Bringing New York’s Fifth Avenue to China

Alibaba wants the Chinese to shop at Macy’s New York without leaving the comforts of their homes in Shenzhen.

Alibaba wants the Chinese to shop at Macy’s New York without leaving the comforts of their homes in Shenzhen. Last week, on Chinese National Ecommerce Day, the company launched Buy+, one of the world’s first virtual reality (VR) shopping experience.[i] Buy+ is a meta mall which can be accessed through Alibaba’s Taobao app. Using a VR viewer, a customer can experience shopping in New York or Tokyo and even have virtual models showcase apparel and accessories on a catwalk.[ii] The customer can view product details by staring at an item and authenticate payments with head movements, touch or by staring at a point on virtual display for longer than 1.5 seconds.[iii]

Historically, Alibaba facilitates value creation by creating a synergistic IT platform that connects consumers, merchants and service providers, increases transaction and marketing efficiency and expands the market base.[iv] Buy+ would further complement Alibaba’s business model in several ways.

To customers, Buy+ offers an enhanced shopping experience with more speed and convenience than those of typical online shopping. Buy+ restores the recreational aspect of shopping that is arguably absent in online shopping experience. Instead of viewing a static online gallery, shoppers can become virtual tourists as they trek shopping arcades in cities like New York, Tokyo and Sydney.[v] The immersive experience is not only valuable on its own right, it can also be more valuable than traditional brick-and-mortar shopping since shoppers can easily access product details and make payment in the blink of an eye.

To retailers, Buy+ helps generate traffic and increase product impressions. The novelty of virtual reality shopping would attract customers to browse at shops who are already on Buy+. Additionally, because Buy+ shoppers have to move through a virtual space, retailers have more opportunity to cross-sell and stimulate impulse purchases compared to in an online shop where customers are accustomed to being able to search for the categories that they want. Retailers will also be able to take some of the appeals of their offline stores online. If before an Alibaba retailer can only rely on ads, search engine optimization or discounts to attract buyers, retailers can now use the visual appeal of their virtual shop as another marketing lever.

The ability to create a meta space is especially valuable for non-Chinese retailers to access the Chinese market. Without building a department store in China, a retailer like Macy’s can serve Alibaba’s 437 million active users through Buy+ with a virtual shop based on one of their offline shops.

Moving forward, Alibaba could consider a few things to further enhance its value proposition to customers and retailers:

  • Enable retailers to create a virtual store that is not based on an actual brick-and-mortar store: If shoppers are conditioned to shop in virtual stores, retailers can in the long-run reduce their brick-and-mortar presence and serve customers through a single virtual store. The cost-to-serve will presumably be lower. Since virtual shops do not have the physical constraints of a brick-and-mortar shop, retailers have the freedom to design their optimal space to showcase and sell their goods.
  • Incorporate augmented reality to personalize retail experience: Alibaba can further enhance customer experience by incorporating augmented reality. Augmented reality superimposes computer-generated elements over the physical world and would allow a customer, for example, to try on a virtual dress or test out virtual couch for fit in her apartment. Fashion retailers like Rebecca Minkoff and Ralph Lauren have started allowing customers to try-on clothes virtually.[vi][vii] Similarly, IKEA has launched augmented reality app using which customers can see how an IKEA furniture would fit into their homes.[viii]
  • Increase access to VR technology: The growth and success of Buy+ hinges upon a high penetration of VR technology in China. While Alibaba distributes cardboard VR headsets that only cost 15 cents each, the headsets have limited capabilities and might dissuade consumers from trying out more advanced iterations later.[ix] An Oculus Rift VR gear costs $798 as of today.[x] Given the price tag, it’s doubtful that the technology can be widely and quickly adopted in China where the average monthly salary stands at $922.[xi] Alibaba would need to either work with manufacturers to develop lower-cost VR gears or develop offline spaces that customers can visit and shop using Alibaba’s VR gears.

It is important to note that the cost of creating a 3D version of a single product is expensive – at about $50.[xii] Zhuang Zhuoran, the mobile technology director of Alibaba, noted Alibaba is not currently focused on profitability: “The goal for now is to “enhance [the] online shopping experience, making it more fun, more immersive and more experiential.”[xiii] While there are only few items available to be purchased on Buy+ at this time, it’s hard to argue against the technology’s potential to disrupt the e-commerce industry in China and beyond.

 

[793 words]

 

[i] “Alibaba Offers Virtual-Reality Shopping on Singles’ Day,” Wall Street Journal, November 10, 2016, http://www.wsj.com/video/alibaba-offers-virtual-reality-shopping-on-singles-day/8D484747-9555-4AFA-810B-596E2D684587.html, accessed November 2016.

[ii] Stefan Innerhofer, “Alibaba Wants You to Shop in Virtual Reality,” VR Scout, August 28, 2016, http://vrscout.com/news/virtual-reality-shopping-alibaba-buy/, accessed November 2016.

[iii] Reuters, “Alibaba’s New Payments Concept Lets Virtual Reality Shoppers Pay by Nodding,” Fortune, October 12, 2016, http://fortune.com/2016/10/12/alibaba-virtual-reality-payments/, accessed November 2016.

[iv] Wu, J., Li, Q. & Kee Wei, K. 2016, “Alibaba’s IT platform and electronic commerce synergy in driving “Singles’ Day””, Journal of Organizational Computing and Electronic Commerce, vol. 26, no. 3, pp. 193-202.

[v] “Alibaba Offers Virtual-Reality Shopping on Singles’ Day,” Wall Street Journal, November 10, 2016, http://www.wsj.com/video/alibaba-offers-virtual-reality-shopping-on-singles-day/8D484747-9555-4AFA-810B-596E2D684587.html, accessed November 2016.

[vi] Lydia Dishman, “Inside LA’s new, futuristic store — magic mirrors included,” Fortune, October 8, 2015, http://fortune.com/2015/10/08/rebecca-minkoff-technology/,

[vii] Rachel Strugatz, “Ralph Lauren, Oak Labs Debut Interactive Fitting Rooms,” WWD, November 18, 2015, http://wwd.com/business-news/retail/ralph-lauren-oak-labs-connected-fitting-rooms-10280895/ , accessed November 2016.

[xiii] Hunter Skipworth, “Ikea app can virtually place furniture in your living room,” Digital Spy, August 5, 2013, http://www.digitalspy.com/tech/apps/news/a504162/ikea-app-can-virtually-place-furniture-in-your-living-room/, accessed November 2016.

[ix] Helen Wang, “From Virtual Reality To Personalized Experiences: Alibaba Is Bringing Us The Future Of Retail This Singles Day,” Forbes, November 6, 2016,  http://www.forbes.com/sites/helenwang/2016/11/06/how-alibaba-will-use-the-worlds-biggest-shopping-day-to-transform-retail/#d8f9db87b434, accessed November 2016.

[x] Oculus Rift, https://www.oculus.com/, accessed November 2016.

[xi] Wu Yan, “Average salary in major Chinese cities is $900 and growing,” China Daily, January 21, 2016, http://www.chinadaily.com.cn/china/2016-01/21/content_23183484.htm, accessed November 2016.

[xii] Alice Hines, “Virtual Retail-ity: The Strange Lonely World of Virtual Shopping in China”, Vice, November 11, 2016, https://news.vice.com/story/alibaba-vr-shopping-buy-singles-day, accessed November 2016.

[xiii] Ibidem.

Featured image is sourced from: Stefan Innerhofer, “Alibaba Wants You to Shop in Virtual Reality,” VR Scout, August 28, 2016, http://vrscout.com/news/virtual-reality-shopping-alibaba-buy/, accessed November 2016.

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5 thoughts on “Bringing New York’s Fifth Avenue to China

  1. I would be curious to see how Alibiba executes on this idea. From my knowledge, virtual fitting rooms are extremely difficult to do well. They are very data intensive, where each piece of clothing needs to carry info on its dimensions at every size and overlay that with the dimensions of the individual, on a product that changes seasonally. Dimensions in this scenario are also not limited to bust / waist / hips as body types range much more widely than this, and weight / height can be distributed in a number of different ways. Fit can also be somewhat subjective, depending on how the consumer wants to wear the piece of clothing. All of that is to say, I have doubts around virtual fitting rooms giving consumers actual confidence in buying and being happy with the product. To that end, I would also wonder how Buy+ would handle returns and exchanges in such a global marketplace.

  2. Nice article, Priscilla.

    Virtual reality shopping experiences have their limitations: they are not as engaging as physical experiences, especially when it comes to products like apparel for example, where look, fit, and feel are very important. Moreover, VR shopping experience requires consumers to move in a physical space, which is not as convenient as e-commerce is right now, where consumers can shop from the comfort of their own beds.

    Furthermore, whether VR is going to shape the future of retail is very questionable, especially at this time where hardware has a long way to catch up with software. There is a possibility that offering a sub-optimal VR experience with the current hardware on the market will actually destroy value for companies such as Alibaba.

    For example, In 2007 Second Life, an online virtual community developed in the US, was the talk of the technology sector, and consumer brands including Dutch bank ABN AMRO, UK entertainment channel MTV and Japanese carmaker Toyota all set up shop in its 3D virtual world, hoping to capitalise on what many predicted would be an important new digital channel. However, the promised revolution never materialised and Second Life is now barely remembered, except as a cautionary tale for the new wave of virtual reality platforms. What went wrong? The platform’s clunky design was certainly a factor: tens of millions tried Second Life once, but most, daunted by the confusing user experience and steep hardware requirements, never returned. [1]

    [1] https://www.eiuperspectives.economist.com/technology-innovation/virtual-reality%E2%80%94-it-really-future-retail

  3. Thanks for the insight Priscilla. I am curious to see how successful Alibaba will be at incorporating virtual reality into the retail space. Currently, customers are not accustomed to wearing virtual reality devices outside of playing games (such as Pokémon Go). However, based on a 2015 Statista survey, active virtual reality users will reach 171 million by 2018. While this might be an aggressive forecast, I think Alibaba’s capital investment into virtual reality will ultimately disrupt the retail industry.

    https://hbr.org/2016/09/virtual-and-augmented-reality-will-reshape-retail
    http://www.forbes.com/sites/rachelarthur/2016/06/15/future-of-retail-artificial-intelligence-and-virtual-reality-have-big-roles-to-play/#7da46f0e420c

  4. Thanks Priscilla for starting the discussion. The challenge for online shoppers these days are conversion rates. That’s one thing in which brick and mortar stores still beat online retailers by a big margin (2% to 4% for online retailers and 20% to 40% for brick-and-mortars) (see link). The main reason for the difference being experience and trialability. VR and AR technologies are changing the landscape in a way that will enable online retailers to overcome this weakness. However, the only dimension VR provides is “see”, still leaving out “touch” and “feel” needed for articles such as apparel, make-up and jewelry. Therefore, you are right in identify potential in these technologies, however, I believe it will be restricted to areas heavily depended on “seeing” in context, such as IKEA furniture or home decorations etc. as opposed to clothes and wearables.

    http://time.com/4273885/virtual-reality-shopping/

  5. Thanks for interesting post Priscilla! Although I think incorporating VR into Alibaba’s platform is exciting and certainly the next frontier in online shopping, I’m a little doubtful it will scale well, especially in China, where it’s likely going to take a very long time for the technology to become affordable enough for the average consumer to get a hold of it.

    In addition, I’m still a little unclear as to how VR will translate to increased sales. It’s possible I’m misunderstanding how VR works in this context, but I think at this stage it is only increasing the complexity of an online purchase by having a VR element and then going online to actually submit an order + payment. While I can see the appeal of creating a virtual shopping experience, to Gabi’s point, I think the VR will have trouble actually simulating fit, which then just makes the process a lot more cumbersome and time consuming for little reward.

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