China's Digital Lanscape and Rising Disruptors: Module 2.5 New Retail

1. OTSIKKO
ALAOTSIKKO, KUUKAUSI VUOSI
CHINA’S DIGITAL LANDSCAPE AND RISING DISRUPTORS
MODULE 2.5
NEW RETAIL

2. New Retail
SUMMARY
• Pioneered by Alibaba, “New Retail” describes a future retail model where both traditional physical
retailers and new pure-play online retailers will work together on the integration of online, offline,
logistics and data across a single value chain.
• It is more than just driving incremental sales through E-commerce and digital marketing. It is also not
about traditional physical retailers being disrupted by online retailers.
• It is about a fundamentally new structure for the future of commerce, which combines both digital and
physical infrastructure from the front line to back line, including marketplaces, payments, logistics,
cloud computing, big data and a host of other business and technology components.
• New Retail innovators are typically demand-driven and data-centric, with omni-channel presence,
innovative marketing approaches and diversified retail formats. They leverage technologies to uncover
potential customer needs, create new touch points, provide personalized customer experience, drive
new sales and traffic, and enhance back line business operations.
• C2B (consumer-to-business) model is at the core of New Retail, whereby consumers proactively and
constantly provide personal feedback and shape the demand signals to retailers.
• China is particularly relevant to New Retail given its massive retail market and complexity, whereas New
Retail innovations originated from China have the potential to be exported to the rest of the world
• Finnish companies can provide unique capabilities for traditional Chinese retailers to leapfrog in the
future era of New Retail
Team Finland Future Watch Report, June 20172

3. AUTHORS
Dr. Edward Tse
Founder and CEO
Team Finland Future Watch Report, June 20173
Mr. Bill Russo
Managing Director and Auto Practice Lead
Mr. Alan Chan
Senior Consultant

4. New Retail
TOPICS
Team Finland Future Watch Report, June 20174
1. WHAT IS NEW RETAIL?
2. CHINA’S INNOVATORS
3. FUTURE OPPORTUNITIES AND IMPLICATIONS FOR TEAM FINLAND

5. New Retail
Team Finland Future Watch Report, June 20175
WHAT IS NEW RETAIL?
Augmented Reality (AR)
Source: Alibaba; Gao Feng analysis
 In October 2016, Jack Ma coined the term
“New Retail”
Key Quotes:
 “Over the next 30 years, with computing power
as the new ‘technology breakthrough’ and data
as the new ‘natural resource’, the landscape of
retail, financial services, manufacturing and
entertainment will be transformed”
 “We are working to create the fundamental digital and physical infrastructure for the
future of commerce, which includes marketplaces, payments, logistics, cloud
computing, big data and a host of other fields”
 “The commerce infrastructure we have created in China can be applied on a global
scale to lift up small and medium businesses and ordinary consumers around the world”
 “With this transformation, Alibaba wants to serve 2 billion consumers and create 100
million jobs over next 20 years”

6. New Retail
Team Finland Future Watch Report, June 20176
FROM TRADITIONAL RETAIL TO NEW RETAIL
Source: Ogilvy Fashion, Desktop Research, Gao Feng analysis
Decline of traditional retail Pain points of traditional retail
 Low operational efficiency
 Low responsiveness to market changes
 Outdated operations practices and IT
systems
 Supply-demand imbalance between the top-
tier and the lower-tier cities
 A large proportion of Chinese rural
consumers are underserved
 Lack of frequent customer touch point
 Poor customer experience – inconvenience,
poor customer service, fake goods, etc.
New Retail is the integration of online, offline, logistics and data across a single value chain
with the goal of enhancing customer experience

7. New Retail
Team Finland Future Watch Report, June 20177
CONSUMER’S VALUE SHIFTS ARE DRIVING NEW RETAIL MODELS
Virtual Reality (VR)
Source: Gao Feng analysis
Digital economy
 Mobile payment
 Social E-commerce
 Cross-border E-commerce
 Sharing economy
 Digital entertainment
Consumer engagement
 Internet celebrities
 Fan social communities
 Data-driven
recommendations
 O2O, virtual-physical
integration
 Omni-channel marketing
Long-tail market
 “Her Economy”
 Parents and
children
 Elderly
Middle class
consumption upgrade
 Quality-driven
 Experience-driven
 Service-centric
Health consciousness
 Healthy diets
 Organic nutritional
supplements
 Natural daily necessities
 Smart health wearables
New Millennials
 Post 80s, Post 90s
 Subcultures
 Individualistic
 Diversity
 Global-minded

8. New Retail
Team Finland Future Watch Report, June 20178
CHINA’S ONLINE RETAIL MARKET HAS EXPERIENCED EXPLOSIVE GROWTH,
RAPIDLY LEAPFROGGING THE REST OF THE WORLD
Augmented Reality (AR)
Note: Online retail includes C2C and B2C E-commerce transactions
7.5
6.2
5.0
2.8
1.9
1.2
0.8
0
1
2
3
4
5
6
7
8
0%
10%
20%
30%
40%
50%
60%
70%
80%
2018E2017E2016E2015E
3.8
2014201320122011
Online retail sales (RMB Trillion)Growth Rate %
China Online Retail Sales
2011 – 2018, RMB Trillion
B2C E-commerce as % of retail sales by
country, 2002 - 2016
Key drivers: Large base of online population, increasingly digital-savvy consumers,
prevalence of technology enablers, and poor offline retail experience
%Tn RMB
Korea UK China USA Germany
Japan France Brazil
Source: Gao Feng analysis

9. New Retail
Team Finland Future Watch Report, June 20179
DIGITAL IS NOT JUST ABOUT E-COMMERCE; CHINESE CONSUMERS ARE
FULLY EMBRACING ALL KINDS OF DIGITAL PRODUCTS AND SERVICES
Source: Gao Feng analysis
10:00
Listen to podcast
10:30
Buy movie ticket online
11:00
Pay utility bills
12:00
Listen to music outdoor
22:00
Browse
WeChat moments
18:00
Play online games while
lining up for dinner
15:30
Take selfie and
share with friends
15:00
Exercise at home using
online fitness app
Weekend
08:00
Grab taxi to work
09:00
Get breakfast delivered
10:00
Video call on work
11:30
Browse lunch options
21:00
Watch latest TV series
on Smart TV
19:00
Get off work and
Ride Mobike to metro station
15:00
Use Starbucks app
to buy coffee
13:30
Online cross-border
shopping during lunch break
Weekday

10. New Retail
Team Finland Future Watch Report, June 201710
NEW TECHNOLOGY ENABLERS ARE ACCELERATING NEW RETAIL MODELS
Augmented Reality
(AR)
Source: Gao Feng analysis
 Online social credit system that
assesses comprehensive
consumer online behavioral
and demographics data
Cloud
Computing
Smart
Supply Chain
Management
Fintech
Consumer
Big Data
Live-
streaming,
social
community
and VR
Artificial
Intelligence
 AI-enabled recommendation engine and
personalized search
 Personalized interface and targeted ads
 Chat bot for customer services
 Live-streaming, KOL-driven social
community and virtual reality for
immersive and interactive shopping
experience
 A technology-enabled supply chain network of
merchants, vendors, delivery, logistics, warehousing
and other infrastructure companies
 Advanced elastic computing, real-
time data processing and hybrid-
cloud architecture to support the
enormous volume of online traffic
and transactions during online
shopping festivals
Technology
Enablers Secure mobile
payment
 Face recognition-
empowered payment

11. New Retail
Team Finland Future Watch Report, June 201711
IN PARTICULAR, BIG DATA AND ARTIFICIAL INTELLIGENCE HAVE
REVOLUTIONIZED TRADITIONAL CUSTOMER SEGMENTATION
Augmented Reality (AR)
15 years ago Now
Or
Now
“Segment of One”
Source: Gao Feng analysis

12. New Retail
Team Finland Future Watch Report, June 201712
DIGITAL CREATES NEW TOUCH POINTS FOR RETAILERS TO REACH AND
ENGAGE WITH CURRENT AND POTENTIAL CUSTOMERS
Augmented Reality
(AR)
LevelofI
interaction
Awareness Desire
 TV/out-of-
home ads
 Celebrity
endorsement
 Friend’s
recommendation
 Offline price
comparison
Digital shortens the distance between brands and customers, allowing more transparent
and interactive touch points for brands to engage with customers and collect customer data
B C
C B
Customer
Journey
Traditional Journey
Digital Journey
Source: Gao Feng analysis
Digital
Journey
Traditional
Journey
Transaction Services Referral
 Retail
 Supermarket
 Shopping malls
 Customer service
 Return service
 Satisfaction
survey
 Offline word of
mouth
 AI and deep
learning-based
big data
analytics
 Targeted push
notifications
 Celebrity’s
recommendation
 Fan community
 Online reviews
and ratings
 E-commerce
 WeChat stores
 Self-build
online stores
 Cross-border
E-commerce
 Personalized
services
 Real-time notification
of service updates
 User feedback
tracking
 Social media
 Social community

13. New Retail
Team Finland Future Watch Report, June 201713
A C2B CUSTOMER-CENTRIC BUSINESS MIND-SET IS NEEDED IN THE ERA OF
NEW RETAIL
Augmented Reality
(AR)
Source: Gao Feng analysis
Traditional Model：
B2C Product-centric Model
New Model：
C2B Customer-centric Model
Procurement
R&D
Manufacturing
Sales and
Marketing
Services
Users
Strategic Questions：
 What are the unmet needs and future demands of future customers?
 How to fully leverage digital to drive sales and marketing innovations?
 How to leverage technology to improve R&D and manufacturing?
 How to cope with the fast-changing competition?
 What are some potential game-
changing business models?
 How should organizations adapt for
New Retail model?
Not only existing
customers but
also potential
customers
Users become
brand advocators to
spread word of
mouth
Mass customization
based on actual and
potential demand
Users
participate in
new product
development Manufac
t-uringR&D
Services Sales
Market
-ingUser
s
Optimization of sales
channel and sales
model
Emphasis on
customer experience
rather than
mechanical CRM

14. New Retail
TOPICS
Team Finland Future Watch Report, June 201714
1. WHAT IS NEW RETAIL?
2. CHINA’S INNOVATORS
3. FUTURE OPPORTUNITIES AND IMPLICATIONS FOR TEAM FINLAND

15. New Retail
Team Finland Future Watch Report, June 201715
NEW RETAIL STRATEGY COVERS A WIDE SCOPE OF TRANSFORMATIVE
INNOVATIONS
Source: Gao Feng analysis
Customized personalization
Aftersales value-added services
E-commerce，
O2O
Offline retail
New Retail Strategy
Goals
Increase
sales & traffic
Enhance customer
experience
Discover new
customer needs
User big dataKOLs
Branding & value
propositions
Fan community
New shopping scenarios
Digital
Operations
Approach
Incremental
Disruption
Innovation
Low HighDigital Transformation
Physical IoT
TV/out-of-home
ads
Organizational
transformation
Smart supply
chain
C2B R&D, flexible production
Cultural
transformation
Corporate
ventures
Targeted online
ads
Marketing & Sales Customer Experience Org. Change
1 2 3 4 5

16. New Retail
Team Finland Future Watch Report, June 201716
INTERNET CELEBRITIES ARE RAPIDLY EMERGING AS INFLUENTIAL KEY
OPINION LEADERS, DRIVING NEW SALES AND CUSTOMER TRAFFIC
Source: Sina Weibo, TMTpost, Gao Feng analysis
Mr. Bags: Handbags-focused Internet celebrity
 Mr. Bags is a leading Chinese Internet celebrity
known for his knowledge in handbags
 With 3 million fans on Weibo, 100,000 views for
each WeChat post
 Collaborated with Givenchy in 2017 and
launched limited editions in Valentines Day
(sold out in 12 mins)
Xiaomi: Leveraging virtual celebrity to attract
animation fans
 Hatsune Miku is a famous Japanese virtual
character
 Xiaomi hired Hatsune Miku as brand
ambassador for its new phone models
 Limited editions of Xiaomi Note 4X and other
accessories
 750,000 likes on social media after 3 days of
launch
1

17. New Retail
Team Finland Future Watch Report, June 201717
LEVERAGING ONLINE COMMUNITIES, BRANDS ARE PIONEERING “SOCIAL
+ SHOPPING” O2O MODEL FOR BRANDING AND SOCIAL ENGAGEMENT
Source: Xiaohongshu, Sina News, Gao Feng analysis
Xiaohongshu: Online social communities
 Cross-border e-commerce, with social
community where users can provide their
opinions and recommendations, share their
experience on the products
 24M registered users after 3 years of launch.
1M product feedback and 20M likes per month
Lululemon: O2O community experience
 Canada-based yoga sports wear brand,
targeting yoga trainers and yoga
communities
 Offer free yoga and pilates training courses,
and outdoor yoga experience classes in
Beijing, Shanghai and Chengdu
2

18. New Retail
Team Finland Future Watch Report, June 201718
NEW CHANNELS SUCH AS VR AND LIVE STREAMING PLATFORMS CREATE
INNOVATIVE SHOPPING EXPERIENCE FOR NEW MILLENNIAL CUSTOMERS
Source: 36Kr, Gao Feng analysis
InnisFree: VR tech to attract new millenials
 InnisFree is a Korean cosmetics brand
 VR marketing campaign that allows customers
to virtually experience a romantic date with
Korean pop stars
 VR experience zone in Shanghai Disneyland
that allows customers to virtually experience
biking in Jeju tea garden
Maybelline : Celebrity live streaming
 Invited brand ambassador Angelababy to
participate in a Taobao live streaing
marketing event
 Audience can comment and interact with
Angelababy, with one-tap purchase option
 5M audience in the 2-hour live show, with
10,000 new products sold creating 1.4M
RMB sales
3

19. New Retail
Team Finland Future Watch Report, June 201719
E-RETAILERS ARE ALSO EXPANDING INTO OFFLINE RETAIL TO PROVIDE AN
INTEGRATED CUSTOMER EXPERIENCE AND DISCOVER NEW NEEDS
Source: TMTpost, Gao Feng analysis
MissCandy: Online brand expanding into
offline
 MissCandy is a water-based nail color
products brand, originally founded on Taobao
 Launched its first Tmall flagship store in 2016
and became No.1 top sales in the nail product
category
 Offline experience stores in Shanghai and
Hangzhou
Hema Fresh: New offline scenario for fresh
food e-commerce
 Invested by Alibaba
 A combination of traditional supermarket and
fresh food e-commerce
 Fully digitalized operations, with online APP
purchase, mobile payment, online membership
and smart supply chain operations
4

20. New Retail
Team Finland Future Watch Report, June 201720
EMBRACING DATA-DRIVEN DIGITAL OPERATIONS, INNOVATIVE BRANDS
ARE PIONEERING C2B NEW CUSTOMIZED PRODUCTS AND SERVICES
Source: 36Kr, Gao Feng analysis
5
Function of Beauty: Customized haircare
products
 A US-based start-up
 Building an online database of customer’s hair
profiles through survey and AI algorithm
 Customized production ingredients, fragrance
and color based on customer’s needs and
preferences
 Invested by Y Combinator and GGV Capital
Olay Skin Advisor: Deep learning algorithm for
personal skin management
 Visia Imaging System, an AI algorithm that
scans and analyzes wrinkles, pores and skin
textures
 Over 30 years of skin analysis data, developed
by bioinformatics and graphic analysis experts
 Personalized advice and product
recommendations

21. New Retail
Team Finland Future Watch Report, June 201721
TRADITIONAL BRANDS ARE BEGINNING TO COLLABORATE WITH DIGITAL
PLAYERS TO COLLECT DEEP USER INSIGHTS FOR TARGETED MARKETING
Augmented Reality (AR)
Source: Xueqiu, Sina News, Gao Feng analysis
Dayima
 A Chinese app for period
tracking and women health
management
 Daily active users: 5M
 USD 20M Series E funding
By-Health
 China-based company mainly
engaged in the research,
development, production and
distribution of nutritional supplements
 Listed in Shanghai Exchange A share
 Monetize its enormous pool of women’s
health data by providing customized
marketing channel for By-Health
 Provide data analytics solutions for By-
Health to perform targeted marketing
 Provide a more personalized
experience and extended product
portfolio for Dayima users
Benefits to Dayima
 Further promote By-Health’s brands
and products (e.g. MerryPlus) by
selling on Dayima’s online mall
 Gain hands-on consumer insights
from Dayima for product-market
testing and new product development
 Create synergy with other connected
health experiments
Benefits to By-Health
RMB 62M strategic investment in July 2015
5

22. New Retail
Team Finland Future Watch Report, June 201722
ALL IN ALL, CUSTOMER EXPERIENCE IS KEY IN NEW RETAIL
Source: Desktop research, Gao Feng analysis
Nike+ Run Club
organizes running
sessions and offers
training guidance
Xiaomi opens Xiaomi
Fans Club for
technical support
and its fans to gather
offline
Miss Candy opens
offline experience
store for customers to
try on over 200 nail-
polish products
DJI holds salon for
photographers and
film workers to
experience DJI
products

23. New Retail
TOPICS
Team Finland Future Watch Report, June 201723
1. WHAT IS NEW RETAIL?
2. CHINA’S INNOVATORS
3. FUTURE OPPORTUNITIES AND IMPLICATIONS FOR TEAM FINLAND

24. Transformation
Capabilities
Team Finland Future Watch Report, June 201724
FINNISH COMPANIES CAN OFFER UNIQUE CAPABILITIES FOR
TRADITIONAL CHINESE RETAILERS TO TRANSFORM INTO NEW RETAIL
PLAYERS
Source: Gao Feng analysis
Supply-side Opportunities
 Intelligent manufacturing systems for C2B
production
 3D printing
 Smart supply chain management
 Drone delivery
 Industrial product design
 Cross-border e-commerce for Nordic region
Demand-side Opportunities
 Retail and CRM data analytics
 Customer data security
 Product RFID tags
 In-store position tracking
 Human avatar and product 3d modeling
 Self-service kiosks
 Real-time personalized in-store advertising
based on CRM data
 Biometircs payment
 In-store robots
 VR/AR product display and marketing
 AI algorithm for personalized products
Traditional
Retail
New Retail