The Change and Innovation of Retailing

Beijing Wangfujing Department Store Group, the largest domestic retailing group concentrated on the development of retailing business held its 60th anniversary ceremony on 24 September 2015. Deloitte China was invited to share industry insights at the event with well known organizations and enterprises such as Beijing municipal commission of commerce China Chain Store and Franchise Association, Joy City, Baidu, Suning, etc. Zhao Jian, Partner of Consumer Products and Retail, Deloitte China, delivered a speech on the change and innovation of retailing. Mr. Zhao pointed out that retailers, especially department stores are facing severe challenges, and retailers should consider their own situations and utilize multiple innovation strategies.

Retail industry is facing challenges

Mr. Zhao talked about the recent research in the newly published report "China Power of Retailing 2015" (in Simplified Chinese only), statistics show that a total of 201 stores were closed by major national retail chains (department store, supermarket) in 2014, representing a YoY growth of 474.29% and a new record in history. Integration in the retail industry has picked up in speed where businesses seek to break through by mergers and acquisitions. At the same time, the rapid development in internet technology and logistics has fueled the continuous growth in the size and share of e-commerce market, and the entire retailing market is switching to omni-channel operations.

Mr. Zhao mentioned, department store industry's predicament is not only due to the impact of e-commerce, but also because of the increase in rents, labor costs, and the slowdown of overall economy. The internal reason is that product structure failed to meet the needs of consumers, and the core problem is the innovation of business model, platform, and customer experience.

How "Ten types of innovation" help retailers

Under the dilemma, how does enterprises innovate in their own situation? How to manage the model of innovation? Mr. Zhao shared some successful cases of department stores and introduced "Ten types of innovation" theory to the audience. This theory was based on the research result of Doblin, the innovation practice of Monitor Group. Mr. Zhao pointed out the innovation of retail industry should be the combination of ten basic types, not just focus on products. The ten types includes profit model, network, structure, processes, product performance, product system, service, channels, brand and customer engagement. In the combination of these ten types, enterprises can break through the bottleneck, reshape their profit model, and recreate value.

There are three types of transformation that enterprises should focus on, said Zhao Jian. The first one is the transformation of business model, which focus on the allocation of assets, capabilities and other factors on the value chain. The second is the transformation of the platform, which focus on the reuse and restructure of products and services or to discover new relationships and provide customers with new value. The third is the transformation of customer experience, that is to connect service and attract customers in a unique way, changing the way of interaction between customers and enterprises. The future development for retailers and department stores is to focus on the ten types of innovation in three aspects, and to grow from forerunner to leading retailer, and to the leader. This requires retailers to consider the technology of Internet and big data, as well as the transformation of the consumer society, and establish a full range of analysis model covering product design, supply chain, customer experience to give feasible scheme.