Retail Podcast 401: Michael Zakkour on New Models for Retail
Bob Phibbs interviewed Michael Zakkour, Founder of 5 New Digital and author of New Retail: Born in China, Going Global. In this episode Bob and Michael talked about new models for consumption and retail.
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Michael Zakkour on New Models for Retail
Bob: Thanks for joining me today on the podcast. My guest is Michael Zakkour. He is the author of New Retail: Born in China, Going Global, and he's the founder of 5 New Digital. Welcome.
Michael: Thank you, Bob. It's good to be here.
Bob: So I heard you at NRF Week a couple of weeks ago, and you changed the whole way I think about retail because on some levels people are saying there's a big retail apocalypse and it's all doomed and no one will ever go to a store.
And you said, “If you really want to know what's going on in retail, go over and spend a week in China.”
And I was wondering if that might be a great place for us to start. So why do you say that?
Michael: Yeah, so I am a big believer that not only are we not in a retail apocalypse, but we're in a retail Renaissance. And I think part of the issue is there's still an old tendency for people to use the word stores and retail interchangeably. I mean, a store is a physical environment where a retail transaction can take place, but that's really limiting if you think about with where technology has gone today and our ability to make, move, and sell products anywhere, anytime, anyplace, I'm of the opinion we're in a flowering of a new approach to retail and that there is somewhat of a store apocalypse going on, a boring, middle of the road, analog past its prime store apocalypse.
But that is not the same as a retail apocalypse. And we can start, you know, like you said, if you want to, kind of see where retail is flowering in its most colorful form and where I think the trend and the models are being laid for this global retail Renaissance, it really starts in China. China right now is, you know, in my opinion, probably three to four to five years ahead of most of the rest of the world. And yes, even in the West, in redefining what retail is. And it really started about four years ago, when the CEO of Ali Baba, Jack Ma, declared his intention to build something called the New Retail.
And the way he defined it, and the way we define it now is the complete integration of online, offline technology, logistics, and entertainment for an entirely new value chain for makers, sellers, and buyers.
Bob: That's kind of like a pretty audacious goal. That's like, we're going to take the world and put it under one bow.
I mean, that's kind of amazing. And you were able to give some examples of that, right, when you were in one of Alibaba's supermarkets? Is that actually, I want to take one step back. We'll get that in just a second. But what's fascinating to me is we're talking about a communist country. It's not a capitalist country and they're leading the way, and yet, you would think that the way would be led because the capitalist societies have, it would seem, have more to gain from it.
Michael: Yeah. So listen, China hasn't operated under a communist system for the last 35 years. Let's make no mistake, it's certainly a party state. Authoritarian political establishment, but it is by no means communist.
In fact, in many respects over the last 20 years, China has been out-capitalism-ing, I don't know if that's a word, but, the rest of the world. You know, there are places in China where you know, capitalism in its purest, rawest form, kind of makes us look tame by comparison. So, the other thing we have to realize is, Consumerism is, now a religion. It's a major part of Chinese life. And so my first book was actually called China Super Consumers, and that came out in 2014. And in that book, I documented the rise of what I call the most important consumer class since the post World War II American generation.
You know, if we look at it roughly, you know, in 1990 you were looking at about 75 million Chinese with significant disposable income, who participated in a consumer society. That number today is around 800 million. And so if we look at, you know, from a consumer perspective, China is the marketplace of the world, not just the factory of the world.
Bob: Which is why everybody wanted to go there. And then now they're starting to pull out because of a lot of unrest and different things. Of course, the health, we'll get to the health parts of, of China. But tell me what, what would I see if I walked into one of those Alibaba stores.
Michael: Yeah. So, you know, as you said, setting up a definition for the new retail was a somewhat audacious claim to make. Where we sit today, four years later, is the vision has been completely manifested. So it went from theory and ambition to manifest reality. And what Alibaba has done in leading the charge in that, is they have successfully integrated all online, offline, and technology elements for what we call unified commerce.
And so just before we get into an example, I think it's important for everyone to understand, you know, what is the context for this? And really what's happened in China and what I'm seeing around the world and what I'm helping my clients do, is go from a mentality of omnichannel to unified commerce.
Basically, omnichannel is a zombie concept. Companies who are still trying to figure out omnichannel are only putting themselves further behind the eight ball. And what we really have here is unified commerce, which is saying we don't think about channels anymore in retail, and we shouldn't even be thinking about the term e-commerce anymore.
Well, we should be thinking about our ecosystems and habitats. And so there are about seven companies around the world who are building these major commercial ecosystems, which have retail and consumption as their centerpieces. So if we look at Alibaba, we also look at China, jd.com and 10 cent. To a certain degree: Apple, Walmart, Target.
What these companies are doing is building that ecosystem over those elements that I talked about and what the result is a new model for consumption and a new model for retail. That's what the new retail is. And so the, the most striking thing about the new retail, as it is practiced by Alibaba, JD,10 cent and Amazon, was the rediscovery about four years ago that physical stores, physical environments matter. It was counterintuitive to the narrative. For 20 years we talked about bricks versus clicks and who would win with the clicks, put the bricks out of business, and what really blew up was the rediscovery that, you know, even in the U.S. in a best case scenario, by 2025 75% of all purchases are going to be made in a physical environment and in China they're a little bit ahead. Right now, about 40% of all purchases are made in a digital environment, but that doesn't matter. In unified commerce, you're saying we don't care where the sale is made, where the lead is generated, where the discovery is done, where the showrooming is done, it's all in one bowl.
Bob: So Michael is talking about, and where he's headed, is bringing out that with no channel, that means there's one shopping basket, which means it's going to not be one just for Instagram.
And one's for Facebook and one's for our website and our catalog and our in store. And none of them talk to each other. Where it's that unified one basket. And why is that so important, Michael, that one basket idea, that unified commerce?
Michael: For one reason and one reason only: consumers in China and around the world have one overriding demand today, which is spoil me or else. Spoil me or else I will go somewhere else and find somebody who does, and the keys to spoiling the consumer and the new retail are what we call the four C’s.
And that is giving the customer convenience, customization, making them central to everything that you do and allowing them to participate in contribution to who and what you are. Those are the four C’s. Okay? And you deliver those through the four U’s: unified commerce, unified marketing, unified technology, and unified supply chain.
Bob: Sounds easy.
Michael: It’s not easy, but it's certainly not as hard as it sounds on the surface. So let's look at, you know, how Alibaba has done this. Alibaba today has about 750 million monthly users, so two and a half times the U.S. population, shop in one or another of Alibaba’s habitats in their ecosystem every month and all of those consumers have a single ID, and they have an app, and they have payments all in one app, and that allows them, whether they're in a physical store, whether they're in one of the online stores on Tmall or Timo Global, whether they're in the Fresh Hippo supermarket or a Suning electronic store, they are being delivered one single experience, and it's a seamless ride back and forth between the screen and the green.
All right. So essentially what Alibaba's successfully done is, if you look at where they've put most of their money over the last five years, again, counter-intuitively, most of their investments have gone into physical retail environments. So they invested in the Intime department store chain, they've invested in a street level, wine and spirits chain called 1919, they have invested in Suning, which is China's largest consumer electronics chain, and on, and on, and on and on. And so what they've done is they've gone in and they've created smart stores. And so they've digitized the physical environment itself and completely integrated it with all of their digital and online presence.
So this is, and this is an important point, Bob, the difference between eCommerce and digital commerce, and digital retail is that eCommerce is simply a destination for information and transactions. Digital commerce is the digitization of the entire make, move, sell, buy process in retail. And so what they've successfully done, is they've digitized the physical environment and using unified commerce in one basket and one ID integrated it with all of their online properties.
That's really the key. So if we take, for example, I think that the best example in the world of new retail, it, you know, really making an impact is what we call, Fresh Hippo, used to be called Hema. They changed the name to Fresh Hippo. And this is Alibaba's on the surface, modern supermarket and grocery, and this is the battleground, and this is the environment they chose to show the power of new retail.
And by the way, on a side note, it's not a coincidence that Amazon, Alibaba, Walmart. Target and JD and 10 cent have all made major investments in food and beverage as the tip of the spear in their new retail environment and their new retail models, right?
Bob: Well, part of that is if I know what's in the basket, I know who's in the house and I know how healthy they are, and how much money they have, so I can also know their spending patterns. Insurance, banking. There's a lot you gleaned, right? And so data super center.
Michael: Yeah. So you walk into a Hemas store and the first thing you're going to notice is before you get into the store proper, there's a semicircle of businesses. These are service companies, so everything from hair and nails to travel agents, to fitness centers.
All these service companies have a desk or a kiosk or an actual physical environment that you can walk into - dry cleaning. Um, then you walk into the store proper, and at the very first glance, you're going to think I'm going to a really slick, modern grocery store, but you're just very quickly overwhelmed, by audio and visual stimulation, and your subconscious tells you no, there's something much more going on here. And the first thing you're gonna notice is, it's cashless, much of China has gone cashless. So your money is no good there. The second thing you're going to realize is all of the shopping is app based. And how does that work?
Every product in the store has a QR code. Every single one from a bundle of celery to pasta to snacks to my favorite part, the fresh fish market.
Bob: But QR codes are supposed to be dead, aren't QR codes a waste of time? I thought everybody moved right onto RFID. What's so great about QR codes, Michael?
Michael: So, the QR code was brought back from the dead, about 10 years ago in China, initially the QR code was a technology that was used at Japanese auto manufacturers, um, to help with efficient production. So you're moving, you know, headlights are here and they're QR coded and fenders over here and engines over there and the world.
Maybe this had some kind of commercial application, but it never really went anywhere. What China discovered was the QR code through this simple code, you could on unlock an encyclopedias worth of information simply using that code. And so not only in the purchase atmosphere, but the QR code runs everything in China.
Right? So the most ubiquitous symbol you're going to see in China is the QR code. They're everywhere. They are in stores, they are in restaurants, they are on the sides of bus stops. They're used for everything from ordering dinner, booking movie tickets. They're used for CRM. So the QR code in some ways actually is the grease that, wheels the Chinese economy.
Bob: And so in with the seafood, I interrupted you in the middle of your story, about one place you really liked was on the seafood.
Michael: Yeah. So you go into their little seafood section and well, little seafood section. It looks like you've just walked into the Boston aquarium. They've got every kind of fish, shellfish, literally hundreds of types of seafood.
And every single one of them has a QR code. Now, my favorite is Alaskan King crab. So they have a giant tank of Alaskan King crabs, and I can walk over there and scan the QR code on the King crabs, and all of a sudden my screen is going to fill up with, this is the Alaskan King crab. It was caught 250 miles off the coast of Nome, Alaska 49 hours ago.
Here's the boat that caught it. Here's the plant it went to, here's the plane it flew to China on, and here's how it came to our store. And by the way, you hear all of the safety certificates, certificates of authenticity. So in a sense, they're giving you the first thing, a block chain of authenticity and food safety.
Now I swipe left and it's gonna say this King crab goes very well with these clams and these vegetables and these side dishes. And you can find them over there, over there, over there, and over there in the store. And if I want them, I go over and I click those QR codes and it goes to my virtual basket. I swipe left again and somebody tells me, well, these wines and beers pair very well with this Alaskan King crab.
You can either choose something from our shelf here in this store or, and here's the key, seamlessly do one click to Tmall Global and pick the wine you want. We're not going to carry a thousand brands of wine in our store, but we have a thousand brands of wine on Tmall Global. Boom. I click the line I want, goes into my basket.
Bob: You still don't have a shopping cart, right? You're still not carrying one.
Michael: No, I'm just walking around. I'm just walking around with my phone. Very important. And so when I'm done, it's then gonna ask me a little, how would you like your vegetables and your side dishes and your crab, you know, prepared for you and here are my choices.
I can actually have it now prepared there for the restaurant in this store. So I click prepare and they're going to take all that food fresh. They're going to make it for me, and they're going to have it on my table in the in store restaurant in 20 minutes. Or I can say, "I'd like it all bagged and waiting for me at the exit."
Great. How do they do that? Another thing you'll notice in the store is that there's a hole in the ground and from that conveyor belt and the conveyor belt has hooks with bags on it, and those bags fly around the entire length of the store and your food gets dropped into those bags on the conveyor belt so that it's waiting for you when you walk out.
Or I can say, "I'm going to shop in the mall for the next three hours. Please have this at my doorstep at 4 pm." Appointment delivery. Or finally, I can tell them I'm having a dinner party on Friday, I need to start cooking by five, have it to my house at 3 pm on Friday. Done. So when we talk about ...
Bob: Where else do you get that in the world?
Michael: Nowhere. So again, now think about what we're talking about here, right. Unified logistics, all of their logistics. Say you can have it now, three hours, this evening, or on Friday, and they have the logistics system to pull that in place. Okay, so now I'm done shopping. I've decided I want it now.
I want to take it home, but here's what's also cool. They have guys walking around the store with carts of whiskey selections and fresh beer on tap, and they have wine vending machines and they have entertainment, and you can continue shopping. And if you're being entertained by something on the screen, they're going to say, well, this video was shot on a Panasonic 450.
And guess what? Suning is right next door. And if you want to, go pick one up. So what has happened is they've completely integrated the online, the offline, the experience with logistics, entertainment into one whole. Now, here's the really, really cool part. The kicker, each Hema, Fresh Hippo store has this five kilometer circle drawn around it, and this is called an ideal life zone.
And so what Alibaba, has done from the time you walk in and you see the service providers at the front, you experienced the physical retail in the store. It's connected to all of their websites, but it's also connected to the electronics store, the department store, the wine shop. And what you have in here is a completely unified commerce environment where all the services, products, and experiences you want are in that ideal life zone.
That is the new retail.
Bob: Wow. We should probably, we could probably just stop right there, Michael, and have everyone go like, "Oh my gosh, how are we ever going to get there for the rest of us?"
Right? Because what it sounds like they've done is kind of exploded the department store instead of it all being under one roof. Now it's going to be a town square idea that it's going to take up a bigger footprint and lock it all together.
Michael: Bob, on a department store, remember, they didn't knock down the in time department stores. What they did was gutted them and reimagined them for what kind of a habitat that department store should play in the greater ecosystem.
Bob: With that whole idea of being digital, not e-commerce and brick and mortar. Yeah, I like that. So, you know, Macy's just announced they've closed a hundred stores, they're going to over three years, and you know, other retailers in the States are having trouble. It seems that, it's a long way to get to what you're describing.
So do you think Alibaba is going to come here and buy up a Macy's and a Kroger and a Best Buy or something? Is that where we're all, is that going to become the new footprint or something that emerged from what they're doing?
Michael: No, I mean, right now, if we're just from an Alibaba point of view, they are, you know, their big push now is their globalization effort.
But the U.S. falls pretty far down the list of places to globalize at the moment. So what they've really done is they've already successfully taken in Southeast Asia through their acquisition of Lazada. So they added 400 million Southeast Asian consumers. They have another 600 million Chinese consumers from rural areas they want to concentrate on.
They're heavily invested in India. Their focus in the U.S. is more on the B2B side. And so they have relaunched alibaba.com, which was their original property that, you know, back in the early 2000s was a matchmaking service for Western buyers and Chinese factories. And they've relaunched it to be a global B2B hub.
You know, and this is funny about Alibaba, their mission statement isn't to be a great tech company or to be a great e-commerce company. From the beginning their motto was, and is to make it easy to do business anywhere. And so where they're really involved in the U.S. is, on cross border commerce, on B2B, on business services, and on logistics.
What is happening here is brands and retailers who are operating in China, are absorbing the lessons learned there and figuring out how to take these models, these attitudes, these technologies, these philosophies back to the U.S. market and how to implement them on a global basis. Now, you know, where do I fit in here?
I'm kind of a midwife in that process, right? So, you know, I've been working with brands and retailers on their China, APEC market, consumer and digital commerce strategy for 17 years and what I really started focusing a lot with these clients on now over the last three or four, is how to take that model and bring it here.
Now there's a lot of companies who are doing it on their own. A lot of companies need some help with doing that, but I think here's, here's the key. You're seeing it manifest itself already. So, Amazon, you know, kind of taking a page from the Alibaba playbook, and you know, now they've got five or six spokes that are reaching out into physical retail.
You know, if you look at last year, the CEO of Starbucks, said in public, "Look, we're taking what we learned in China. And we're bringing it back to the U.S." You know, implementing virtual reality and augmented reality into the stores. More of a pickup and convenience culture. And so you're really starting to see that model spread globally and, and we are also seeing is, there's a greater willingness, from what I've seen in my work, traditional brands and retailers who are now open minded enough to say, "Okay, maybe this unified commerce, there's something to this and how do we do it?"
Bob: That's great. That's cool. You know, two things I was going to bring up is, one, I bought something from Amazon the other day and for the first time on the left in the margin was this whole idea that you could choose what kind of businesses you bought it from.
So it had a woman-owned, minority-owned, LGBT. I'd never seen that until this week. And it was like, wow, what kind of choice are they giving us? And are we eventually going to say from blue state, from red state, from, I mean, you know, only if you control that. That digital platforms, Oh, well, can you do that?
Right. But imagine what that tells the consumer is you have a choice here, which is really kind of what everything you're talking about, it comes down to a, a new way of defining choice. Not do I want the red or blue one. It's a much more granular choice, I think.
Michael: Yeah. Yeah. And that's interesting cause you know, it certainly fits in a little bit with the customization narrative on the four C's, you know, obviously these are experimental ideas, you know, choice is great. Choice overload isn't, and you know, I think, um, retailers have to be careful about how they play that it's, you know, you want to provide that convenience and that choice but you also don't, don't want to send your, your consumers into paralysis by analysis.
So, you know, that's tricky. That's the fine line to walk for sure.
Bob: I would agree. And I wanted to, we've been really gracious with your time today. I do have one more question I want to ask you. And, you know, it's on the front page of every paper right now with the coronavirus and what that's going to do.
And, you know, on the one side you can say, well, it's just this one city, but as every day it seems to be growing. And, the idea that now it's on cruise ships and it's going worldwide, it has to impact companies that are doing business in China. It seems like, I think I heard you say that the real question is, after the lunar new year, how many people are going to go back to work?
Michael: Wasn't that kind of it? Yeah. So you know, the lunar new year vacation was scheduled for January 24th to roughly February 2 or 3. Um, it was mandated by the government that offices and factories stay closed until the 9th of February. So we're right up against that. Um, what I think is going to happen is this, I don't think we've reached the peak of the crisis yet, I think, you know, maybe two or three weeks from now, we're going to hit a peak of the crisis. And I believe once we reach that point, I think you're going to start to see some effective medication for the problem. I think it'll be contained, but there is going to be a lagging effect because there are factories that are not going to open this weekend or next week or the week after.
So I think the first impact is going to be on manufacturing and supply chain. You know, can U.S. retailers ensure that their products are getting made and shipped. You know, that's something we need to keep an eye on. I think also what we're seeing is it's definitely going to have a short term impact on brands, have great exposure to the Chinese consumer.
So I think one of the things that surfaced in this crisis is two things. One. Just how important the Chinese consumer is to global brands and retailers. And so we've already seen announcements from Estee Lauder, L'Oreal, Apple, Nike.
Bob: A lot of luxury companies. They're not coming to the U.S. either right now.
Michael: You know, they've all basically said, you know, "Hey guys, we're putting you on notice."
Our two Q and three Q numbers are going to take a hit because we've lost substantial sales in China. So that's number one. You know, these, these global brands, um, you know, the China super consumers and the China digital super consumers are crucial to the success of these companies. That's number one.
The other thing I think, number two, is that companies who, you know, rely on making things and moving things from China are going to be greatly affected. And, the overall outcome of this is going to be, I think the world really recognizing just how fully integrated Chinese economy, Chinese consumers and Chinese technology are to the U.S. and global economy.
You know, the old saying was what, you know, back in the day, when the U.S. sneezes the world caught a cold. Well, we can kind of reverse that here. China has let out a big sneeze, and the rest of the world has caught a big cold. But it definitely highlights how important China is. So I'll just finish with this, Bob.
You know, my working philosophy and the work I do for clients, and my thought leadership for the last 10 years has been based around the idea that we are in the midst of a digital industrial revolution, that that digital industrial revolution has created what we call the five new: new consumption, new retail, new technology, new finance, and new supply chain, and that the new retail and new consumption is the direct result of three disruptions.
The evolution of e-commerce to digital commerce, the new retail, the reemergence of China as a global power. And supply chain and logistics being the growth driver for the biggest companies in the world. And so what you've seen here is that manifestation through this crisis that emphasizes it, that is the fuel the world works on.
And that companies really have to accelerate. And especially retailers and brands, their entire attitude, operations and philosophy around making, moving, selling, and buying things in the five new and the digital industrial revolution.
Bob: And that's not a small order, that's for sure. My guest today has been Michael Zakkour with New Retail: Born in China, Going Global.
How can they find out more about you, Michael?
Michael: Go to Amazon to buy the book and I keep open lines. Anybody who wants to email me, I'm at Michael@5newdigital.com, you can follow me on Twitter at Michael Zakkour.
So drop me an email, follow me on Twitter, do a Google search and I'm happy to talk to anybody who wants to learn more.
Bob: Excellent. Well, thanks for joining us today, Michael. I appreciate it.
Michael: Thanks, Bob.
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