic downturn and the COVID-19 pandemic's uncertainty, Chinese consumers are expected to be more price-sensitive but still demand high-quality products. This emerging trend presents a significant opportunity for the expansion of private-label offerings. Retailers can leverage this opportunity by offering competitively priced, good-quality private-label products from trusted brands, thereby enhancing their growth prospects in this market. Emerging internet-based supermarkets, such as Freshippo, are able to capitalise on their access to real-time consumer data to identify and meet consumer needs and create their own private label lines. Currently, private-label products offered by Freshippo and Sam's Club are gaining popularity among customers, especially in the bakery and snacks categories.

4. Retailers capitalise on the booming “pet economy” in China

The pet economy has rapidly grown in China over the past few years, with many retailers recognising the potential of appealing to pet owners, particularly among the millennial and Gen Z consumer segments. As a result, offline stores are increasingly focusing on being pet-friendly. This reflects a broader shift in consumer behaviour, as younger generations view their pets as valued members of their families. Many shopping centres now allow customers to bring their pets while they shop, creating pet-friendly shopping environments, offering relevant pet services and increasing the proportion of pet-related businesses and brands. Retailers have also launched pet-themed marketing campaigns and hosted pet-themed events and promotions, to capitalise on this booming market. This trend of being pet-friendly is expected to continue to grow in the coming years, as more and more businesses seek to gain a competitive advantage by attracting and retaining pet-loving customers. By embracing this trend, shopping centres are positioning themselves to stay relevant in the increasingly crowded retail landscape.

The above is what we saw happening in China’s retail landscape, feel free to speak to our team about how your brands can capture these trends, work with these retailers or any other support.

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