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5G Will Give Some Retailers an Edge. Others Will Fall Behind.

Retailers using the latest 5G technology in markets like China will be poised to benefit from new efficiencies and pioneer new experiences. Read China Decoded to make sense of the market.
Collage by BoF
By
  • Sam Gaskin,
  • Zoe Suen

Hello BoF Professionals, welcome to our latest members-only briefing. China’s colossal size and dynamism makes it a top priority for any global business, but it remains opaque to many in the fashion industry. Leveraging our rare access and local knowledge, the BoF China team demystifies the Chinese market with weekly industry analysis and the wider socio-cultural context you need to sharpen your focus.

BEIJING, China — "I want 5G, and even 6G, technology in the United States as soon as possible," tweeted President Donald Trump on February 21.

While many media outlets poked fun at the president for invoking a technology that doesn’t exist (6G), the tweet encapsulates several forces shaping business today. It demonstrates just how seriously the US takes China’s advances on 5G (Fifth Generation mobile) technology, while Chinese tech firm Huawei remains a lightning rod for wider issues surrounding national security.

Meanwhile, the Korean giant Samsung announced its first 5G-capable smartphone on February 20 ahead of the Mobile World Congress, which takes place in Barcelona this week. Not only does this suggest that Western markets are falling behind 5G leaders in China, Korea and other Asian countries, it also ushers in a new era with significant ramifications for retailers.

Samsung’s Galaxy S10 5G | Source: Venturebeat

"I've just come back from Shenzhen where I met some of our leading voices in the Chinese tech industry. It's pretty clear to me that China is now one step ahead of the US and other countries when it comes to innovation around 5G, especially around marketing and application," says Shaway Yeh, the Shanghai-based group style editorial director of Modern Media and founder of tech and sustainability agency Yehyehyeh.

“No one is sure yet exactly how it’ll all play out, but there are definitely going to be big opportunities to advance our e-commerce capabilities here as a result — and that will mean fashion brands will enjoy the benefits here first. It’s pretty obvious that being an early adopter can give you advantages.”

According to data from Adobe Digital Insights, 5G's faster page load times could bring an additional $12 billion in revenue per year to US online retailers alone by 2021.

The possibilities seem to be far, far greater than that, but as with all new technologies, they won’t be shared evenly. Recon Analytics estimated that winning the race to 4G gave the United States a GDP boost of nearly $100 billion and spurred wireless-related jobs by 84 percent.

Ultimately, the US National Security Council (NSC) says that the impact of jumping from 4G to 5G will be less like the step from 3G to 4G and more like the invention of the Gutenberg Press.

How Will 5G Impact Retail?

The first-generation cellular network let us walk and talk, 2G let us send texts, 3G made the iPhone possible, and 4G let us stream videos. 5G, which has begun limited launches in several markets, promises to usher in a new era of constant, omnipresent connection.

US telecommunications industry group CTIA says it will slash latency by five times, send data up to 100 times faster and support up to 100 times as many devices as 4G, all while consuming less energy.

Experts believe 5G will make long-hyped technologies such as augmented reality (AR), virtual reality (VR), the Internet of Things (IoT) and artificial intelligence (AI) ubiquitous. It will help retailers optimise every part of the value chain, from cheaper energy bills to smart stock rooms that save space and lower rents.

Strategy firm Huge says 5G-connected cameras and sensors will give retailers significant new insights about consumer behaviour in real time, and rapid volumetric video recording will allow sales assistants to appear as holograms in people's homes. CTIA claims it will even make drone deliveries a reality — something both America's Amazon and China's JD.com have explored.

Michael Koziol, chief executive of Huge, says, “It’s our position that 5G is going to have a transformative effect on every industry and every digital and digital-cross physical use case out there on the level of the modern industrial revolution. Specific to retail, we believe that the commercial opportunities for 5G will be extremely significant and among the first to take effect, ahead of other categories.”

People won't wait any longer than eight seconds for data to download, [or for] an experience to load.

When it comes to providing engaging experiences, retailers already pushing the boundaries of 4G LTE will be able do much more. Last year, digital agency AKQA built a 360 degree virtual store environment for Nike China, where interactive motion graphics required users to download hundreds of megabytes of data.

“With the rollout of 5G, at a very minimum, it’s going to allow us to build experiences that happen at the click of a finger with almost no latency,” said Steven Gutteridge, AKQA Shanghai’s Head of Technology.

“What we’ve found through our own user research, and it’s pretty much industry acknowledged, is that people won’t wait any longer than eight seconds for data to download, [or for] an experience to load,” he said. In China, AKQA aims for a maximum loading time of three seconds.

Gutteridge believes 5G will enable not only richer digital experiences but also mass adoption of wearables currently hindered by 4G’s latency. He said it would provide retailers neighbourhood-level data that will help them revitalise their brick-and-mortar offerings, and ultimately transform the way stores are designed and built.

As IoT devices become more ubiquitous, he believes 5G will become a utility like gas, electricity and water. “Traditional utilities are quite instrumental in how we design a space,” Gutteridge said.

By making the most of AR and VR — already used by everyone from Specsavers to Sephora — future retail stores could free up space given to shelves, racks, stock rooms, dressing rooms and checkouts, allowing them to focus more on experiences.

This shift in the very architecture of retail stores is one of the reasons AKQA acquired UK architecture firm Universal Design Studio in 2018. He cites the digitally enabled "centre court" at Nike's new Shanghai flagship store on the Bund as an example of the new model.

Who Will Get 5G First?

A report by telecommunications research firm Analysys Mason and shared by the CTIA found that the US is lagging behind China and Korea in developing 5G, with Japan in fourth place and European countries trailing even further behind.

However, a more recent report by Cisco claims that by 2022 North America will lead the race to 5G with 439 million connections, followed by Asia with 311 million and Western Europe with 192 million.

Roger Entner, founder of Recon Analytics, said "The United States is currently engaging in heroic efforts to not fall behind in 5G and you see that reflected in the Cisco numbers." However, he said, the high number of American connections in Cisco's report comes from a bump in mid-band spectrum, which provides better coverage but lower speeds than the millimetre-wave "pizza box-sized" 5G antennas.

“The US is still deploying small cells that are critical for 5G at a pace that is one tenth of China's,” he said.

Koziol said he expects 5G to arrive first in “major metro-US markets, key Asia hubs, starting with China, and then a handful of major European markets as well,” but that “it will be highly localised at first.”

“We’ll see 5G be implemented in specific physical instances, like a theme park or a shopping mall or a sports venue, where it wouldn’t necessarily give the functionality for everyone to engage with their phones, unless they had a device that was ready, but it would allow the place to do magical things, like with AR and VR, and a deeper IoT connection.”

That means the race to 5G will be won by various players within different markets, not by a single country or continent. Nevertheless, some retail markets are readier to benefit from 5G than others.

"China has already made great strides in bridging digital and physical, and with mobile payments, it's primed to take advantage of a new 5G mode of retail experience," Koziol said.
China does have some clear advantages. It's the world's biggest e-commerce market, and Alibaba founder Jack Ma has been evangelising for 'new retail' — the marriage of the best of offline and online shopping that 5G promises to facilitate — since 2017. China is also home to major telecommunications players ZTE and Huawei and tech companies Tencent and Alibaba that have access to enviable amounts of data for 5G to fire around.

Gutteridge sees China having the edge.

“We’re probably about 12 months ahead,” he said. “At Mobile World Congress we’re expecting some of the cell phone manufacturers from China, like ZTE and Huawei, to be showing off 5G-enabled devices. I don’t think you’re going to get something out of Apple until probably next year.”

Does Being First Really Matter?

A leaked document from the National Security Council says whichever country dominates 5G will "win politically, economically and militarily".

The reality for retailers is likely to be much more nuanced, but Koziol said, “I do believe that there will be significant benefit in terms of economic development for locations that first receive 5G capability. It will create the opportunity for innovation, new companies to be developed, and new processes to be applied to existing and legacy companies as well.”

All this is still some way off. Even by 2022, Cisco says 5G will make up just 3.4 percent of total mobile connections, and their average speed will be just 170Mbps. That means the race for 5G is not a sprint, but a marathon. And like marathon runners, it’s best for retailers to start preparing early and having a long-term strategy.

Koziol agrees. “Even though we’re talking about 2022, it’s critical that everybody in categories that want or need to take advantage of 5G start preparing themselves right now.”

时尚与美容
FASHION & BEAUTY

Uniqlo's 'Mao suit', and the famed ensemble worn by Deng Xiaoping and Mao Zedong | Source: Shanghaiist

Uniqlo’s “Mao Suit”: Coincidence or Communist?

Uniqlo's latest spring jacket, which retails at $69.90, struck a chord when paired with its matching trousers. The khaki number, featuring four pockets and a button at the collar, reminded social media users of Mao Zedong's signature ensemble, now be seen on the likes of Chinese president Xi Jinping, as well as North Korea's Kim Jong Un and Kim Jong Il. Bemused netizens took to social media to post images of the two looks side-by-side: one joked that the jacket would sell better if marketed as a Kim Jong Il cosplay set, and another remarked that it could use "a cap with a red star to complete the ensemble." However, those aren't the only comparisons being drawn: other netizens have remarked that the khaki shade reminded them of Imperial Japanese army uniforms, while others think the set resembles pyjamas. Uniqlo has since promptly denied that the kit was inspired by Mao's favourite outfit, though the item remains available for sale on the Japanese company's site.. "Any resemblance that customers or people on the web have commented on is purely coincidental," Aldo Liguori, director of global public relations for the company, told SCMP. "That was never in our minds when we designed the item." (Vox) 

D&G Boycott Continues at Milan Fashion Week

Three months after the much-reported Dolce & Gabbana furore, the Italian fashion house has yet to return to Chinese media's good graces. At the brand's Fall/Winter 2019 show held on February 24, the venue's Chinese media section — which typically rivals the size of US media present — was less than a third of its usual size. According to SCMP, only a handful of major editors from China's top publications showed up: an editor from Marie Claire China said that she only attended the show to support the Dolce & Gabbana public relations team in China, rather than Dolce & Gabbana itself, and Angelica Cheung of Vogue China was notably M.I.A. Furthermore, five Chinese editors stated that they have no plans to cover the show through their publication's numerous channels, few Chinese models were present on the runway, and Chinese influencers were absent among the guests. Though many have doubted that the freeze-out would persist, it looks like the brand will still be blacklisted from the Middle Kingdom for some time to come. (SCMP)

JD, BFC Ink Three-Year Partnership

On the first day of London Fashion Week, Chinese e-commerce giant JD.com and the British Fashion Council (BFC) announced their new three-year strategic partnership. The deal sees JD.com — who will support on-schedule designers and events across London Fashion Week and London Fashion Week Men's — named as London Fashion Week's exclusive Chinese retail partner. Furthermore, the partnership hopes to help British and international designers break into China's competitive but lucrative consumer market, serving both "JD's more than 300 million customers in China" while "reducing the gap between the fashion industry in China and the rest of the world," said Victor Hu, president of JD Fashion and Lifestyle in a press release. This isn't the first time the Chinese giant has linked arms with the BFC, with which it was tied to the BFC/Vogue Designer Fashion Fund and BFC/GQ Menswear Designer Fund, though it has also kept busy across the Atlantic having supported the 2017 CFDA/Vogue Fashion Fund. Seeing as JD.com's arch rival Alibaba has kept comparatively quiet this fashion month — with Tmall opting out of its long-supported New York Fashion Week China Day event — it may just have a head start for the year, as far as runway relations goes. (JD) 

科技与创新
TECH & INNOVATION

Meituan Dianping's food delivery staff | Source: Meituan Dianping

Chinese Beats US, Nabs ‘The World’s Most Innovative Company’ Title

Tencent-backed Chinese group-buying app Meituan Dianping was recently named the world's most innovative company by Fast Company, which put the "transactional super app" at first place over the likes of Apple and Amazon. The app has grown into an all-purpose booking app, which expedites transactions for hotels, restaurants, and movie tickets, and according to the rankings, 1,783 Meituan-enabled services are used every second of every day. The rankings also take note of Meituan's data-powered recommendation functions, which enable a highly personalised user experience for consumers. Another "transactional super app" — defined by Fast Company as "amalgamations of lifestyle services that connect hundreds of millions of customers to local businesses" — came second in the form of Singaporean ride-hailing company Grab, followed by the NBA at third place. Amid Washington's allegations of Chinese tech theft, it's interesting to see this year's top three making a case for the Far East, considering last year's favourites were Apple, Netflix and fintech player Square. (RT) 

Chinese Video Platform’s Annual Membership Revenue Exceeds 10 Billion Yuan

Paid video streaming service iQiyi — frequently referred to as the "Netflix of China" — is growing faster in China than Netflix is globally. On February 22, the company released its fourth quarter financial reports for 2018, revealing that its total revenues reached 25 billion yuan (around $3.6 billion) during the fiscal year, up 52 percent year-on-year, including 7 billion yuan in the fourth quarter, up 55 percent year-on-year. Notably, iQiyi's membership base grew by 36.6 million accounts — a 72 percent year-on-year boom placing its annual membership revenue at a record-breaking 10.6 billion yuan. This was the year the platform launched hit shows such as Yanxi Palace and The Rap of China, so it's no surprise that iQiyi has stolen Netflix's crown — the American streaming giant previously held the global record for the number of members added annually at 29 million, but now must settle for second place. (36Kr) 

消费与零售
CONSUMER & RETAIL

Lanvin's Autumn/Winter 2018 runway show | Source: Getty Images

With Global Ambitions, Fosun Launches Brand Management Arm

Beijing-based conglomerate Fosun Fashion Group — the owner of Lanvin, Wolford, St. John Knits, and Caruso — announced on February 22 that it would be making its foray into brand management through the newly established Fosun Fashion Brand Management, which will serve global brands looking to break into the Chinese market. Just two days prior, Fosun announced a takeover bid for struggling German fashion chain Tom Tailor, and has been steadily increasing its shares in the ailing company since 2014. Following its appointment of Bruno Sialelli as Lanvin's new creative director in January, it's clear that Fosun is looking to not only strengthen its European brand portfolio as it has done for years, but become the integral middle man for foreign brands hoping to tap into China's vast yet segmented market. (Business Insider)

No Labels Necessary for Trace Preservatives in Beauty Products

Following China's Food and Drug Administration's (CFDA) recent crackdown on cosmetics claiming medical effects, the agency adopted a more lenient stance regarding the labelling of additives to raw materials in beauty products. On February 15, the CFDA announced in a statement that adding stabilisers, preservatives, antioxidants and other ingredients to raw materials in cosmetics will not require specification on product labels. However, for the raw materials themselves, all components should be truly labelled on the visual surface of cosmetics packaging. Preservatives of this kind can inhibit or prevent the growth and reproduction of microorganisms in products and ensure that they don't deteriorate during their shelf life, but can also cause irritation and allergic reactions, which the CFDA notes. However, the agency stated that it would be unrealistic to popularise preservative-free products. "Such products that claim not to add preservatives are often packaged with very small content and short shelf life, requiring that they must be used up in a short time after opening, which has great limitations in use," it wrote on its official website. This could complicate things for natural and organic beauty companies in China, which has long lacked an authoritative certification body, as well as the consumers that value transparency for the products they use. In fact, certification for organic cosmetics was canceled by the state certification and accreditation administration in 2012, and the lines will only be further blurred by the CFDA's new stance. (CE)

Rumours of an Amazon China, NetEase Koala Merger

On February 19, it was announced that Amazon's Chinese internet portal Haiwaigou is in talks to merge its local import business with Koala, the cross-border e-commerce platform operated by Chinese gaming company NetEase. Though both NetEase and Amazon have declined to comment, Caijing reports that a preliminary stock swap agreement was reached in winter 2018 and NetEase initiated the talks. For e-commerce players, gaining a foothold in China will only become more important: according to Market Size Forecasters, Chinese e-commerce sales are expected to exceed $1.9 trillion, growing to account for nearly one third of all global retail sales in 2019. Amazon doesn't lack money, technology or the right business model, but finding a means to localise its operations is its Achilles' heel, and the American giant will continue lagging behind local leaders Alibaba and JD.com without a Chinese ally — eMarketer states Amazon held less than a 1% e-commerce market share in the country last year, while Alibaba and JD.com held 58 percent and 23 percent respectively. (Yuanchuang) 

政治、经济、社会
POLITICS, ECONOMY, SOCIETY

Cargo freight containers at Hong Kong's sea port | Source: Shutterstock

Trump Schedules 'Signing Summit' For Long-Awaited Trade Deal 

On February 25, President Trump declared that a 'signing summit' between himself and China's Xi Jinping would be taking place in Mar-a-Lago to realise the much-anticipated US-China trade deal, an event "very, very close" to happening if all goes to plan. Trump's optimism followed on from the day before, when the president tweeted that he would delay an increase in tariffs on Chinese goods previously set to come into effect on March 1, citing "substantial progress in [their] trade talks with China on important structural issues including intellectual property protection, technology transfer, agriculture, services, currency, and many other issues." Following Trump's tweet, the New York stock market hit a fresh three and a half-month high at the start of trading, while virtually every stock on China's CSI300 index rose. And beyond the economic markets, a deal would have big implications for the likes of Huawei and ZTE Corp: hinging on the success of the trade talks are the criminal charges against the Chinese telecom giants, which Trump stated "may or may not" be included as a part of the trade deal. (CNN) 

Alibaba Was Behind Beijing’s Hit Propaganda App

Two employees revealed to Reuters that it was in fact the Chinese tech and retail giant that helped the Chinese Communist Party (CCP) create its 'Xuexi Qiangguo' (which translates as 'Learn to strengthen China') app — a government propaganda tool that teaches users the ins and outs of Xi Jinping thought. Last week, the app overtook Douyin and WeChat to become the country's most popular, and Beijing-based data consulting firm Qimai estimates that it has been downloaded over 43.7 million times on iOS and Google app stores since its launch in January. It's been long known that Jack Ma is a member of the CCP, and this isn't the first time that a tech company has cooperated with the government and state media outlets (i.e. Bytedance and Tencent), which can put firms in good standing to obtain licenses and opportunities. (Reuters) 

K-Pop Stars Could Take China’s Stages Again

In a sign that relations between China and South Korea are on the mend, Chinese concert promoters are making a case that Korean pop stars should be allowed to perform in the country again. Since South Korea agreed to host a US missile defence system in 2016, there's been an administrative boycott against South Korean businesses, and the Bank of Korea estimated that the backlash cost its country economic growth of 0.4 percent in 2016. No major South Korean musical acts have taken the stage in the Middle Kingdom since, and it was thought that the government would deny granting them visas. But according to sources close to the matter, applications are being made once more, though it will be up to the Ministry of Culture and Tourism to approve entry rights for the artists. The move would follow other signs that tensions are thawing: a ban on group tours to South Korea was partially lifted last year, while the country's entertainment is now promoted on streaming and entertainment services in China. And as demand for K-pop stars such as BTS and Blackpink soars, opening the gates to live acts will likely create greater demand for Korean beauty and celebrity-endorsed fashion — earlier this month, boy band BTS sported creations by home-grown South Korean designers Kim Seo Ryong and JayBaek Couture at the Grammy awards. (SCMP) 

China Decoded wants to hear from you. Send tips, suggestions, complaints and compliments to zoe.suen@businessoffashion.com.

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