This story originally appeared on Forbes.com.
Six years ago, the writing was on the wall for brick-and-mortar retailers in China. Consumers were changing the way they shopped, increasingly turning to their mobile phones, and physical stores lacked the convenience and engagement offered by online marketplaces.
Xiaodong Chen, CEO of Chinese department-store chain Intime, chose to heed the signs.
In 2014, Intime agreed to a $629 million investment from Alibaba Group as the companies sought to merge the best aspects of online and offline commerce. Three years later, Alibaba purchased a majority share of the company and delisted it from the Hong Kong stock exchange for another $2.6 billion.
Now, Intime has 62 stores in 33 cities in China and leads the charge among brick-and-mortar operators in what’s being called New Retail. In partnership with Alibaba, Intime leverages cutting-edge technologies and consumer analytics to bring old modes of shopping into the future. And, Chen says, the company is far from done.
Coresight Research spoke to the CEO about Intime’s New Retail transformation and the many innovations that Intime is delivering to the market. Read our interview with Chen to find out more:
Take us back to 2012. What were the challenges for brick-and-mortar retailers in China then?
First, there was an oversupply of shopping malls. And, the supply chain was very inefficient in China. Most importantly, the demographics were changing—fast. For the first time, consumers were spending more than four hours on their phone every day. These three reasons combined put the retail industry under a lot of pressure.
All retailers, especially department stores like us, faced a long-term structural problem, which was how to better engage with consumers directly. As consumers spent more time on e-commerce, shopping in malls and department stores was no longer a must. The old model of a one-way broadcast to consumers no longer worked because consumers simply had too many options to choose from. Retailers needed to figure out how to create two-way interaction and transform how they engage with consumers.
What’s the main difference between your business before the Alibaba acquisition and now?
Now, everything is digital. Digital technology is the infrastructure of the whole operation. So, e-commerce is the operating system of our stores. E-commerce used to be just a sales channel, but now it underlies everything we do. It allows us to bring online and offline together into one comprehensive offering for both customers and suppliers. So, now it’s all one. That’s the basis of New Retail.
And sales are up as a result?
We couldn’t disclose those numbers, but I can tell you that prior to the Alibaba investment, we were already the leader in the domestic retail market. Now, we’re even better. Last year, foot traffic during the 11.11 Global Shopping Festival grew over 50% year-on-year. At one point we had 30,000 mobile devices in our stores at the same time. Everyone was on their phone browsing, paying, or looking for products. And the 12.12 shopping festival was even better. The International Women’s Day event in March was better than 12.12, and 6.18 in June was even better than that. One of the best results of the Intime-Alibaba partnership has been this increase in foot traffic.
What are some of the elements of New Retail that you’ve put in place to drive that growth?
Over the past few years, we’ve used Alibaba’s technology and infrastructure to innovate in a lot of different areas, from membership to payments to logistics. For example, we were the first department store chain to use Alipay in China. We were also the first department store chain to do e-commerce at scale.
There’s also the Intime mobile app, Miaojie. We designed it to solve two problems. One, in most physical stores, you can’t get detailed product information while you shop. And two, when you’re shopping online from home, you don’t get the experience of being in a store and seeing a product up close. That’s where we came up with the idea of integrating the best of both worlds.
With the app, though, you can scan the things you might want to buy, get all the information you could possibly need about them, plus get the benefit of touching them, feeling them, seeing how they work while you’re there. After customers have left, the app keeps them connected to new products, sales, even what celebrities are buying at Intime.
You see that mix of online and offline at work? It’s seamless. Increasingly, there’s no difference between the two. They become one channel. Again, that’s New Retail. Miaojie is not just a mobile app. It’s become the infrastructure for Intime to engage with consumers directly and digitize its operation.
One of the most interesting New Retail innovations happening in China, I think, is the use of stores as fulfillment centers. Does Intime do that too?
Yes. We have what we call an Order Processing Center. Orders go through the app and the OPC decides which store is closest to the delivery location, rather than shipping from a warehouse. Or, if customers want, they can pick up their order at the closest Intime. That way, when the package is delivered to you, it’s clean and not a dirty, beat-up one from the warehouse. We’re able to deliver orders within 10 km in two hours with this system. And we were the first department-store chain to offer this same-city, two-hour delivery.
In order for that to work, though, online and offline need to be perfectly synched up. So, we’ve fully integrated the inventory of the physical mall and the mall online. What you see on the phone is what you see in the store.
You are also experimenting with different New Retail services and experiences for your customers too. Tell us about those.
Sure. We are experimenting with pop-up stores, smart nurseries for moms, smart ladies’ rooms where you can use a “Magic Mirror” try on make-up virtually and get samples from vending machines, and there’s now a Tmall Service Center where you can book an appointment using your Tmall app to get your clothes tailored, your handbag cleaned or your watch fixed right in the store while you shop. These are all innovations to better serve our customers and enhance the shopping experience. But these don’t tell the whole New Retail story. New Retail is about understanding customer demands and using technology to meet them. It’s about using e-commerce, digital commerce, as the store operating system, having that support your physical stores and then using that digital upgrade to better serve customers.
What about membership? You talked about the importance of creating the two-way interaction. How do you achieve that?
Intime had its own membership system in the past, but it was very rudimentary and not digitized at all. Members usually signed up through text messages and it was difficult for us to continue to engage with them whether online or offline. In 2017, we started integrating the Intime membership system with that of Alibaba. Customers can easily choose to link their existing account with their Alibaba (Taobao or Tmall) membership. This means that Intime is now an integrated part of their complete shopping journey, which allows them to enjoy fully personalized services. Within 12 months, nearly 3 million members joined the digitized system through the linkage of Intime and Alibaba.
Talk about your paid membership program. You were the first in China to have one?
I’m a bit reluctant to talk about our membership program because competitors are always copying us. [Laughs.] But, yes, we have one, the INTIME365 Membership. And we were the first department store in China to offer one. Members pay 365 yuan ($54) and get a 10% discount all year long, with access to exclusive services and merchandise. For example, to celebrate the 20th anniversary of Intime, we took a select group of INTIME365 Members to Antarctica for a free three-week trip. Our approach is, if you’re profitable, you need to share some of that with your loyal customers. We reinvest RMB 1.5 billion every year into benefits for our paid members. That’s real money. And we do it because we want better services, faster delivery, better discounts. This best-in-class consumer experience is winning loyalty among our paid customers. And we know that’s true because their average spending and number of orders are more than twice of regular members.
You have successfully transformed Intime from a traditional brick-and-mortar mall operator to a technology-driven innovator. What’s your advice for other retailers in this fast-changing digital era?
Our success is deeply rooted in our company culture and our spirit to innovate. Take the introduction of INTIME365 Membership as an example. It was a difficult decision, but once we realized this was a good opportunity, our organization went all in. Changing the physical stores is just one aspect of the transformation. More importantly, you need to change people’s mindset. One way to do is to empower young employees to share their ideas, since they are the most familiar with young customers.
Another key learning is the importance of data-driven decision-making. Big data in the future will know you better than you know yourself. It can help you predict the best locations for physical stores, inform product selection based on your local customer base, and even tell manufacturers what they should be producing. For example, 30% of the inventory in the women apparel category quickly becomes obsolete due to fast-changing consumer preferences. In the future, data can solve this issue.
This transition to New Retail is obviously still playing out. How far along are you?
Jack Ma says it takes 12 years, and we’re two years in. I think too many people will overestimate what we can change in one or two years but underestimate the changes possible in a decade. A lot of people chase me every month, every quarter for updates, but it’s just not realistic.
Here’s an example: A supermarket has just 5,000 SKUs. A department store like Intime? 50 million SKUs— per season. And there are four seasons a year. Think about everything we need to do to digitize that. It’s a huge challenge, but we’re working to figure it out. We think the supply chain is the most important thing to work on.
Some people may doubt you can.
Well, it’s true that not everyone believes in New Retail. Our goal is to have 400 stores in five years, and a thousand in 10 years. We’re only at 60 right now. But it’s like Jack says, for most people, they need to see the future before they can believe such things are possible. But for us, we believe in the future and make it happen.
To learn more about new retail, see our Coresight Research reports Intime Retail—The Roadmap To New Retail with Alibaba and New Retail—The Key To Unlocking Pent Up Chinese Consumer Demand.