Tencent Takes on Staff-less Retail as Competition with Alibaba Hots up

Tencent Takes on Staff-less Retail as Competition with Alibaba Hots up
Credit: REUTERS/Aly Song
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Competition to lead in 'new retail' in China threatens to shape the shopping experience of the future.

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By the time Amazon finally opened its cashier-less grocery store Amazon Go in Seattle in January, retailers in China had been operating cashier-less stores for almost a year.

Unlike in the U.S., competition in the unmanned store market is fierce in China. The latest entrant is Tencent Holdings, one of China's two dominant mobile payment operators and the company behind the ubiquitous WeChat app.

Tencent grabbed headlines in January by opening its first unmanned store, We Life, in one of Shanghai's mega shopping malls.

At stake is a market that China-based consultancy iResearch expects to grow near 100-fold from 40 million renminbi (US$6.5 million) in 2017 to 3.3 billion renminbi by 2020.

When including unmanned open shelves and refrigerators, iResearch estimates total transaction volume will hit 15 billion renminbi in 2020, up from 340 million renminbi in 2017.

Underpinning this development is a wider movement called "new retail", which Chinese tech companies like Tencent, Alibaba and JD.com have been pushing since last year in a bid to bridge offline and online consumer habits.

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Credit: REUTERS via third party
People look at goods at an unmanned grocery store in Chengdu, Sichuan Province, China Nov. 16, 2017.

Matthew Brennan, founder of China Channel, a consultancy on China's digital market, said that the trend is apparent across all consumer-facing industries. "China is leading the rest of the world in terms of digitalizing the customer experience and blending this experience seamlessly between offline and online elements," Brennan said.

According to Brennan, retailers are moving back to offline as online growth matures – being a purely online play will no longer sustain the rapid growth that Alibaba and Tencent are used to.

Tencent’s payment service, WeChat Pay, already has about 800 million users in China, and together with Alibaba's Alipay, the pair dominate China’s massive mobile payment space.

The majority of retailers here, from supermarkets to street vendors, now accept either or both forms of payment. As such, the latest official data showed mobile payments reached 81 trillion yuan in the first 10 months of last year, up 40 percent on the whole of 2016.

While Tencent has its fingers in many pies, it is not a direct retailer, and instead relies on a partnership with ecommerce major JD.com in place since 2014 to drive sales through WeChat Pay.

The two companies announced in October that they would expand the cooperation via the launch of the JD-Tencent Retail Marketing Solution, which according to a press release promises to “integrate insights on consumer behavior from Tencent’s social platforms with online and offline shopping data from JD and its brand partners.”

Pushing into unmanned stores is thus a natural next step for Tencent as it attempts to remain relevant in "new retail" while building on its existing strength in the mobile payments market.

"WeChat does not have ambitions to open its own stores across China, Tencent's strategy is to partner with existing retail players and help digitalize the retail experience," Brennan explained. "Both [Alibaba] and Tencent are now moving into a wide variety of vertical industries for a variety of reasons, retail though is the most important battleground for 2018.

“In the short term, new retail is in large part about mobile payments. Tencent and Alibaba are blocking each other's moves to protect their market share in payments."

Yu Simin, analyst at China E-Commerce Research Center, agreed that unmanned retail represents the next frontier of competition between China's tech titans. "As one of the biggest tech firms, it is natural for Tencent to want to join the competition,” Yu said. “We Life will enrich the types of operations Tencent has within the retail industry."

The cashier-less experience

But what did the We Life store look like? Introduced as a pop-up retail store concept to be incorporated into shopping malls, Tencent positioned We Life as a marketing solution for companies aiming to promote their brands or for shopping malls to attract shoppers.

The store carried products by consumer brands in the categories of food, clothing, home living and transport, marking We Life apart from most unmanned stores, which focus on groceries.

However, compared to other such stores already launched in China, We Life is not particularly innovative when it comes to technology and the payment process.

The shopping experience is initiated by scanning a QR code that prompts a payment authorization notification on WeChat Pay. Once authorized, the door to the store is unlocked. Shoppers then pick up the products, which could be anything from chocolates to clothing to handbags.

Upon leaving the store, shoppers walked through a box-like space where they scan each product code to acknowledge the purchase. Finally, customers once again scan QR codes on their phones to settle the payment. The door then unlocks and they can leave with their merchandise.

While We Life has all the usual elements of an unmanned store, such as registering through an app prior to entering, adopting RFID codes on products and paying by QR code scans, it does not use technology such as facial recognition, and there were no cameras in place to track shoppers’ behavior.

The concept utilizes Tencent’s flagship product WeChat Pay, incorporates WeChat ads and coupons, and also adopts WeChat Mini Programs, so-called “mini apps” that can be used without installing a full app onto the phone, thus saving download space and the problem of keeping users’ attention.

WeChat launched Mini Programs last year to support the growing need for online-to-offline payment scenarios. And unlike Amazon Go ­­– where users can just pick up items and leave the store without a check-out, most of the unmanned stores in China require shoppers to check-out at a self-service machine or booth.

According to iResearch, about 40 percent of the users in China want to have a "grab-and-go" capability like that of Amazon Go.

Rise of the unmanned stores

Start-ups in China have been launching basic unmanned stores since 2016. The model and technology of these stores vary; some operate more like a self-service shop by checking out and bagging your own items, and others bear more similarity to a giant vending machine.

China’s big-name tech giants started testing the waters in 2017. Alibaba opened an "unmanned cafe" where the shopping and payment process is entirely self-service, but food is still served by staff.

BingoBox, one of the most successful unmanned store startups, and retailer JD.com both opened an unmanned convenience store last year. BingoBox currently operates in more than 28 cities in China and has aspirations to expand its partnerships overseas, indicating both China’s leadership in the space, and the shape of shopping to come.

Editor: David Green

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