Research & Analysis

The New Retail Revolution

  • “New Retail” is the term Alibaba uses to describe the blending of online and offline commerce through the digitization of the entire retail value chain for the benefit of both the merchant and the consumer and, of course, the company enabling this transformation.
  • It leverages digital payments data to create new efficiencies and capabilities in logistics, marketing, and product development; to support merchants with new tools and insights that cut costs and drive sales; and to offer customers a seamless and customized shopping experience across the online and offline spaces.
  • The global e-commerce giants—notably Alibaba and Amazon—are leading the charge as they integrate their customer relationships and interfaces, digital payments solutions, and logistics infrastructure into physical retail operations.
  • Other global companies are playing around the edges of New Retail and could be well positioned to pivot into the space from a different angle than e-commerce players. A notable example is Facebook and the products it owns—namely, WhatsApp and Instagram, which already have significant user bases and are ubiquitous on social media platforms.
  • While New Retail is still in its early stages, mobile financial services providers would be wise to keep a close eye on developments in this space and consider what role they will play in an increasingly digital and integrated retail commerce space.

In 2016, Jack Ma, the founder of Alibaba, coined the term “New Retail” to describe how offline, online, and logistics businesses were merging to create an integrated retail sector that would seamlessly blend what were previously separate spaces. Describing it as one of five areas that will be fundamentally transformed by innovation—the others being finance, manufacturing, technology, and energy—Ma asserted that New Retail should be the key strategic priority for e-commerce and payments businesses.

Noting the rapid transformation taking place in China, where millions of small shops are being turned into order-and-delivery stations for e-commerce, Ma said the ubiquity of smartphones and the evolution of physical and online commerce toward omnichannel experiences would drive a revolution in retail sales models.

What is New Retail?

New Retail takes the power of digitization and big data beyond current applications in e-commerce and creates new dynamics between consumers, producers, wholesalers, and retailers in the physical commerce space. This plays out across several dimensions:

  • Supply chain and distribution logistics
  • Value-added services to producers and retailers
  • Integrated shopping experiences for consumers

Supply chain and distribution logistics

The staff of a drug store in Louyang, China. Photo: Iwan Bagus, International Finance Corporation
The staff of a drug store in Louyang, China. Photo: Iwan Bagus, International Finance Corporation

Perhaps the most immediate benefit of being able to synthesize and cross-analyze data from retailers and consumers across online and offline channels is optimized logistics. By drawing on a vast pool of data that may include sales as well as social media and other types of digital footprints, New Retail companies can go beyond analyzing past sales to forecast demand to making accurate predictions about future changes in demand. This enhanced perspective can be based on many different factors, such as the number of people who have viewed or liked a product online, the ratings it is getting on e-commerce or comparison sites, and the extent to which it is being shared socially. The predictions could go beyond the market level and could capture shifts in specific locations or customer segments.

Together with real-time information about inventory at individual retail locations, this type of analysis can be used to enhance distribution, thereby ensuring that goods are moved preemptively so that they are available at the right place at the right time. This type of just-in-time logistics can cut the cost of holding and warehousing inventory and slash delivery times when retailers want to restock. By integrating it further back in a flexible supply chain, the advantages can be extended into the actual production of the goods, enabling producers to raise and lower output based on live sales data and predicted future demand.

To ensure that these analytics are as accurate as possible and that they continue to improve over time, New Retail players typically deploy artificial intelligence models that leverage machine learning to continually evolve, identify new patterns, and improve their predictive power. As the amount of data on which these models can train themselves rapidly accumulates, the models will become more powerful and efficient over time.

Value-added services to producers and retailers

For merchants, New Retail unlocks tools and insights that help them cut costs and drive sales. Merchants are typically offered a sleek, modern system that integrates the till function, digital payments, inventory monitoring, restocking, sales analytics, and customer relationship management. However, the true value for merchants is in the analytics behind the scenes that can be used to optimize inventory, sales, promotions, etc. As discussed in “For Merchants, the Real Value Lies Beyond Payments” and “Merchant Payments: Adding Value for Merchants,” these value-added services are essential to building a compelling case to merchants for digital payments.

By matching remaining inventory with predicted sales—based not just on a retailer’s own sales history but also on sales in other stores and online outlets, historical patterns, current momentum on social media, and other factors—the system alerts the retailer when specific items are at risk of running out and enables a seamless restocking process. The same analytics are also used to predict what new items individual retailers should stock and when, prompting them to add trending products they don’t currently carry. The inventory can then be delivered cheaply and rapidly, since it has already been front loaded into nearby warehouses thanks to the same predictive analytics in the distribution chain.

Similarly, New Retail players can help merchants design, deliver, and evaluate promotions. By evaluating how their sales evolve during a promotional period as compared to sales across similar stores and through other channels, including online, the system can provide solid evidence on the impact of promotions. A rich database built around such evaluations across sales channels can provide constructive advice for both online and offline retailers about when and how to deploy their promotions for maximum effect and how to tailor the promotions to their particular line of business, region, and so forth.

The power of the New Retail approach comes from individual data captured on both merchant and consumer sides. This means that it can go beyond analytics of a given geographical area to provide individualized analytics to merchants based on data from their current customers and from potential new customers living in the vicinity. Data can include, for example, what those customers buy in other shops, purchase online, and share on social media. New Retail players can offer merchants hyperlocal analytics that capture an unprecedented level of granularity. Note, however, that this approach raises significant privacy concerns around what data are shared and how.

The provider can also use this abundance of information, which notably includes reliable predictions of future sales, to underwrite supplier credit to retailers who wish to finance the required inventory. For more on different models of micro and small enterprise (MSE) credit, see “MSE Credit Models.”

Integrated shopping experiences for consumers

In New Retail, customers are seen as co-creators rather than just consumers of products, and the actual purchase of a product is seen as only one link in a continuous customer experience from conception to consumption to referral. Producers and retailers of goods think of sales beyond a single in-store interaction—they want to engage with customers in an integrated way across various channels.

The central element of this vision is using data to allow businesses to understand and respond to their customers in a faster and more customized way to drive continuous brand engagement. This includes product development. Armed with an entirely new level of insight into consumer preferences, not only can producers create new and relevant products for their customers, they may even directly involve customers in designing the product. Doing so can take many forms, from simply allowing customers to customize products (e.g., allowing them to choose the color of parts of the item from a long list of hues, choose options like extra pockets or different fabric, or pick different sizes of shoes for left and right feet) to crowdsourcing the entire design through online competitions or fan communities.

New Retailers use data to make better and faster decisions and to integrate the entire customer experience from product awareness, to marketing, to purchase, to review and referral so that customers get a customized and seamless experience. New Retailers use data to integrate channels to transform the retail model and create compelling customer experiences. This includes demand-based product development and manufacturing, shorter time to market, sourcing traceability, targeted marketing, etc.

For consumers, New Retail is a holistic experience that is woven into the fabric of their daily lives, instead of a momentary retail purchase. Offline experiences blend seamlessly with their online lives so that shopping, reviewing, and demanding products becomes a part of their daily lives, rather than momentary interludes.

New Retail and digital merchant payments

There are several reasons why digital payments providers should keep an eye on—and reflect on—New Retail as it unfolds around the world.

First and foremost, New Retail can be a powerful driver of uptake in digital payments. By creating clear value on all sides of the market, it creates a symbiotic relationship between payments services providers, producers, retailers, and customers in which everyone stands to gain. Since that value hinges on digital payments, it can create great momentum for a shift away from cash—a very real and immensely challenging hurdle in many markets, as discussed in “Cash Is King in Merchant Payments.” This shift will happen only if providers actively develop the various use cases and are able to convince market players that the value will truly come. This is not a challenge to be taken lightly in many cash-oriented developing economies and is compounded by the lack of digital literacy, internet connectivity, logistics providers, and so forth in many markets.

Second, New Retail presents several potentially very interesting opportunities for payments providers to monetize the business by generating cost savings (e.g., from streamlined, just-in-time distribution) and revenue streams (e.g., interest income from merchant working capital products and fees for analytics, promotions, and other value-added services). This helps bolster the business case for merchant payments and orient the profit strategy (see “Choosing a Profit Strategy for Merchant Payments”) while reducing the reliance of payments providers on transaction fees, which are deeply problematic for the business (see “Don’t Charge Transaction Fees”).

Third, New Retail significantly strengthens the ability of goods producers, retailers, and payments providers to deploy effective loyalty models and promotional activities, which are likely to be necessary to drive a shift toward digital payments. This applies particularly to end consumers, where the opportunities for value-added services are far less apparent and some of the key features of New Retail (such as co-creation of products) may realistically be possible only in the more distant future. For more on loyalty models and their role in driving consumer uptake, see “Loyalty Models Can Create Value for End Customers” and “Loyalty Playbook.”

New Retail around the world

New Retail is still in its early days. It is being led by a few global technology behemoths, who are experimenting primarily in China and the United States.


As discussed in “China: A Digital Payments Revolution,” Alibaba, Tencent, and, in a relatively short time, have come to completely dominate e-commerce, social media, and mobile payments, transforming the country in the process. China now has more than three times as many mobile internet users as the United States and 60 times higher mobile payments flows. In 2017, half of all digital payments worldwide were made in China, and today the share is probably greater. Its e-commerce market is the largest in the world, with more than $1 trillion in annual sales and growing. But this rapid shift toward online shopping notwithstanding, offline retail still accounts for 80 percent of total retail sales in China. Hence Alibaba and Tencent have worked aggressively to bring physical retail into the digital commerce space, spending an estimated $20 billion in 2018 alone to establish, buy, or invest in retail companies and technologies to make them digital.

Aside from investing in all manner of retailers, Alibaba has launched Ling Shou Tong, a digital inventory management platform for merchants. The company says Ling Shou Tong now covers nearly one-fifth of small, independent retail shops in China, typically owner-operated corner stores. Ling Shou Tong is a centerpiece of Alibaba’s New Retail strategy—it provides the physical touch point for an array of different business aspects.

Ling Shou Tong enables seamless inventory management, allowing shop owners to restock directly from Alibaba through digital payments and one-day delivery. The system also offers a host of other value-added services, such as data-driven insights on sales trends and inventory recommendations, supplier credit to finance inventory, and other products like airtime.

For customers, Ling Shou Tong creates convenience by blending physical and online commerce, for example, by leveraging physical retail merchants as last-mile delivery and drop-off points for e-commerce purchases and returns or by enabling customers who find something out of stock in the physical retail store to simply have it delivered later via the e-commerce channel.

Ling Shou Tong is offered free of charge to merchants. That’s because the main value for Alibaba is gaining access to a significant portion of those 80 percent of retail sales that are made offline—and to the customers that make those purchases. The system is effectively Alibaba’s beachhead into a vast swath of commerce from which it had been excluded. It generates huge amounts of data that it can use to power any number of other products and services.

Another signature effort by Alibaba into New Retail is the Hema supermarket, which is heavily digital and largely cashless. It also serves as the distribution node for online orders. Customers use an app while shopping to get information about the various products, such as customer ratings, recommended recipes, and related ingredients. This enhances the in-store experience with the type of information consumers have come to expect in the e-commerce space. After paying with their phone, customers can either pick up their groceries directly or have them delivered to their house in 30 minutes or less within 3 kilometers of the store. The in-store fulfillment centers serve in-store customers the same way they do customers ordering remotely via the app. Alibaba says once a new store has been established and people become familiar with it, 60 percent of all sales in the store shift online. The company now has 87 stores in 14 cities and plans to open 2,000 more in the next three to five years.

While Alibaba has made the boldest moves into New Retail, Tencent is also beginning to blend offline and online retail. Although Tencent is not itself an e-commerce player, it has taken a significant ownership stake in Alibaba’s main e-commerce rival JD, and in 2018, Tencent bought Vipshop, China’s third largest e-commerce player. An estimated 95 percent of e-commerce players in China have mini-programs on WeChat. Tencent has also invested heavily in retailers, including one of China’s largest supermarket chains and the French hypermarket brand Carrefour. While Tencent is entering the space as a payments facilitator, it does not conduct any e-commerce directly. Instead, it provides a decentralized platform that partners can use to sell products independently. For example, Tencent Cloud provides retailers digital tools, such as social advertisements and mini-programs, to connect people and businesses.

Meanwhile JD, China’s second largest e-commerce platform, has itself ventured into retail in several ways. In 2015, it launched JD Daojia, a two-hour delivery service for products from local supermarkets and other stores available through its app. JD Daojia competes with Alibaba’s Hema delivery. For this venture, JD raised $320 million from U.S. retail giant Walmart. It has also experimented with unmanned and cashless retail solutions. JD itself operates several dozen unmanned, cashless stores in China and has launched one in Indonesia. The company is also experimenting extensively with drone technology for deliveries.

United States

New Retail in the United States is driven largely by the e-commerce giant Amazon, which is expected to represent nearly half of all US online spending in 2019. This is around 5 percent of the overall U.S. retail market.

Amazon Lockers inside a Whole Foods in Washington, D.C. Photo: Andrew Johnson
Amazon Lockers inside a Whole Foods in Washington, D.C. Photo: Andrew Johnson

One of the company’s most publicized forays into physical retail was its 2017 purchase of upscale grocery store chain Whole Foods for $14 billion. It has since moved to integrate these physical stores with the online offering in many different ways. Like Alibaba, it leverages the stores as last-mile distribution nodes, for example by setting up Amazon Lockers where customers can pick up or return their e-commerce packages and by enabling home delivery of Whole Foods groceries to users who buy things remotely using Amazon Fresh and Amazon Prime. Amazon is also deploying cross-platform loyalty, for example, by letting Prime users, which reportedly include over two-thirds of all U.S. households, benefit from 10 percent discounts and special deals in Whole Foods stores and free home delivery within two hours.

Having developed its own payments play, the technology giant is also busy deploying Amazon Pay at traditional retailers such as gas stations, restaurants, and merchants that don’t compete directly with Amazon’s online offerings. Expanding Amazon Pay to include offline touchpoints will further its goal of becoming omnipresent in customers’ lives and capture more consumer data from transactions that happen outside its traditional domain. Like Alibaba, one of the primary motivations for Amazon’s foray into physical retail appears to be accessing that data.

Amazon is also opening its own cashless and fully automated retail shops called Amazon Go. The shops enable Amazon users to take what they need and “Just Walk Out” thanks to sophisticated technology that monitors users in the store, tracks what they are picking up, and bills them to their Amazon account when they leave. The company reportedly has plans to open 3,000 Amazon Go shops by 2021.

Ironically for a company that is more than anything associated with the demise of physical bookstores, Amazon has opened a chain of Amazon Books stores that “integrate offline shopping with the benefits of the community.” The first store opened in Seattle in 2015, and the chain has now expanded across the United States. Customers can come into the stores to browse books and other products that are highly rated on the Amazon e-commerce marketplace, as well as the full range of Amazon’s own devices. Much like the Hema stores, customers can use the Amazon app to scan items in the store and pull up additional information including reviews, deals, and discounts—and if the line is long, with a click, they can order the item for home delivery via the e-commerce channel and leave the store.

In 2018 the company also launched three Amazon 4 Star companies in New York City. The companies stock products that have good reviews, trending items, and top sellers; inventory is rotated weekly. The shop builds on and extends Amazon’s online success by featuring reviews and digital price tags and displaying “products frequently bought together”—a popular online feature—next to each other. Celebrity endorsements and other events are promoted online and create content for online sales, blending online and offline to offer a cost-effective, compelling shopping experience.

Developing markets

For now, the forefront of New Retail is clearly in China and the United States. In both places it is aimed at a relatively affluent and digitally savvy clientele. However, mobile and digital trends are laying the foundations for a similar development in emerging markets and developing economies, albeit one that may evolve in a more bottom-up, informal fashion.

One of these trends is mobile payments, notably the rise of mobile money which has put 890 million digital payments accounts into the hands of people who were previously unbanked and whose transactions were entirely in the cash economy. A second is the explosion of social media use across the developing world, where Facebook, WhatsApp, and Instagram are now household names in virtually every country. A third trend is the rise of e-commerce platforms like Jumia—the “Amazon of Africa”—which was valued at $1.3 billion in its April 2018 initial public offering.

Social media players have long recognized that people use their channels to transact various forms of business, including informal or semiformal retail commerce, especially in markets where traditional e-commerce is either nonexistent or out of reach for the millions of small- and micro-sized businesses operating in this space.

WhatsApp responded to this by launching WhatsApp for Business, which targets microentrepreneurs who use social media as a central way to reach their customers. (WhatsApp also caters to large businesses, such as airlines.)

Aside from providing a simple “home page” that offers details on the business, like opening hours and contact information, the app mainly facilitates customer relationship management for the business. It makes it easier to shift from an individual response to each query to more sophisticated responses: semi-automated engagement through quick replies to easily sent standard messages; automated response when the shop is closed or the owner is away; and labeling of customers and conversations to manage them more efficiently, for example, by customer type, product, or order status.

What makes this so powerful is of course the massive installed base: WhatsApp is already used by 1.5 billion people. Any one of them can download the WhatsApp for Business app and set up an account. Anyone who uses WhatsApp will be familiar with the WhatsApp for Business interface and likely already has the only hardware required: a smartphone. A WhatsApp-powered solution avoids the chicken-and-egg problem that plagues many merchant payments ventures in developing markets.

whatsapp pay logo

This solution becomes all the more powerful when coupled with WhatsApp Pay, a mobile payments venture launched in India in February 2018. WhatsApp Pay leverages the sophisticated Indian national infrastructure for real-time payments, identification, and authentication as well as the government’s push to promote universal uptake of bank accounts to allow any of the country’s 210 million active WhatsApp users to make payments and money transfers to each other directly from within the chat in the app—making it a seamless part of any conversation that touches on money.

Facebook Marketplace icon

Facebook is also not an e-commerce player, but in 2016, it relaunched Facebook Marketplace, a peer-to-peer digital commerce platform similar to eBay and Alibaba’s original platform, Taobao. Facebook had previously offered a similar feature that was shut down, but it was revamped and relaunched in response to the growth of organized Facebook Groups dedicated to buying and selling things. Marketplace provides a digital marketing channel for sellers, a search and information platform for buyers, and an exchange mechanism for them to connect and make and accept offers. According to Facebook, Marketplace is now used in more than 70 countries by over 800 million people each month.

Messenger payments icon

This is all the more interesting when coupled with Messenger Payments, which was launched in the United States in 2015 to support peer-to-peer payments and transfers. Facebook recently acquired a European Union e-money license, which would allow it to deploy a payments system in that market. Meanwhile in the Philippines, Facebook in 2017 partnered with local payments providers Globe and PayMaya to enable transfers between accounts held with those companies over the Messenger interface, similar to the way WhatsApp Pay enables transfers from bank accounts in India.

Rumors about Facebook disrupting payments have swirled for years amid several high-profile hires from payments companies, including the former president of PayPal. In February 2019, news emerged that Facebook is working on a blockchain-based virtual currency. In June, the project, called Libra, was unveiled. The project has faced skepticism from regulators and its ultimate success is unclear; however if Libra becomes a reality, it has the potential to enable the 2.7 billion worldwide users of Facebook, WhatsApp, and Instagram to make payments, including across borders.

It is clear that, given the massive uptake of social media across developing markets, these moves by Facebook and its affiliate brands are positioning the company for a significant shift in how commerce is conducted—merging the online and offline spheres into an increasingly seamless transactional space. While it may look different than the hard-charging, carefully planned, and well-funded efforts in China and the United States, this, too, is part of New Retail.

Advances in New Retail are already starting to happen. Research shows that informal merchants in East Africa are already combining online and offline tools, leveraging mobile money to serve customers near and far. They are cobbling together customer interactions on WhatsApp, advertisements on Instagram, delivery using Uber, and payments via mobile money to create a fragmented sort of New Retail. Each of these interactions generates data, but that data are not brought together to guide a seamless engagement, resulting in a New Retail experience with a distinctly local flavor.


Given the energy and promise of New Retail, digital payments providers would be wise to consider the implications for their businesses.

  • While New Retail is still in its early stages, especially in developing markets, mobile financial services providers should keep a close eye on developments and consider what role they will play in an increasingly digital and integrated retail commerce space. The convergence of social media, mobile e-commerce, and digital payments could bring about disruption in this space faster than expected.
  • The good news for mobile money providers and similar players in developing economies is that they have a head start on the payments business and therefore an opportunity to get out ahead of these developments. By helping to bring about a version of New Retail in their own markets, they can shape it in a way that expands rather than displaces their core business model. However, this will require commitment to and investment in a medium-term vision that has sufficient foresight.
  • All this is deeply intertwined with merchant payments and provides a compelling rationale for providers now sitting on the sidelines to consider entering the physical retail commerce space. Similarly, if done right, it can provide the type of truly compelling value for users that is needed as an incentive to shift away from the ingrained use of cash, but that is sorely lacking in many first-generation merchant payments deployments.
  • Not least, New Retail offers a rich variety of opportunities to monetize the business for providers who are committed to merchant payments. Providers would be able to invest with greater confidence and avoid the pitfalls of relying on transaction fees that may kill the business before it even gets started.
Sub-topics: Payments