Global Consumer Insights Survey 2018 China Report

China’s next
retail disruption:
End-to-end value
chain digitisation

www.pwchk.com
 Foreword China’s retail market outlook
Source: PwC analysis
CAGR
Michael Cheng 2017 – 2021

Asia Pacific & Hong Kong/China 8.05 9%

Consumer Markets Leader 7.38
6.77
6.21
5.70
5.17

6.21 6%
5.87
5.52
Hardly any week goes by without news on the invention or adoption of new consumer technology, 5.18
4.85
videos of some internet celebrities (Wanghongs1) going viral on social media, or major 4.50
announcement by retailers to redefine customer experiences – this is the intensity and speed at
which China’s consumer landscape is evolving. 1.83 21%
1.25 1.51
0.67 0.86 1.03
In August of last year Amazon announced it was buying Whole Foods and, as many investment
2016 2017 2018 2019 2020 2021
analysts and retail leaders rushed to make sense of the deal, USD 11.6 billion2 was wiped off the
market value of other competitor grocery retailers in just under 24 hours. Those in the US may eCommerce retail sales (USD trillion) Offline retail sales (USD trillion)
have been left surprised by this move but that shouldn’t be the case. The strategy of internet giants
acquiring offline retailers was already happening in China. The future of global retail is happening
here now.
China’s eCommerce penetration by category
Sheer scale makes China a must play, must win market. China has eclipsed the US as the largest Source: Goldman Sachs, Euromonitor and PwC analysis
retail market in the world. China’s National Bureau of Statistics reported that for Q1 2018, total
retail sales of consumer goods reached USD 1,436.8 billion, up by 9.8 percent year-on-year3. In the Electronics and
60% appliances
US, the estimated quarterly retail sales for Q1 2018 was USD 1,306.7 billion, an increase of 4.5% 55%
55% Clothing and
year-on-year4. 51% shoes
49%
47%
China is also the world’s biggest eCommerce market with online sales in Q1 2018 reaching USD 43% 44%
307.4 billion, an increase of 35.4% year-on-year. In the US, online retail sales in Q1 2018 reached 40%
39%
USD 123.6 billion, an increase of 16.4% year-on-year. Singles’ Day continues to break records, with 35% 38% Beauty
33%
Gross Merchandise Value (GMV) increasing 39% to USD 25.2 billion in 2017, versus a combined 31%
30%
value of USD 11.6 billion for Black Friday and Cyber Monday in the US. Yes – scale makes the China 26%
opportunity strategically significant but it is retail innovation that truly puts it in a category of one. 23%
21%

1. Wanghongs, meaning internet celebrities, are Chinese key opinion leaders that have attracted
a large fan base through relying on social media. They typically monetise this fan base through 15% FMCG & grocery
12%
endorsements, brand sponsorships and also selling prdoucts via their own eCommerce stores. 10% 13% Luxury
7% 8%
2. Amazon’s new Whole Foods discounts wipe out nearly $12 billion in market value from grocery 6%
sellers, 24 Aug 2017, CNBC https://www.cnbc.com/2017/08/24/amazons-new-whole-foods-
11%
10%
discounts-wipe-out-10-billion-in-market-value-from-grocery-sellers.html 8%
6%
3. Total Retail Sales of Consumer Goods in March 2018, National Bureau of Statistics of China 5%
http://www.stats.gov.cn/english/PressRelease/201804/t20180419_1594992.html
4. Quarterly Retail E-commerce sales, 1st quarter 2018, The U.S. Census Bureau
2016 2017 2018 2019 2020 2021
https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

China’s next retail disruption: End-to-end value chain digitisation 2

In 2017 we first discussed this theme in our report “eCommerce in China
– the future is already here” which identified how digital had transformed
the front-office of retail: sales channels and marketing. It also revealed
that mobile commerce, secure platforms, and big data analytics, among
others, were becoming key investment areas for global retailers to thrive.
This shift from Digital Retail to “New Retail” is being characterised by data-
driven and customer centric approach, further enabled by digitalisation through
the entire value chain. As we saw with eCommerce, China’s internet giants are
the primary drivers of this trend pushing traditional retailers into a new period
of disruption through rapid capability building strategies via build, partner and
acquisition models.
As the world’s biggest and arguably most important consumer market, China is
now home to 784 million smartphone users and now social media, mPayments
and eCommerce are ubiquitous parts of the shoppers journey5.
PwC’s latest Global Consumer Insights Survey 2018 (“GCIS”) found that in
terms of shopping habits, 50% of Chinese consumers (compared to the global
average of 22%) buy products online weekly and 59% of them are likely to buy
grocery online (compared to global average of 21%). Chinese consumers are
also leaders in mobile payments as 86% of them have used mobile payments
to make purchases (compared to the global average of 24%) thereby creating
a near cashless society. Our research also finds that Chinese consumers
continue to be first movers at the forefront of new innovations: 44% would
consider a drone as a delivery method for a low value product versus 22%
globally.
This intense digital connectivity has led to proliferation of big data which is
being used to optimise how brands create compelling customer experiences
and also transform retail business models. On the consumer side, data driven
marketing has now become so common that it is changing expectations of
engagement. Our research found 67% of Chinese consumers expect retailers
5. PwC’s Entertainment and Media Outlook 2018
to have up-to-date information on them and personalise their experiences
accordingly, compared to 42% globally. We are also now seeing the
application of AI technologies that enable more effective targeting, however,
brands must be careful to strike the delicate balance needed to protect data
privacy, consumer trust and network security.
New retail is not just transforming consumer engagement but the entire value
chain. Retailers are building smarter, more flexible and multiple-purpose
supply chains capable of orchestrating inventory across online and offline
channels. Data is being used to make product development more demand-
based and also shorten time to market. Sourcing traceability, particularly
via blockchain, is also becoming increasingly important to enable greater
consumer trust.
E-commerce has disrupted retail and to stay competitive in the industry and
uphold the brand credibility, retailers could invest more in various channels to
enhance convenience, improve customer experience and strengthen personal
data protection. While retailers and brands identify business opportunities
through the data driven shopping habits and capture economic value through
data, it would also be wise to not lose sight of the core competencies of your
brand that maintain its competitive advantage. After all, complacency is a
recipe for being disrupted. Proactive focus on maintaining and building the
distinctive capabilities to deliver on the value proposition is a disruption-proof
winning strategy.
I strongly urge you to read this insightful report which explains the evolution
from Digital Retail to New Retail. For businesses already operating in China it
explains the ways to play in this rapidly changing consumer environment, and
for those looking at inspiration it offers a perspective of China as the future of
global retail innovation.
China’s next retail disruption: End-to-end value chain digitisation 3
 Content
1
5 – 15
Key growth trends in
China’s retail market
• Post 80s and 90s
shoppers
• Categories: Health,
premiumisation, lifestyle
and interactivity
• Urban clusters and
mega cities
3
2
27 Key takeaways
24 – 26
28 Contacts
16 – 23 What it takes to
Digital retail matures succeed in New Retail
into New Retail
• S-Curves of retail
innovation
• Digitisation of the
value chain
• Platforms and walled
gardens: online and
offline
China’s next retail disruption: End-to-end value chain digitisation 4
1
“
Key growth trends
in China’s retail

”
market
Looking beyond the macro headlines for
breakout growth
At the macro level China’s retail market is
forecast to grow at a compound annual growth
rate of 9% from 2017 to 2021, still robust but
slower than 12% from 2012 to 2016. Below these
macro figures significant growth opportunities
still exist. Here we explore the Post 80s and 90s
generations, products and services catering to the
trends of health, premiumisation, lifestyle and
experience, and key growth opportunities with
city clusters.

China’s next retail disruption: End-to-end value chain digitisation 5

I. Digging deeper to understand the
post 80s and 90s generations
Over the past 5 years a lot of emphasis has been placed on the Chinese
millennials. There are good reasons for this, with a population of
approximately 410m there are more millennials in China than the
entire population of North America. Almost every brand is looking to
target the Chinese millennials and as a result there is a fierce war for
a share of their attention and wallet. In order to engage consumers
we need to understand them. Typically we see three main challenges
with how brands or retailers are approaching this in China.
• Firstly, the term millennials – covering birth years of early
1980s to early 2000s – is a Western segmentation model and it is
important to take a localised approach which divides generations
by decade e.g. post 80s and 90s.
• Secondly, some companies are still focusing on the “digital
savviness” of the Chinese millennials, trends which are now
so pervasive that they have become truisms. While traditional
demographic segmentation methods could be useful in providing
directional insights and structuring quantitative market sizing,
they often fail to capture the underlying rational and emotive
motivations that really drive decision making.
• Thirdly, there is no such thing as “an average 28 year-old female
young professional”. Without the life and colours of personas,
it is very difficult for brands to practically design products and
services with the Chinese consumers’ needs and wants in mind.
To really understand the Chinese consumer businesses need to invest in
proprietary analysis that blends both traditional quantitative research
with qualitative insights. Brands are taking inspiration from the design-
thinking approaches pioneered by the internet companies and we
are now seeing a greater emphasis on techniques like: ethnography,
behavioural economics and gamified consumer testing. These
approaches help to gain a richer, fuller and more bespoke understanding
of consumer behaviour, desires and paint points.
Over the last 12 months, PwC has helped many brands in this way and
has interviewed more than 1,200 consumers from across all city tiers
and regions. For a global fashion retailer with over 150 stores in China,
PwC interviewed ~100 young female shoppers and identified their
demand for shopping experiences that are entertaining and practical,
beyond “just another in-store + digital app combination”. Based on the
insights, PwC designed a gamified community-based retail experience
that addresses directly the personas’ needs and wants, which made the
clients revisit their vision and assumptions.
Key growth trends in China’s retail market 6
We are increasingly seeing that viewing the Chinese shopper through
the lens of the Innovators (21% of consumers), Fast Followers (52%) What online media do you regularly use to find inspiration
and Laggards (27%) enables us to identify some of the most significant for your purchases?
differences in behaviour. Innovator personas are those that are the earliest Source: PwC’s Global Consumer Insights Survey 2018
to uncover new trends and take pride in inspiring those around them –
Innovator Fast Follower Laggard
typically the fast followers- through sharing on social platforms. Laggards
are those which are slow to adopt new fashions or technologies.

For example, Innovator personas are ferocious consumers, 41% expect to 53%
spend much more in the next 12 months (versus 18% average) and 23% Social networks
shopping on their mobile daily (versus 9%). They are also much more likely (e.g. WeChat, 57%
to use multiple digital platforms and formats to find inspiration for those Q zone, Sina Weibo)
purchases, with livestreaming and blogs particularly popular. 42%

31%
Visual social
networks
(e.g. Youku, Bilibili, 18%
Do you feel confident about your personal financial situation in terms Ingkee)
of your shopping spend plans for the next 12 months? 7%
Source: PwC’s Global Consumer Insights Survey 2018
30%
Don’t know
Multibrand websites
4% No, I am already holding back spend 44%
4% (e.g. Tmall, JD)
3% to see what happens
18% No, I expect to spend much less 30%
12%

31% No, I expect to spend slightly less

27%

Price comparison
32%
websites
39%
43% I expect to spend around the same 35%

“
24%
48%
Blogs 9%

41% 32% Yes, I expect to spend slightly more

3%
Innovators look for
inspiration across a wide
21%
14%
variety of social platforms
Individual retailer
5% Yes, I expect to spend much more 20%
websites
Innovators Fast Laggards 19% 19%
Followers

Key growth trends in China’s retail market 7

There is obviously no single
Innovator persona however,
our research finds them
within multiple demographic
segments or contexts. Here
are three examples of post
90s and 80s personas which
we see as being indicative
of the innovative modern
Chinese consumer.

JR and Sophia
The Wellness
Explorers
Ying
The Sassy
Modern
Mandy
New Mom
The Post-90s
Trend-setter
Key growth trends in China’s retail market 8
JR and Sophia

The Age
Monthly
27 and 28

disposable Both around RMB 16,000

Wellness income
Relationship
status
Both single

Explorers City
JR is originally from Xiamen and
currently living in Guangzhou,
Sophia is born and raised in
Guangzhou
“Help me understand Education College (in Tianjin and Beijing)
how I could live a JR works for an internet
advertising company and
healthier lifestyle Occupation
Sophia is a secretary at
and have more fun real estate agency
Running, outdoors,
training.” Interests healthy eating,
following sports
• Loves “learning through socialising” – actively
share experiences and learning from the workout
JR and Sophia met through their local groups and sports fan clubs they belong to
Persona
ASICS running group, and have been identifiers
• Follows and attends events hosted by gyms e.g.
training together with their close- SuperMonkey and Versus and sports brands to
workout in a social setting and learn about new
knit group of wellbeing-enthusiastic
wellness trends
friends.
• Live a well-balanced life and be a well-being role
Goals
model amongst their peer groups
• “Buys for a purpose” – it’s not just about the
Purchasing products, but also how the products fit into their
behavior lifestyle and their pursuits, supports sustainable
products and brands that are socially conscious
• Lack of more bespoke sports brands that fulfils their
Pain points
expectation of looking good while working out
• Sharing their experience with new fitness programs,
Moments
and their analysis of a China Super League soccer
of delight
game on Baidu forums and Dongqiudi.
• Highly values recommendations from fellow
Purchase
wellness enthusiasts in the running group based
decision
on their personal experiences
influencers
• Informative, educational brand-sponsored content

Key growth trends in China’s retail market 9

Ying

The Sassy Age

Monthly
29

disposable Household RMB24,000

Modern income
Relationship
status
Married with a new-born

New Mom City

“I believe I could have
it all – family, career,
Education
Born and raised in Shanghai
Studied marketing in Shanghai
Ying is a finance manager at
Occupation
a multi-national consumer
goods company, currently on
maternity leave

and friends” An avid organiser, enjoys

Ying is a young mom who just had
her first child. As dedicated as Ying
is to her son, Ying also makes sure
she leaves enough time for and
investment in herself.
organising playdates, family
outings, weekend trips to
nearby provinces for friends.
Interests
Teaching herself principles
of interior design in
preparation of renovating
their dream home.
• Family-first, but also cares about and
willing to invest in her own interests and
Persona
self-love
identifiers
• Quality conscious, willing to pay a premium
for the quality-guaranteed products
• Having it all – happy family, successful
Goals
career, and fun social life
• Connects with other young moms on
LaMaBang (辣妈帮) to follow useful
Purchasing threads on looking after a new born, and to
behavior receive tips and deals for baby products
• Casually browses Tmall and JD.com as
daily habits – opportunistic buyers
Pain points • Time-poor: lack of time to look after herself
• A family holiday in the Philippines that gave
her plenty of time of rest and stroll on the
Moments of beach
delight • Documenting the child’s infancy through
daily photos shared in the family WeChat
group
• Trusts her own decision making, but
Purchase
will reference reviews in mom groups
decision
(LaMaBang, BabyTree) when it comes to
influencers
baby products

Key growth trends in China’s retail market 10

Mandy
The Post-
90s Trend-
setter
“Fashion is a hobby
and passion”
Mandy is passionate about fashion.
She is a smart shopper and sees her
investment in style not only as a
way for her to express, but also to
establish herself as a trend setter
amongst her social circles.
Age
Monthly
disposable
20
RMB 6,000 (monthly allowance from
family)
income
Relationship
Single
status
City
Education
Originally from Beijing,
currently studying in Shenzhen
Studying in Beijing
Occupation Student
Online shopping, fashion,
Interests
music, food and weekend trips • Trend-setter amongst her friends, makes up
her own mind
Persona • Style lover, master of online clothing
identifiers shopping – knows every brand, merchant,
daigou that is available and has mastered
the art of buying limited edition items
• Establish her own style, build up a collection
Goals of signature items, and be seen as a trend
setter amongst her peers
• Uses daigou to purchase from brands
that are not available in China, and to buy
imported products (from Korea/the US/
Purchasing Europe) at the lowest price possible
behavior • Sells her own second-hand items (clothing,
handbags) on Xian Yu, and resells face
masks she bulk bought from Daigou to her
friends
• Finds it difficult to find unique pieces
Pain points on main online shopping destinations –
“everyone is wearing the same thing”
• Successfully buying a limited edition
Supreme suitcase after months of saving up
Moments of
and finding a family friend that could queue
delight up for her and purchase from the flagship
store
• Follows fashion influencers on WeChat
(e.g. Baoxiansheng, Becky Li) for styling
Purchase inspiration and to discover new brands.
decision
influencers • Browses Net-a-porter, Farfetch,
LaneCrawford, Xiaohong Shu (Little Red
Book) daily for fashion inspiration
Key growth trends in China’s retail market 11
II. Growth categories: premium, Compound Annual Growth Rate of various products and services in

health, lifestyle and interactivity China, 2016 – 2021

Source: PwC’s Entertainment and Media Outlook, Euromonitor

Many of these trends are similar to what brands Premium vs Mass Interactive vs traditional
and retailers have seen globally however, as is Premium beauty 14% Livestreaming 29%
often the case in China, the speed and relative and personal care
impact of the change is more dramatic. For Mass beauty and Traditional media
6% 5%
example, our Global Consumer Insights Survey personal care consumption
shows that during the last 12 months 52% Salon professional
of Chinese consumers have spent more on 9% E-sports sector 24%
hair care
experiences versus last year (e.g. travel, dinning Video games/
Shampoos 3% 6%
out and events) compared to 26% in the United Consouls
States. Within the “Experience Economy” we
Mobile / O2O
also see that while in the United States eating Premium jeans 5% 20%
advertising
out and travel dominate, Chinese consumers
have a much broader perspective. Similarly, Economy jeans 2% TV advertising 1%
culinary classes (40% versus 7%) and self-
improvement / education (34% versus 17%)
are priority areas that have relatively limited
demand in the United States.
Lifestyle vs Necessity Health vs Unhealthy
Fresh coffee 17% Sports nutrition 25%

Instant coffee 4% Carbonates 4%

Sports footwear 12% Fresh food 12%

Footwear 6% Ready meals 2%

Eating out 12% Air purifiers 12%

Grocery 7% Cooling 8%

Key growth trends in China’s retail market 12


These demand side shifts are having a
transformative impact on how retailers are
reinventing their overall customer value
proposition across merchandising portfolio,
format and environment. Below are some
of the key changes we see across grocery,
shopping malls and eCommerce.
Premiumisation
6. High-End malls in top cities are where the Chinese
go to buy luxury, offline, 5 Sep 2017, Jing Daily
https://jingdaily.com/malls-in-chinas-first-tier-cities-
are-where-offline-luxury-spending-really-happens/
7. Yonghui Superstores – the vanguard of China’s
grocery market, Nov 2017, Fung Business
Intelligence
https://www.fbicgroup.com/sites/default/files/New_
Retail_in_Action_issue10.pdf
8. Blackmores, Swisse and the battle of China’s
keyboard warriors, 3 Jan 2018, The Australian
Financial Review
http://www.afr.com/business/health/blackmores-
swisse-and-the-battle-of-the-keyboard-warriors-
20171214-h054ck
How retailers are transforming to cater to new consumer trends
Grocery
Clear shift to imported packaged food
and hard-to-find products with unique
flavours or attributes.
e.g. Ole’ is a new banner under the China
Resources Vanguard and targets white-collar
workers with high quality imported products.
Increasing fresh food assortments and
organic ranges as traffic drivers and value
proposition differentiation.
e.g. Yonghui, one of China’s best performing
grocers, generates 45% revenue from fresh
Health
food, highest amongst industry peers7.
Upgrading physical environments and
in-store ambience. New formats now
include: cooking stations, eating areas
and coffee shops.
e.g. 40% of Alibaba’s Hema supermarket
area is given over to cooking and dining
areas.
Lifestyle
Emergence of omni-channel grocery
(especially ship-from-store) and digital-
only retail innovations including: staffless
stores and manless shelves.
e.g. All of the products in Alibaba’s Hema
Interactivity
store can be activated with digital content or
added to basket. Estimated 50% of total sales
via eCommerce, 10x industry average.
Shopping Malls
Existing luxury malls in Tier 1 cities
and first mover high quality malls in
Tier 3 are some of the key archetypes
outperforming the sector.
e.g. Grand Gateway Shanghai Mall
undergoing a renovation and increasing the
luxury brand penetration rate to ~45% from
30%.6
Strengthening positioning as family
spaces by promoting clean air
environments.
e.g. Wanda worked with air purification
companies and keep shoppers up-to-date on
indoor air quality with digital screens.
Increasing tenancy area given to activities
like culture and art, cooking classes,
children’s care and theme parks and
other entertainment.
e.g. Commerce accounts for only 25% of the
470,000 sqm Nanning Wanda mall which
includes an interactive children’s park, a
movie theatre and an indoor pedestrian
street with a five star hotel.
Integrating “Experiential Retail”
technologies (e.g. VR, AR, facial
recognition) to offer unique interactive
experiences.
e.g. Guangzhou ZhengJia shopping mall
establish VR experience center with over
1,000 square meters.
Key growth trends in China’s retail market
eCommerce
Luxury brands are finally embracing
eCommerce as consumers become
comfortable buying premium goods
online.
e.g. JD is expanding its presence in the luxury
by launching Toplife with experiences that
include in-house fashion consultants and
premium delivery services with couriers
wearing suits and white gloves.
Health and nutrition product categories
and countries with associated provenance
(Australia and New Zealand) booming on
cross border eCommerce.
e.g. Blackmores, an Australian health
supplements company, saw direct sales to
China increase 71% 2016-178.
Content shifting from purely transactional
to blending social engagement, brand
storytelling and education, and lifestyle
aspirations.
e.g. Little Red Book acquired 60m+
registered users through building a social
commerce fashion site that helps consumers
discover new products and brands based on
in-depth customer reviews and high quality
imagery.
Retailtainment now firmly established
with interactive shopping festivals that
use emerging technologies like AR and
VR to enable consumers to interact with
celebrities and interact with games.
e.g. 11/11 gala show attracted over 400m
viewers – nearly 4 times the number of
viewers who watched Super Bowl.
13
III. Urban clusters and City clusters are separate regional economies with varying

mega cities of opportunity degrees of opportunity

Source: National Bureau of Statistics of China

Harbin-Changchun
In 2017, 800m people (58% of the population) lived in China key city clusters Harbin
cities10, numbers too large for practical (versus economic)
China’s cities – the largest urban population in the world. purposes. Secondly, China is a geographically large Changchun
Urbanisation has been a key macroeconomic trend fuelling and culturally diverse country with each region having
growth and many retailers and brands have responded by distinct consumption habits and preferences (similar Central-Southern of
developing go-to-market strategies through a city tier lens. to Europe), none of which are captured through a city Liaoning
For example, McDonald’s has over 2,5009 stores in China tier lens. As a result, we are seeing more focus on Beijing Shenyang
Beijing-Tianjin-Hebei
but differentiates the format by tier. Large premium stores strategies that view the China market through the lens
Tianjin
under the concept of “Future 2.0” are often in Tier 1 cities of city clusters – one through which opportunities are Shandong Peninsula
and include high-tech experiences including a self-order captured at the intersection of region and city tier. Yantai
machine with functions that include the ability to customise Shijiazhuang
PwC’s recent Chinese Cities of Opportunity 2018 Qingdao
flavor choices, while smaller and simpler formats are found report, jointly released by the China Development Central China
elsewhere. Likewise, Decathlon’s stores in Tier 1 cities are Research Foundation, identified 12 key clusters11 Luoyang Zhengzhou
Yangtze River Delta
Guanzhong Plain
typically 4,000 sqm and include experiential environments which represent ~80% of China’s GDP and will urban cluster Xian Nanjing
like a children’s playground area but lower tier stores are form the basis for future economic growth.
Hefei
Shanghai
Wuhan
smaller and simpler at 1,500 sqm. Here retailers and brands look to localise go-to-
Chengdu
Wuhan Wuhu Hangzhou
market strategies (typically channel, format,
Going forward developing effective strategies to capture merchandising and supply chain) at the Chongqing
Chengdu-Chongqing Nanchang
growth in lower tier cities will be increasingly important. cluster level which take into account more Economic Zone
Morgan Stanley estimates that between 2016 and 2030, specific economic opportunity and regional Changsha Fuzhou

92% of future consumption in China will come from Changsha-Zhuzhou-Xiangtan

infrastructure, competitive landscape and
Western Taiwan
outside Tier 1. In our experience, while city tier strategies consumer preferences. Straits Economic Zone
offer a practical lens through which to align resources Guangzhou
Shenzhen
with population size and wealth their simplicity can also Hong Kong
be a limitation. Firstly, while there are 4 Tier 1 cities there
are approximately 45 Tier 2 cities, 70 Tier 3 and 90 Tier 4 Pearl River Delta

City Tiers Retail Sales Growth (2016-17)

9. McDonald’s to double number of China restaurants, 8 Aug 2017, Financial Times
https://www.ft.com/content/ae5b2e96-7c1c-11e7-9108-edda0bcbc928 Tier 1 >10%
10. Top 15 ‘new first-tier’ cities in China, 15 May 2017, China Daily
Tier 2 7-10%
http://www.chinadaily.com.cn/business/2017top10/2017-05/15/content_29343927.htm
11. Yangtze River Delta, Pearl River Delta, Beijing-Tianjin-Hebei Region, Western Taiwan Straits Economic Zone, Shandong Peninsula, Tier 3 <7%
Central China, Wuhan, Changsha-Zhuzhou-Xiangtan Region, the Guanzhong Plain urban cluster, Chengdu-Chongqing Economic Zone,
the Central-Southern of Liaoning and Harbin-Changchun urban cluster. Bubble size indicates the % of National GDP

Key growth trends in China’s retail market 14

The food sector has been one of the first to adopt a cluster
approach. Taste preferences are highly dependent on
regionally defined cultures, and supply chains must be built
to maximise penetration and minimise wastage within store
clusters. For example, KFC offers spicy and chilli powder
when consumers purchase a burger in Sichuan whereas
in Guangdong province, herbal teas are provided to suit
regional tastes. Similarly, Youyou, a spicy snack brand,
sells sour flavouring in Eastern China, numbing sensations
Western China, and red oil in Chongqing Province. In
the fashion sector we also see brands introducing greater
flexibility in both merchandising and product development to
cater to distinct buying patterns in North and Southern China
as a result of distinct weather patterns and fashion trends.
In addition to urban clusters, China is also home to four influence they have on setting national, regional and global
mega cities: Beijing, Shanghai, Guangzhou and Shenzhen. trends. For example, Adidas’ revenue in Greater China grew
Mega cities are significant as symbols of the country they’re 29% year-on-year12, and sales in Shanghai during the first
located in but also for their significant economic and six months of 2017 were EUR 100m, more than Austria and
cultural influence at the regional, national and global level. Switzerland combined13.
Some brands are responding to this by putting mega cities
at the heart of their global go-to-market strategy. Here a
disproportionate focus of investment is put on a limited
number of cities with localised marketing, merchandising
and research and development. The aim is to more quickly
respond to shopper needs and build direct-to-consumer
engagement. Winning in these cities is seen to be significant
given both the direct opportunity size and also the

12. Adidas delivers strong operational and financial performance in 2017, 14 Mar 2018, Adidas Group
https://www.adidas-group.com/en/media/news-archive/press-releases/2018/adidas-delivers-strong-operational-and-financial-performance-2017/
13. Sporting goods manufacturer Adidas focuses its marketing on six major cities, 17 Aug 2017, ISPO.com
https://www.ispo.com/en/companies/id_79710992/new-marketing-strategy-adidas-is-focusing-on-chosen-cities.html Key growth trends in China’s retail market 15
 2
“ Digital retail
matures into

”
New Retail
Over the last 5 years China’s retail market has
experienced a digital growth miracle but its
impact has mostly been on the front office:
sales channels and marketing. We are now
entering a period of new retail which will be
far more transformation, digitising the entire
value chain.

Digital retail only

impacted the front office,
new retail will transform
the entire value chain Product Sourcing and
eCommerce Digital marketing Supply Chain
development production

Digital retail

China’s next retail disruption: End-to-end value chain digitisation 16

I. S-Curves of retail innovation
Over the last 5 years China’s retail market has experienced a digital growth miracle. Smartphones, social media,
mPayments and eCommerce have quickly become ubiquitous in most urban areas. The impact of these technologies on
consumer behavior has forced companies to change how they sell and market to shoppers. Yes, the digitisation of China’s
retail market has been dramatic but it has mostly been one of front-office transformation.

From where we sit today, these changes have felt like we are accelerating along a linear trajectory however, innovation is
an arc. The time between hot new trends turning into platitudes is collapsing and these experiences reflect where we sit
on the S-Curve14 of innovation. At 5 years old, digital may feel like a new trend but it is already reaching maturity. Mobile,
social and eCommerce are now reaching the top of their S-Curves and so too is digital retail.

mCommerce and mPayments are no longer trends, they are ubiquitous characteristics of retail in China The end of Digital Retail is the
Source: PwC’s Entertainment and Media Outlook and iResearch beginning of New Retail

Mobile commerce as % of Mpayment users % of

ecommerce smartphones

84% 85%
81% 83%
80% 81%
77% 79% 76%
73%

61% 55% The end of the

beginning
New retail

Performance
45%

33%
29% Digital retail

Where we’ve What’s next

been 14% Where we’ve What’s next
been Old retail

2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 Time

14. S-Curve is a measure on the speed of adoption of an innovation. It is often used in the technology industry to describe a product lifecycle.

Digital retail matures into New Retail 17

 PwC’s New Retail digitisation transformation framework

II. Digitisation of

Integrate physical
digital a
experie
the value chain

nd
analytic achine
Re

isa n a
nces
nd
d/imme
ta

n
tom ctio
il a

tio
We shouldn’t misinterpret the end of digital

cus produ
se

s
IoT and
retail to mean change will slow however,

nte

rsive
M taffl

ma dular
as one era matures so another emerges

an es

tain
s

ct
le s

du
ss sh
to replace it. This is new retail. Whereas

me

ss

ro
Mo
st elv

ilit in p
or e

nt
digital retail was mostly a front-office

es s

ab a
y
ce kch
an
domain new retail will be far more

tra loc
d
Om rce

B
transformative, impacting the end-to- ni-
cha me
end value chain. We see New Retail nn Sales Sourcing and l c om
el f ita ing
being characterised by 3 key areas: ulfi
lme channels production
B dig sourc
nt B2 co-
and
• genuine consumer-centric
Short fo
operating models; rm vide
o, housing
livestrea ted ware
m
consum ing and Automa cs
er partic oti
• digitisation and integration of ipation and rob
the entire retail value chain; Consumer
e AI dema
• and using data to enable ry of on nd plan
Catego n d Supply replenis ning an
ga hment d
smarter, faster decision targetin ation Marketing
chain
lis
making and business impact. persona

Su
and p
nt ation infr ply c
t e ast h
n
co timi
s ruc ain
tur
n a mic ve op es
i ha
Dy reat Product rin
g
I tion

c
AI development

U fflin
ni e
RO ibu

o
fie in
nd ttr

d ve
-e a

on n
to el

lin tor
d- nn

On pre-

e y
and
en ha

an
line lau
d i-c

d
Rapid p design
mo er
ls

digital/3
an ult

de
m

ma nch
M

develop n product
eat onsu

rke es
ion

t te
rototypin
c

D
co tner/

ment

stin
ve
-cr
r

g
Pa

Data dri

g and

Digital retail matures into New Retail 18

Sales: Channels become integrated,
formats more diverse
What interests you to shop during the major online shopping
festivals (e.g. 6.18 and double 11)?
Source: PwC’s Global Consumer Insights Survey 2018
Product price deductions
Exclusive services for festival (e.g. no
interest installment, product
customisation)
Festival-only exclusive
27%
products and packaging
Access / pre-ordering of new products 24%
Brands creative marketing campaigns 20%
New features and technology
launched by eCommerce platforms
17%
(e.g. like Virtual Reality, Augmented
Reality or Online-to-offline)
Festival specific events 9%
Interacting with friends through social
6%
media (e.g. via Social media campaigns)
Digital Retail
82%
Transaction orientated,
Shopping focused on serving value
missions and convenience buying
occasions
37%
Large pure-plays and
eCommerce
market places dominate by
landscape
providing endless choice
Online and offline largely
independent channels
Channels
linked only through mobile
O2O marketing
15. JD.com opens its first offline fresh food supermarket, 5 Jan 2018, Xinhuanet,
http://www.xinhuanet.com/english/2018-01/04/c_136871853.htm
New Retail Examples
Alibaba’s Singles’ Day
Entertainment led with an
transforming from a
increasing emphasis on
discount-led shopping
hard to find, distinctive or
season to an entertainment
niche products and brands
festival
Hyper growth new
Large platform increasingly
platforms: Kaola (Cross-
curate content and new
border), Xianyu (Second-
players emerge which
hand) and Pinduoduo
focus on distinct niches
(Daily discounts)
7FRESH, JD.com grocery
Connected payments
store, is a combination of
and logistics at the core
supermarket, restaurant,
of integrated online and
distribution center and
offline formats
online store15
Digital retail matures into New Retail 19
 Marketing: Exponential increase in
content, targeting more precise
Chinese consumers are much more willing to share data
and have high expectations they will receive a personalised
experience because of it
Source: PwC’s Global Consumer Insights Survey 2018
Agree
Happy for a retailer to
identify when I am nearby
and send me personalised
offers
Disagree
Agree
I expect a retailer to have up
to date information across all
channels (e.g. in-store,
online, social media, home
delivery etc.)
Disagree
Agree
I am comfortable for a
retailer to monitor my
shopping patterns and
purchases
Disagree
China United States (US)
Digital Retail New Retail Examples
59% L’Oreal generates 33%
Focusing on value and
Prioritisation of top- of China revenue online
performance media
line growth: reach, (versus 8% globally16) and
29% Metrics including end-to-end
engagement, traffic and has a razor sharp focus
ROI and multi-channel
conversions on ROI across media mix,
attribution
buying and creative
14%
37% Exponential increase in Douyin, a short form
Brand and product
digital content emphasis video app, with powerful
Formats and content all optimised for
on ultra-short formats (<5 editing capabilities reached
content the intersection of mobile,
67% seconds), live broadcasts 100 million monthly active
social and video
and consumer participation users within 1 year
34%
Kuaizi, a marketing
Category of one targeting, technology start-up, uses
5%
Demographic or behavioral hyper personalisation AI to generate creative
Targeting
segmentation and targeting and delivery of dynamic content and then optimise
“
33% content combinations to increase
marketing effectiveness
61%
34% Chinese consumers are much more willing to
share data and have high expectations they will
8% receive a personalised experience because of it
38% 16. CAGNY Investor Conference presentation, 23 Feb 2018, Loreal Group
https://www.loreal-finance.com/_docs/0000000175/Presentation_JP_Agon_Cagny_2018.pdf
Digital retail matures into New Retail 20
 Product development: Bigger Sourcing and production:
use of data analytics, shorter Demand planning, modular
time to market production and sourcing traceability

Digital Retail New Retail Examples Digital Retail New Retail Examples

Yili, a Chinese dairy

company, uses digital Cainiao forecasts
Data driven demand
analytics derived Forecasting based on demand volatility
Medium-term product management
Emphasis on data from multiple owned historicals, POS data, and provides data
development cycles Forecasting including joint forecast
Time to analytics, demand and third-party and marketing / sales intelligence to logistics
using historical data and with customers,
market signals and shortening sources to inform judgment; very limited partners’ to optimise
to inform future planning application of machine
of R&D cycles product development, co-planning with inventory levels at
projections learning for advanced
reducing time to supply chain partners warehouses and
demand forecasting
market from 18 to 3 delivery nodes
months

Mars collaborated Greater data

Mondelez enables
with Alibaba’s “New availability enables
In-house R&D Co-creation models Focus on scale consumers to
Research Manufacturing” unit differentiation via
with emphasis on including partners efficiencies and unit customise the
and to co-design and Production approaches like
localisation of global (eCommerce) and end costs as basis for colour and design of
development develop a unique modular production
for China consumers competition special edition Oreo
chilli-infused Snickers methods and mass
packaging on Tmall
bar17 personalisation

Kraft developed JifJaf

Alibaba, Fonterra and
Niche and occasion a new cookie sold Compliance as Traceability becoming
Large campaign Blackmores create
based segmentation exclusively online and hygiene factor created as a differentiator
Testing and launches coupled with Quality and a blockchain food
with use of online as a targeting young adults through brand equity, enabling complete
launch mass distribution on trust traceability solution
testing bed or to grow who wanted a unique packaging and assurance of origin
all channels to enhance consumer
buzz taste from a quirky product quality and supply chain
confidence
challenger brand18

17. Alibaba now product designer, as well as seller, for brands, 19 Apr 2018, Alizila
http://www.alizila.com/alibaba-tmall-innovation-center-brands/
18. Kraft Heinz’s new chocolate sandwich cookies might seem familiar, 25 Apr 2018, Adage
http://adage.com/article/news/kraft-heinz-a-chocolate-sandwich-cookie-brand/313251/ Digital retail matures into New Retail 21
Supply chain: Minimising costs while
maximising flexibility and value

Retailers may offer various options for For the majority of your online
how you receive your goods. Which of purchases, how soon do you expect
the following services are most attractive your goods to arrive?
to you if offered at no extra cost? Source: PwC’s Global Consumer Insights Digital Retail New Retail Examples
Source: PwC’s Global Consumer Insights Survey 2018
Survey 2018 Operations enable new
Sourcing and Li & Fung’s digital
customer value through
logistics support supply chain service
34% expanded offerings and
29% customer expands to focus on
Same day Operation services; operations
experience through pre-production and
delivery Same day design is integrated into
speed, efficiency, design including virtual
39% new business model
and low costs product development
6% development

24%
Free return Vendor integration, Danone partners with
shipping 36%
Minimal physical shared infrastructure JD.com to improve
20%
Next day footprint to models and multi- coverage in southwest
support low fixed purpose assets, focus China including
8% Infrastructure
costs, focus on on customer experience building a shared
Delivery at 19%
high utilisation of / value, warehouse as warehouse in Chengdu
a specific fixed assets a showroom and pick to optimise online and
time slot 8% up place offline distribution19
18%

Two days
13% JD.com and Walmart’s
Package 29% Optimising Inventory planning, integrated inventory
tracking inventory visibility, and availability and order management
18%
management for which comprehends system optimise
Inventory
efficiency and and supports all fulfilment by ships
12% velocity in the channels flexibly and online customer orders
2.7% Three to five
online channel effectively from central warehouse
In-store business
or Walmart stores20
pick-up days
7.7% 43%
19. JD Logistics, Danone Join Hands to Build Shared Warehouse, Optimize Distribution, 22 Nov 2017, Yicai Global
https://www.yicaiglobal.com/news/jd-logistics-danone-join-hands-build-shared-warehouse-optimize-distribution
China United States (US) 20. Walmart and JD.com expand strategic cooperation, 25 Jul 2017, JD.com
http://ir.jd.com/phoenix.zhtml?ID=2288419&c=253315&p=irol-newsArticle

Digital retail matures into New Retail 22

III. Platforms and walled gardens: Value chain share breakdown for Chinese tech players, 2017(%)

online and offline Source: Stat counter; emarketer; china internet watch; Tech node iresearch china;
Alibaba group; Website Research; PwC Analysis
Alibaba Tencent & JD Baidu Others
China’s internet giants were at the heart of digital retail and they have also been the ones
to usher in the New Retail era. New Retail is an Alibaba term but both Tencent and JD also
pursue similar strategies described as Smart and Borderless Retail respectively. In order to
move into offline retail the internet giants are not going alone but pursuing a number of
highly publicised build, buy and partner strategies. Tencent
video
24%
We are still in the early days of New Retail but the competitive strategies of the internet Alibaba
players help us understand how the market might evolve. There are two internet 32% QQ
ecosystems in China: Alibaba, and the Tencent and JD alliance. While each have evolved music
41% Cainiao
from different core competencies they have built independent ecosystems that span the Tencent 48%
Ele ma Alipay
entire value chain of online consumer experiences. Consumers in the Tencent ecosystem Tencent 52%
54% 54%
can seamlessly move from the discovery of a product endorsed by their favorite KOL on 57% Tmall
60%
WeChat to a transactional environment in JD. That same consumer would be blocked from Youku
transferring across WeChat to Alibaba’s Tmall. In China, seamless consumer experiences Baidu
23%
Tencent
(and data) only exists if we stay within the “walled gardens” of the internet giants. We also 78% 12%
expect the internet giants to continue to enforce the walled garden approach offline. For
example, Walmart, which has a strategic partnership with JD, recently announced that it
was no longer accepting Alipay in Western China in favor of WeChat Pay describing the
JD
choice as “offer the best all-round shopping experience for our customers”21. 5%
Baidu
19% KuGou
Solving big problems and removing inefficiencies is at the core of how the internet giants iQiyi 28%
NetEase
24%
look at opportunities and the only way for them to move the needle on USD ~500bn market 14% Other
Suning
valuations. China’s offline retail market is worth around USD 4.5 trillion and presents a 5%
eCom
18%
significant opportunity, however the aim is not to become retailers in the traditional sense Meituan
but rather identify opportunities in the retail value chain where they can solve problems, Waimai
Weibo
build solutions and create new business models. For example, Alibaba’s Hema has emerged 30% Kuwo
30% Tenpay
as the iconic example of the modern grocery shopping format: consumer orientated, digitally 10% 38%
JD.com
connected and smart logistics enabled. The expertise and capabilities developed here are 25%
now being deployed in Sun Art Retail Group, a leading hypermarket operator with over 450 Shenma
Others Baidu
Others
38% music 4%
stores, as part of a USD 3bn equity investment. We also see similar strategies being deployed 9% Others 35% Non
in the shopping mall and homeware sectors. It is not hard to foresee a future whereby the 29% eCom
29%
Chinese internet giants create Retail as a Service vertical-specific (Grocery, Fashion, Home, Haosou
Others
6% vip.com Others
etc.) business models for the retail sector. In this scenario, brands and retailers plug into Others 17% 4% 16%
cloud-based solutions to enable next generation applications in: supply chain, product Others
14%
Others
Others
development, and production and sourcing. These strategies are similar to the Industry 4.0 7% 8%
6%
approaches being developed by companies like GE’s Predix or Siemen’s MindSphere.
Search Digital Social Online Online Online B2C O2O Mobile Logistics
Advertising Media Video music gaming  Commerce Commerce Payments
Advertising
21. Walmart ditches Alipay in western China for Tencent’s WeChat, 27 Mar 2018, Financial Times
https://www.ft.com/content/cd9a6546-31a8-11e8-b5bf-23cb17fd1498 Demand generation Entertainment Commerce Fulfilment

Digital retail matures into New Retail 23

3
“
What it takes
to succeed in

”
New Retail

China’s next retail disruption: End-to-end value chain digitisation 24

 1. New retail is full stack digitisation. See everything through
the lens of business impact, customer experience and
technology enablement
2. We are still in the early days
of New Retail. Separate vision
All brands and retailers need to consider how digitisation will impact their total value chain. Of course technology from reality, aspiration from
and data will be part of the solution but jumping in too early risks digitising existing ways of working versus
unlocking opportunities for breakout innovation. We recommend companies first look to consider how this new
execution, and PR (Public
era of retail enables them to do things differently. This could mean transforming how they connect and serve Relations) with ROI (Return
consumers, where they play in the value in the chain, and the new profit pools they can capture. Doing this on Investment)
typically means bring together individuals and teams that have different perspectives: strategy, creative and
design, and innovation and technology. These teams also need to be backed up by leadership and organisational
roles needed to drive the effort. For example, when Li & Fung – a global supply chain company with over 100 years
of history – was developing its 3-year plan it brought together business, technology and creative teams to ideate a
vision that would radically transform its business model, versus simply digitisation existing processes. The result We are constantly bombarded by press announcements
was an asset-light strategy that integrated all elements of the supply chain into a new digital platform and partner and case studies of innovation in China’s retail economy. In
ecosystem. Here data is captured, shared and analysed across the value chain enabling Li & Fung to provide this environment it is easy for brands and retailers to feel
customers with the insights needed to make smarter, faster and more effective business decisions. anxious they are not keeping up. It is true that innovation
and competition is relentless here but it is also important
to not mistake PR with ROI. In reality, most of the claims
like: 360 degree view of the consumer, online-to-offline
channel attribution, or real time inventory optimisation
etc. are either small scale pilots or product brochure wear.
Most brands and retailers in China are still struggling with
massive challenges of data fragmentation, quality and
completeness. As we know however, things move incredibly
fast in China and vision can quickly turn to reality. We
recommend that companies do not leap frog to emerging
technologies until the fundamental building blocks of
cloud, mobile, eCommerce and analytics are in place.
There are also huge opportunities to be captured through
changing how brands operate in the era of new retail, not
just what technologies are used. For example, one leading
sportswear brand is responding by completely reorienting
content creation, campaigns and new product launches
around China’s eCommerce calendar.

What it takes to succeed in New Retail 25

 4. Ecosystems and partnerships are
3. Internet players have the becoming increasingly important but
ambition (and cash) but not all don’t neglect to build core capabilities
the answers, collaborate early that create competitive advantage
but be careful about picking sides

Previously digital retail meant the front-office activities

The internet giants have unprecedented consumer
reach, digital talent, and technology and analytics
capabilities, but they are still newcomers to offline
retail. The last 4 years have shown us that the brands
that have benefited most were those that collaborated
early and helped shaped the future. For example,
back in 2016 Nestlé was the first to use Alibaba’s big
data platform to personalise the shopping experience
on Tmall – a solution that is now almost ubiquitous.
Nestlé’s eCommerce growth in China outpaces the food
and beverage average with some categories like coffee
and biscuits growing 50% and 80% during the first half
of 201722. We believe the winners in New Retail will
be those that also collaborate early to shape the future
of their category. For example, we recently supported
a multi-category retailer and an internet company
design a shopping mall experience for the modern
Chinese consumer. As we have seen in the grocery
sector however strategic relationships with the internet
giants often come at the cost of exclusivity. There is no
one size fits all answer here but we would recommend
a cautious approach, particularly to long-term
agreements in a market that is as dynamic as China.
22. Nestlé Investor Seminar, 26 Sep 2017, Nestlé
https://www.nestle.com/asset-library/documents/library/presentations/investors_events/investor-seminar-2017/wan-ling-martello.pdf
of eCommerce and digital marketing. For many brands
and retailers in China this meant outsourcing most of
the execution to Taobao Partners / Third-parties (TPs)
eCommerce services providers and digital / media
agencies. For example, a leading sportswear brand with
USD ~1bn eCommerce revenue has 100+ team outsourced
to a TP. As digital now comes to define everything a brand
or retailer does it is critical to assess what capabilities
(existing or new) need to be built in house; otherwise what
is left? Agencies and partnerships will always be part of
the delivery model but not at the expense of outsourcing
competitive advantage. PwC recently worked with a leading
consumer brand on helping them tackle this strategic
question. First we helped them breakdown the opportunity
landscape into a limited number of clear priorities: O2O
platforms, personalisation marketing, and B2B digital
commerce. We then built a capability-driven strategy that
identified the operational and technology requirements
needed to execute. Future considerations to how the
business operates included: investments in eCommerce-
specific supply chain capabilities, development of an in-
house data management platform for programmatic media,
and new partnerships with B2B aggregators.
5. Everyone in the organisation
needs to be digital, in everyway
Digital retail is retail. Instead of the prior decade’s
obsession with business-IT alignment, brands and retailers
must now pursue a more balanced approach to digital
transformation, one that now puts the organisation and
employees at the centre. All functions, departments and
grades need to be supported to enable them to develop a
fundamental of digital competence. This means creating
a culture of innovation, constant learning and technology
adoption. For example, Nestlé’s Digital Acceleration Team
(DAT) takes young leaders from international markets –
including China – into the global headquarters where they
receive immersive training and work on innovative digital
projects for period of 8 – 12 months. These leaders then
return into their home markets where they help to drive
change and spearhead digital transformation. In a similar
way L’Oreal has put digital at the heart of the organisation’s
DNA transforming culture, talent and daily operations.
L’Oreal now has over 1,700 digital specialists and has up-
skilled 16,000 employees globally.

What it takes to succeed in New Retail 26

 1
Integration of strategy, creativity and innovation will
help you to achieve your value proposition

Key takeaways
The emergence of New Retail in
China is impacting retail at the global
level. This report describes the trends
that are visible to us. Here are five
takeaways for your consideration.
2
Technology and data will be part of the solution but don’t neglect
to apply strategy, creativity and innovation expertise to rethink Prioritise structural growth
how this new era of retail enables brands to connect and serve opportunities
consumers in a completely new way. Develop an ecosystem
strategy that prioritises partnerships as a mechanism to build Capture double digit growth
capability or develop new go-to-market models. Continuously opportunities through aligning
scan the horizon for new innovations by working with China's the customer value proposition
vibrant start-up community including those internet giants. behind key demand side
drivers: premiumisation, health
and wellness, lifestyle and

3
experiences, and interactivity.
Focus on consumer-centric innovation Look for opportunities to
further tailor go-to-market
Take inspiration from the internet companies by combining customer insights with models by city cluster or
design-thinking approaches to develop new products and services that cater to the modern create hyper localisation by
Chinese consumer. Focus on catering to a limited number of personas and solving for developing specific strategies
specific pain points, or moments of delight. for China’s mega cities.

4 5
Don’t neglect to build and maintain core Build a digital organisation
capabilities that create competitive advantage
Instead of the previous decades obsession
In the past, digital execution meant outsourcing with business-IT alignment, we must now
most tasks to eCommerce services providers (TPs) pursue a more balanced approach to digital
and digital / media agencies. However, as digital transformation, that puts the organisation,
now comes to define the entire value chain, employees and the customers at the centre.
brands need to assess what critical capabilities It should be viewed as the means to deliver
(existing or new) need to be built in- house. enhanced products and services which
Consider the impact of digital transformation the consumer values and at the enterprise
across the entire retail value chain. Continue level, it is to ensure agility and adaptation
to invest in digitising sales and marketing but to change. Invest in developing digital
also focus on using data analytics to unlock talent across the entire the organisation.
greater speed, innovation and efficiency This is likely to include up-skilling all
within supply chain operations, new product employees to a minimal level of Digital
development, and production. IQ, embedding analytics expertise into
existing functions like marketing and
eCommerce, and creating entirely
new domain areas in cyber security
or digital supply chain.
While digitalisation has clarified
the consumer’s needs and wants in
terms of personalisation, brought
efficiencies to operations and
accelerated gratifications, brands
must not lose sight of their core
products and services that built
its identity. Catering to consumers
that make their lives better is a
sound strategy through adapting to
change, embracing innovations and
being trendsetters, however, having
sound fundamentals and embracing
the right partner is key to longevity.

Key takeaways 27
Contacts
Michael Cheng Author
PwC Asia Pacific & Hong Kong/China Consumer Markets Leader Tom Birtwhistle
+852 2289 1033
michael.wy.cheng@hk.pwc.com
Special thanks
Rachel Chan
Sally Huang
Kelsey Lau
Artin Lin
Esther Mak
Tom Birtwhistle Sanjukta Mukherjee
PwC Digital Consulting Director Jan Nicholas
+852 2289 6358
Kanon Wong
tom.w.birtwhistle@hk.pwc.com
Echo Wu
Cindy Yen
Jennifer Yep
Frank Yu

Methodology
In this year’s survey, we reached out to more than 22,000 online shoppers across 6 continents in 27 territories
across the globe. This report draws on insights from our quantitative study of the shopping behaviours of 901
Chinese consumers and over 1,200 consumer interviews as part of various project work. In addition, we also
bring perspectives from our experience working with international and local retailers, brands and internet
companies. Our China survey sample was slightly skewed towards males who represented 55%. From a
demographic perspective 58% were aged between 25 and 44, 79% have an annual household income above RMB
70,000 (US$10,000), and 66% are in full-time employment. From a regional breakdown, 32% live in Tier 1 cities,
PwC’s Global Consumer
47% in Tier 2, and 21% in Tier 3. The study is part of PwC’s Global Consumer Insights Survey (formerly called Insights Survey 2018
Total Retail Survey), which in 2018 is our seventh consecutive study of online shoppers.
28
www.pwchk.com

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2018 PricewaterhouseCoopers Limited. All rights reserved. PwC refers to the Hong Kong member firm, and may sometimes refer to the PwC
network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. HK-20180521-2-C1