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On June 28, 2018, Alibaba announced the launch of Taobao Xinxuan (淘宝心选), which translates to ‘Taobao Selected’. After a year in alpha testing, the company’s new concept is finally available to the wider public.

Through the website or one of two physical stores in Hangzhou and Shanghai, users can shop for affordable quality lifestyle and functional daily necessity goods including home fragrance, smart power sockets, underwear, and sonic-control toothbrushes.

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Rimowa?

According to TechNode, the recently opened store in Shanghai was raided and emptied by eager customers in a mere two hours.

What is Taobao Xinxuan?

Appearance wise, the Taobao Xinxuan concept will remind many of Japanese retailer Muji, whose clean and simplistic stores offer a wide range of quality and affordable clothing, stationery, bags, and even furniture.

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Taobao Xinxuan Store Concept Design

From a business model perspective, Taobao Xinxuan is actually more like Xiaomi, the smartphone-manufacturer-turned-global-electronics brand. Its Manufacturer-to-Consumer (M2C) approach and short supply chain allows the company to quickly go from the latest consumer insights to manufacturers to create products and achieve go-to-market in a few months.

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Xiaomi Flagship Store in Shanghai

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Xiaomi Flagship Store in Shanghai

Arguably, Taobao Xinxuan could be considered a clone of the M2C ecommerce platform launched by Chinese gaming company NetEase called Yanxuan. Since its release in 2016, Yanxuan has seen rapid growth in a unique vertical that avoids direct competition with Alibaba and JD.com.

The Yanxuan model can be described as an ODM (Original Design Manufacturer) model as well. By going directly to Chinese manufacturers creating products for established global brands, NetEase is able to get the same quality while selling at a much lower price by skipping over distributors.

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NetEase’s Yanxuan website

By targeting young, mainly urban consumers who value quality and design but are also price sensitive, Yanxuan has been able to achieve rapid growth in the Chinese ecommerce space. The company reached a monthly GMV (gross merchandise volume) of RMB 60 million (about US$9 million) by Q3 2016, only a few months after its initial launch. This allowed Yanxuan to break into the list of top 10 Chinese ecommerce platforms based on GMV.

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Yanxuan Home & Living Category

Alibaba’s New Trojan Horse?

For a business to execute the M2C model well, it needs to understand what consumers want and then act on it swiftly. Considered the pioneer in M2C in China, Xiaomi is well known for asking its users directly what they’d like to see in terms of new features and products.

Another company that knows what its users want is – surprise, surprise – Alibaba. Being the largest ecommerce company in China, Alibaba has extensive data on what brands and products people are buying and when and where. This doesn’t even include the additional data it gathers through its other businesses Ant Financial, Ali Health, and its offline Hema supermarkets and ‘New Retail’ initiatives.

Alibaba’s US counterpart Amazon hasn’t shied-away from using its data to introduce its own private label brands to compete directly with the other brands selling on its platform.

“The company now has roughly 100 private label brands for sale on its huge online marketplace, of which more than five dozen have been introduced in the past year alone. But few of those are sold under the Amazon brand. Instead, they have been given a variety of anodyne, disposable names like Spotted Zebra (kids clothes), Good Brief (men’s underwear), Wag (dog food) and Rivet (home furnishings).”

New York Times, ‘How Amazon Steers Shoppers to Its Own Products’

And this move by Amazon isn’t a small pilot project. Amazon private labels have a large impact on revenue:

“The results were stunning. In just a few years, AmazonBasics had grabbed nearly a third of the online market for batteries, outselling both Energizer and Duracell on its site.”

Amazon’s home court advantage gives it a leg up versus other brands:

“Take word searches. About 70 percent of the word searches done on Amazon’s search browser are for generic goods. That means consumers are typing in “men’s underwear” or “running shoes” rather than asking, specifically, for Hanes or Nike.

For Amazon, those word searches by consumers allow it to put its private-label products in front of the consumer and make sure they appear quickly. In addition, Amazon has the emails of the consumers who performed searches on its site and can email them directly or use pop-up ads on other websites to direct those consumers back to Amazon’s marketplace.”

Alibaba has been flying under the radar with regards to any private label initiatives, and for good reason. Unlike Amazon, which started out as a retailer buying and selling products, Alibaba’s Taobao and Tmall properties are pure marketplace plays from the beginning. Because Alibaba’s main goal is helping connect merchants and buyers via its platforms, a neutral stance is essential to the platform’s success.

It’s not surprising then that Alibaba decided to launch Xinxuan as ‘Taobao Xinxuan’ rather than ‘Tmall Xinxuan’. Originally a part of Taobao, Tmall spun off to provide a more premium B2B2C marketplace for authentic brands to sell their products online. Mixing in Xinxuan’s private label products would only upset brands competing in similar product categories.

Lazada’s LazMall a stepping stone towards introducing Lazada private label in Southeast Asia?

Last week, Lazada officially launched LazMall, its Southeast Asian version of Tmall. It’s a move towards splitting Lazada (‘b-to-C’) and LazMall (‘B-to-c’) and aims to offer a premium place for big brands to sell online, away from the grey market sellers on the platform.

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From the outside, this looks like an obvious move against JD, known to offer a better customer experience according to our recent Indonesia online marketplace survey.

However, seeing Alibaba’s new concept in China with Taobao Xinxuan, it’s not far-fetched the LazMall spin-off will lead to Lazada M2C private label brands in the near future.

The Chinese ecommerce market, being about 10 years ahead of the Southeast Asian one, acts like a crystal ball for brands operating in our region. Battle-tested brands with operations in China know better to diversify their channels before putting all their eggs into a single basket.

Southeast Asian-native brands are recommended to shake off their naivety and learn from China’s history.

Monogamy in ecommerce does not lead to happiness.

To build or not to build?

This is the question many retailers around the world are struggling to answer. In the US, the answer is pretty evident.

A 31% increase in 2017 retail bankruptcies from 2016 and an estimate from Credit Suisse claiming that as many as 25% of America’s malls will shut down by 2022 all point to no.

Source: Credit Suisse

It’s the “Amazon Effect”, analysts say, the shift of spending from offline channels to online ones as young people become more accustomed to ‘online-only’ retail. No money in means brick & mortar stores are bleeding out trying to operate labor intensive businesses.

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Source: FT

Meanwhile, news overseas is quite disparate.

The country’s largest retailers and department stores like Tesco Lotus, Robinsons, and HomePro are all planning to open new stores in the next five months. Big C SuperCenter has allocated roughly $351.5 million for store expansion locally and abroad this year.

Online or offline: what’s the right way to go?

Although the rise of ecommerce has been a major contributing factor to the demise of traditional retail; the brick and mortar store is not dead as most claim.

Ecommerce only accounts for a single digit percentage in overall retail sales in Southeast Asia and ‘mall culture’ is not seen as a chore but as a weekend excursion, especially with malls adding new exhibitions such as Central Embassy’s recent interactive art display, “The Beach”, in Bangkok.

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Credit: adaymagazine

“Considering rapidly changing consumer behaviour, we may create shopping mall concepts that fit such changes. We want our complexes to become a third home for customers,” says Pakorn Parthanapat, COO of Central Pattana (CPN), a development arm of Central Group.

As well, there will always exist a large population that requires to see, feel and touch a product before making any purchase decision – a problem that many pure players retailers can only ‘solve’ by burning up cash.

Retailers understand these concepts, which is why the smarts ones with existing offline and online footprints are using it to their advantage.

The answer isn’t to label brick & mortar as a dying breed but instead businesses must become more deliberate with how many stores, what to offer in each and their locations.

Uniqlo is closing down stores in the US to only build others in premium locations.

In Thailand, HomePro’s new stores are testing its “HomePro S” concept, a shop that occupies only a sixth of its original store and in locations where young people frequent.

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Source: Marketeer

As well, Makro is opening one medium and three small sized cash and carry stores.

[cash and carry]: “Cash-and-carry” refers to a business model that virtually excludes all credit transactions, requiring up-front payment for all goods and services. Companies with a cash-and-carry business model eliminate accounts receivable from their books and are able to match all sales with actual cash receipts.

JD.com Inc., China’s second largest ecommerce company is also expanding into both urban and rural China with over 1 million JD convenience stores in the next five years.

Jason Yu, GM of consumer research firm Kantar Worldpanel comments, “it is more challenging to grow purely in ecommerce, so both Alibaba and JD move into offline business.”

Ecommerce is not the ‘end all’ solution to today’s retail evolution, but the trend appears to be that pure play companies – Pomelo, Xiaomi – are the ones that have a say in whether to open more offline locations or not, whereas traditional retailers are scrambling to go online in order to save their businesses.

Multi-channel is the inevitable future.

Kick start your Monday morning with these headlines you should know.

1. Xiaomi begins manufacturing in Indonesia

Amid a global decline in sales, Xiaomi has seen recent success in India and it is determined to remain a key player in Indonesia’s smartphone market, which remains one of the largest in the world.

Since January, foreign smartphone makers must prove that 4G LTE phones sold in Indonesia are made up of least 30% “local content.” Assembly, packaging, design, and even software and R&D investments factor into that number.

Read the rest of the story here.

 

2. Thailand’s T2P wants to improve mobile payments in Burma

Earlier this week, T2P signed a joint venture deal with City Mart Holdings Co.,Ltd, a leading Myanmar retail chain with over 200 outlets across the nation, which includes fast food restaurants, bookstores and supermarkets. The joint venture will see T2P integrate its suite of fintech offerings including its payment platform, loyalty and e-gift platforms, as well as e-wallets.

Fact of the day: mobile penetration in Myanmar has reached 90%. 80% of users own smartphones.

Read the rest of the story here.

 

3. More pure-play retailers go offline: Hong Kong’s SmartBuyGlasses launches store

The brand has been purely online for 10 years prior to the launch in Kennedy Town.

Co-founder David Menning said, “the decision to branch out into brick-and-mortar stores reflects the wider industry omnichannel trend, which involves brands and businesses linking their online and offline strategies in order to provide a truly comprehensive customer experience across all touch points.”

Read the rest of the story here.

 

For more on the omnichannel retail strategy, check out Pomelo co-founder’s David Jou’s insights here.

The rapid growth and heavy usage habits of Indonesia’s smartphone users have made the market one of the most closely-watched in the world.

A July 2016 study by Asian research firm DI Marketing into the habits of smartphone users by age helps illustrate some of the distinctions when it comes to the country’s device ownership and usage habits.

Indonesian Smartphone Habits by Age

Source: eMarketer

Best takeaways from DI Marketing report

  • Consumers between the ages of 26 and 30 tended to prefer more expensive Korean-made devices, with 31% of respondents in the age group mentioning they owned a Samsung smartphone.

Those under 25 preferred handsets from Chinese manufacturers like Xiaomi. 

  • Nearly 20% of smartphone owners in Indonesia have two or three smartphones.
  • Many from the study’s older age groups own multiple smartphones, with 26% of those between 26 and 30 and 30% of those over 30 owning two or three devices.
  • Younger users tended to prefer activities like playing games, listening to music and watching videos, while those 26 or older tended to like smartphone activities like taking photos and checking email.

The report gives insight in regards to what the coming generation is interested in and how to best connect with them. Mobile commerce has become an area of emphasis for many online companies, especially after witnessing the Pokémon Go craze.

A version of this appeared in eMarketer on July 19. Find the full version here