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Business
From Cashless to Staffless
Are unmanned stores the future of China's retail industry?
By Deng Yaqing | NO. 32 AUGUST 10, 2017

An F5 Future Store in Guangzhou, capital of Guangdong Province, on July 12 (VCG)
With an increasing number of consumers in China not carrying cash when going shopping, the value of mobile payments has skyrocketed over the past years, reaching $5.2 trillion in 2016. Could it also mean that cashiers are on their way out, becoming a phenomenon of yesteryear?

On July 8, Alibaba Group opened its first cashier-free retail store Tao Cafe in the company's hometown Hangzhou, capital of east China's Zhejiang Province, in the footsteps of the Amazon Go store that made a big debut last year. A long queue of curious customers soon formed.

For customers walking in, purchases are recorded by cameras using facial recognition software, and the system automatically produces bills as soon as they step out of a specially designed gate that can identify them with bio-sensing technology. The trial run is a move that could bolster market confidence in the future of staffless stores.

In fact, Bingobox, a Guangdong-based tech startup, predated Alibaba's new attempt, opening its trial staffless retail stores in August 2016. So far, Bingobox has 10 such stores in Zhongshan, a city in south China's Guangdong Province, and Shanghai, absorbing more than 100 million yuan ($14.86 million) in its first round of financing. Its CEO Chen Zilin indicated 200 staffless convenience stores will be launched by the end of this August, and roughly 5,000 stores are expected within one year.

Unlike Tao Cafe, Bingobox stores are more of a hybrid between convenience stores and vending machines, where customers can pay by scanning QR codes with their mobile phones.

More players are entering this arena. Bingobox's major rival F5 Future Store, another staffless shopping chain that has opened six stores, received financial backing from Sinovation Ventures in late June. Aiming to build 24-hour unmanned convenience stores based on its self-developed mechanical arms and backstage management system, F5 plans to add another 30 to 50 outlets onto its business map within three to six months, taking the number to around 80 by the end of the year.

"The core goal is convenience, which can be achieved through high density. By lowering initial input and operation costs, we are devoted to pursuing a dense distribution of outlets," Xu Haicheng, CEO of F5, told National Business Daily.

Mixed market response

In 2016, convenience stores, shopping malls and supermarkets experienced rapid growth of 7.7 percent, 7.4 percent and 6.7 percent, respectively, according to a report on China's retail industry released by the Ministry of Commerce.

In the eyes of some venture capitalists, staffless stores are not appealing.

"We prefer projects that are rooted in a large market and can expand rapidly," Mao Shengbo, a partner in Panda Capital, told National Business Daily, adding that staffless convenience stores were not likely to experience explosive growth, while such a business requires a large scale to make profits.

For example, Family Mart, the Japanese convenience store franchise chain, set foot in the Chinese market in 2004. It broke even only in 2014 after opening 1,530 outlets across the country.

However, in stark contrast to Mao, Xiong Hao, General Manager of Sinovation Ventures' South China Business, believes that staffless stores are bound to experience rapid development because there is still a shortage of convenience stores in China.

"In addition, the replacement of workers with machines is a process that many industries are undergoing. The convenience store sector will be no exception. Moreover, staffless convenience stores can infiltrate into places such as residential communities, scenic spots and industrial parks where large supermarket chain stores like Family Mart can't enter," Xiong said.

A customer shops at a Bingobox store in Shanghai on July 14 (VCG)

Teething problems

For now, staffless retail stores seem to be blooming, with customers seemingly getting used to shopping without promotion specialists or cashiers. According to statistics from the Auchan Group, which is in charge of Bingobox's global business and the layout of its staffless convenience stores in east China, nearly 80 percent of Bingobox customers have been making repeat purchases in the staffless stores.

Yet, some technical problems do exist in popularizing such stores, such as facial recognition failures and difficulties in the identification of purchased goods at the checkout.

Right now, there are two ways to identify objects in staffless stores—one using tags and the other using visual recognition technology. Although the latter will become the mainstream in the future, the technology is too costly now.

"Completely using visual recognition technology to identify customers and purchased commodities is expensive as well as difficult, especially when the marketplace is too crowded. The high cost explains why the technology has not been widely used and commercialized," Zeng Xiaodong, a senior technician with Ant Financial Services Group, the finance arm of Alibaba Group, told 21st Century Business Herald.

Sales revenue and management costs are two major factors that will determine the spread of such stores, according to a report by China International Capital Corp.

Cashier-less convenience stores lag behind traditional ones in terms of consumer transactions, which means they need to attract more customers through various channels. Also, only if one worker can manage six to 10 stores and the attrition rate of equipment in the stores is kept low can the management costs of staffless stores be kept under control, reads the report.

"Staffless retail stores should be taken as supplements to traditional ones, but it's impossible for them to replace the latter, especially large-sized supermarkets," said Liu Xingliang, a renowned Internet expert.

Liu said staffless retail stores are similar to upgraded automatic vending machines. Their maintenance and expansion in the future could pose a challenge.

"The evolution of China's retail industry is a gradual process. Staffless stores are not likely to dominate its future development quickly because traditional retailers boast advantages such as providing shopping guidance and responding immediately to enquires from customers," Zhang Li, Deputy Director of the E-commerce Research Institute under the Chinese Academy of International Trade and Economic Cooperation, told China News Service.

However, Zhang conceded that staffless stores will significantly advance China's retail industry, leading to fundamental changes in settlement, service and management.

Copyedited by Sudeshna Sarkar

Comments to dengyaqing@bjreview.com

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