In Kun Qian’s view, the history of China’s retail industry in the past 25 years is a history of channel changes.
On July 9th, 36 Kr & Retail Boss Internal Reference jointly held “2019 WISE Super Evolution – Retail Theme Summit”, featuring top investors, star startups, and industry elites in the consumer and retail sector, focusing on the rapid growth and sustainable development of Chinese retail enterprises, and insight into new variables and opportunities; pay attention to the top-tier enterprises leading the future development of the retail industry, trace their history from pioneers to leaders, and win the “reshuffle battle” of the retail industry together with the super evolution.
This macro trend can be divided into three eras: from 1995 to 2008, FMCG brands such as P&G and Unilever entered China and quickly occupied offline stores with the help of mature foreign product lines. From 2008 to 2015, the e-commerce business exploded, TaoBao and JD.com grew rapidly. Vertical e-commerce platforms such as Jumei.com, Vipshop, RED also harvested channel dividends. Since 2016, the retail industry has stepped into the era of omni-channel marketing.
N5Capital Partner Kun Qian
The consumption market has changed tremendously in recent years, and there have also been different exploration directions about consumption upgrade and the sinking of consumption channels. In Kun Qian’s view, the formation of consumption upgrade centers on two concepts, namely, consumers’ demand for low prices of products and the pursuit of high-quality products. In this process, the competition between retailers drives product price cuts and similar products compete with each other. At the same time, the new generation of products completely replaced existing products.
As the main consumer group, the consumption trend in recent years is also very obvious: the “immigration” from the PC side to the mobile end for people from 1985s, they pay more attention to practicality than interest and pay more attention to cost performance. The newly emerging post-1995s group has a different attitude. Since they have no economic pressure, easy to use is necessary but fun is more important. In addition, with the help of social media, the post-1995s generation has abundant access to information and the establishment of brand loyalty is also faced with new challenges.
Kun Qian further analyzed that the retail industry will evolve in four directions: First, unmanned retail will achieve terminal interception thanks to the cultivation of user habits by mobile payment, unmanned retail mode can quickly replicate and seize the end users; Second, the change and iteration of social scenes, pushing e-commerce to evolve into a new form, through the new modes of social circle, membership, subscription system, etc., users’ needs can be better satisfied; Third, the construction of flexible supply chain. In the era of Industry 4.0, flexible manufacturing is facilitated. In the past, large-scale industrial production mode will evolve into small batches or even single-piece flexible production mode. Fourth, online and offline omni-channels help build brands and maximize traffic to carry out omni-channel transactions.
The following is the full text of the speech:
Kun Qian: Recently I joined N5Capital. I have been an investor for 11 years. I have a lot of thoughts recently and want to share some conclusions with everyone.
From the perspective of time dimension, retail development in China in the past 25 years can be divided into three stages.
In the first stage, foreign platform like Unilever used CCTV advertising to sell goods offline. It was very simple and rough at that time. This way was quickly learned by private entrepreneurs in China. For a long time, CCTV5’s advertisements have basically been sports brands and men’s clothing advertisements of private entrepreneurs. At that time, retail consumption was relatively simple.
The second stage, entering 2008, when I heard that Taobao’s advertising revenue has reached 1 million RMB per day, they had a small celebration. At that time, the Internet, as a major sales channel, gradually entered the public’s attention, such as Taobao and JD.com. In 2009 and 2010, there was a wave of e-commerce entrepreneurship, and many companies appeared. Since 2010, I have spent two years seeing various e-commerce companies every day. There were many e-commerce startup companies, and some of them have become large companies. At that time, as an ordinary entrepreneur, if you want to do something big, you would build an e-commerce platform. Until now, if the idea isn’t so big and if you only want to build a branded company, you can just open stores on different e-commerce platforms. A fundamental change around 2014 is that the growth rate of new users of the e-commerce platform is less than the growth rate of the merchants thus business platforms formed diversions and various strategies emerged.
If we want to achieve great success by opening stores on the e-commerce platform today, the matter has become very difficult. After 2016, there appears the full-network marketing, which marks the 3rd stage. The new brands that got up on the Internet after 2016, the way they did it was to get initial traffic and word of mouth recognition through social media. After that, the e-commerce platform became a transaction platform. With the help of e-commerce platform, it is very easy for everyone to open a store online. The change in channels is actually caused by change in traffic. In China, where the supply of products is extremely abundant, whoever masters the traffic can sell good products.
Next, I will talk about products. In 2017, there was a slogan “consumption upgrade”. Later, there was a slogan “sinking in consumption” . There are two things that are unchanged for over a thousand years: First, consumer always wants the product to be cheap, and the cheap is in relative term, not the absolute price. For example, Apple has a new version iPhone. This year, Apple doesn’t sell well. Many people think that a mobile phone sells for more than 10,000 RMB is too expensive. Consumers have an anchoring indicator for product pricing, which is related to competition. If there are no such brands like Huawei, OPPO, and Xiaomi, Apple product’s price can still be very expensive, because there is only one good product in the market. The other term is consumption upgrade, which means if the product is unique, regardless of its function, appearance, channel, or the culture behind it, then the product has the basic attributes of consumption upgrade, which is 30% to 40% more expensive than ordinary products. For startup companies offering similar products compared to established companies, it is better for them to reduce the operating cost and improve the operating efficiency by 10% to 20%.
The third change is the change of the population.
Nowadays, many young people like to express themselves. Web celebrities on RED, Weibo or Douyin are mostly young people. The people who are posting on social media today are very young. Thus, should we promote young people? Not necessarily. One reason is that the post-90s are poorer than the post-85s. And young people have a wide range of information sources, which means they get too much information, and these users don’t have too much loyalty on spending.
After a comprehensive comparison of mature people, we find that their consumption is loyal. For example, if you want to sell vegetables, is it better to target 30-year-old white-collar worker or 50-year-old uncle? If you can catch the attention of people like uncle or aunt, they will bring a lot of repurchases. However, young people who buy vegetables from JD today may choose to buy fresh vegetable from another platform tomorrow. Thus when we evaluate investment projects, we pay more attention to customer base.
What is the result of the changes in the crowd? The bottom line is that social media, especially short videos, have emerged in recent years. What are the best sellers on Taobao in 2018? Beauty makeup and lipstick are the best sellers, and the year-over-year growth far exceeded our expectations. Many people told me that is because of the emerge of short videos, many people teach others how to do makeup on the Internet. People watching short videos are young as few old aunts over 45 years old watch short video on the Internet. The overall consumption base has become larger, so the market for selling cosmetics and makeup has expanded many times than before. As for now, a lot of purchase are driven by social media. Whether we sell things online or offline, it is indispensable to pay attention to the impact of the media. However, social media also have shortcomings. It is extremely unstable and its focus changes constantly. In 2018/2019, you can’t speculate on a shop or a new thing online for more than 12 months.
I have a friend who started a business for the third time and opened up a web celebrity restaurant. The operating of the first store was very good, but when he opened the fifth store, his first store’s business was very difficult as customers may not stick to it. Thus, the Internet is a double-edged sword. In this era, entrepreneurs in the consumer sector must pay attention to it.
What direction should we pay attention to in the next round of retail? I have written this slide of PPT in 2017, and it has not changed much so far.
In 2017, capital invested billions of dollars in unmanned retail, but it did not make a splash. This has happened in many industries. When capital pushes too hard to promote the development of a certain field, it has caused it to develop badly. Capital has a blind feeling and often overlooks the company’s refined operations. The hottest project in 2017 used to be unmanned shelves, but now it is nowhere to be found. Originally, unmanned shelves are valuable. However, too many people rushed into the industry who didn’t pay attention to quality or operations, which have led to the burning of money in the industry. In the entrepreneurs of the capital industry, one popular saying is “How do I burn my competitors with burning money?” Now in retrospect, the companies that survived were very focused on their own operations in addition to their strong financing capacity, and they were constantly optimizing. Having said that, unmanned retails itself is valuable and it is a direction that can be referenced.
The 2nd is a flexible supply chain for more flexible custom production. From the e-commerce era, 1,000 and 200 pieces of customized products can be ordered at a time. Now we have observed that one or two pieces can be produced in the clothing industry, but it does not increase the production cost of the products, because the thing is completely brought by intelligent manufacturing. Such cases are constantly evolving in many industries, making personalization possible. In addition, when the cost of user acquisition is not high, it is in line with the development trend of today’s social media.
The 3rd is the change in social scenes. Pinduoduo can become a listed company because there have been many changes in the places and products where people gather online and a large number of social relationships have been gathered. When young people are constantly using products, it is also when young people change their use of products that the transaction scenarios of retail and consumption will change correspondingly.
The 4th is more important. If you start a company today, it is difficult to only do online or offline business. You need both online and offline business. In the past, the transaction volume of Taobao or JD has reached trillions of dollars, which was developed within their systems, or incubated brand companies and content companies, etc. These companies are numerous, but there are fewer large companies. For eight years from 2011 to now, we find that their ceilings are very low, mainly because of those huge traffic entry platforms, distribution mechanism is constantly adjusted, hoping that more brand companies survive in the platform, rather than who is raised. Therefore, online companies or online entrepreneurship can grow fast in the early stage, but the threshold is relatively lower, rooted in the minds of consumers is to have offline experience. In the past two years, many Internet companies, including e-commerce platforms, have opened stores online, and offline stores will undergo great changes.
The earliest example is that we buy things and go to the mall to find what we want to buy. For example, I am a diamond user in JD. It is very easy for me to buy things. After I have made up my mind, I will go to the online mall for classification and place an order. But a user like my wife still goes to visit a variety of shops on the Internet. The same is true for offline retail business. A lot of changes are happening in offline retail – everyone is very focused on the shopping experience, on the basis of which many stores are constantly evolving. In the past two years, I have conducted in-depth research on the business districts of offline shopping malls and they are constantly changing –what kind of store it is, what kind of people it attracted, and what changes are important.
The last page of the PPT looks very complicated. It was done at the end of 2017. There are several companies listed above, all of which are listed in 2016 and 2017, a total of eight. They have one thing in common: the average establishment time is more than 10 years. We can see that the youngest one was established in 2008 and the company is called Juewei Food. The official website said that it was set up in 2005. It takes a long time for a consumer retail company from zero to IPO. Therefore, entrepreneurship and investment in this field must be patient. We must have persistence and meet the changes in several consumption cycles. Only by keeping up with changes in several cycles can we achieve large-scale development. The 2nd point is that there are 7 companies in the south of the Yangtze River. The only one in the north of the Yangtze River is Zhouheiya Food, but it is also 40 kilometers north of the Yangtze River. I summed it up roughly: the 1st is the brand gene is in the South; the 2nd is that since the south part of China is warmer, the consumption time cycle is longer and the transaction volume may be larger; the 3rd is that the supply of property resources in the south is relatively abundant. If we are entrepreneurial in the consumer sector, we must have patience and choose the right time to start.
The total management scale of N5Capital is 4 billion RMB, of which 50-60% is invested in the field of consumer science and technology. If any entrepreneurs present here have business ideas, please feel free to contact us.