China’s brick-and-mortar push: Will the online/offline blend boost travel spend?

Brick-and-mortar threaded through this year’s TravelDaily conference in Shanghai, China. The online/offline blend is increasingly in fashion – and has created a division between brands that believe in the power of physical stores and those that stay the digital course.

ChinaTravelNews recently called this blend the “online/offline myth,” suggesting that the value of blending digital and physical is not a foregone conclusion.

The competitive Chinese tourism market is witnessing a rising wave of online-offline integration as local operators like HNA Caissa and Utour Group are establishing their online presence while OTA giant Ctrip plans to boost offline stores to 6,500 by the end of [2017].

As of June 30, 2017, Ctrip and Qunar opened over 400 offline retail stores in lower-tier Chinese cities. Some of these stores have a monthly revenue of RMB 2 million per store, according to Ctrip’s second-quarter earnings from August 31, 2017.

Even so, with giants like Ctrip investing heavily in an offline presence, it’s hard to imagine a low-to-no value of the offline/online blend. If smart management teams behind Ctrip see the potential, then there must be something there. Right?

The answer is yes, indeed. For some brands, the offline experience can greatly enhance their digital offerings. One only has to look at Thomas Cook and Flight Centre to understand how a localized brick-and-mortar strategy can drive real results in travel.

Several large tourism brands in China also see the potential of a blended strategy. While Ctrip is arguably the most well-known outside of China, several known and emerging players are expanding their digital offerings with a real-world physical experience.

A physical presence supports a lifestyle brand strategy

Some brands are even offering non-travel related products, from wine to coffee, as a means to deliver a full-on lifestyle brand to Chinese consumers. While on the surface this is surprising, there’s nothing much different than an Amazon entering travel. The idea is to be all things to your most loyal customers. This is a key piece of a blended strategy — let’s not forget that Amazon’s purchase of Whole Foods gives it just that kind of lifestyle cachet.

i++ Travel Group’s Ivan Huang says that an expanded product mix has been working well, driving a massive expansion strategy in the coming year:

“Our stores also sell insurance, red wine. We are a comprehensive store. We hope we can become a lifestyle-oriented service provider. We have signed contracts for over 1,000 stores and 700 are operational.”

Thomas Cook, known for its offline/online blend in other markets, does not plan on following this trend towards the offline in China. Even so, Alessandro Dassi, CEO and GM of Thomas Cook China, told ChinaTravelNews that the company might lean on the offline channel for its lifestyle and branding efforts, rather than using its stores to sell actual travel:

“At the moment, we don’t think we need to build an offline distribution network. We are potentially looking at…the creation of [offline] stores for marketing and branding purposes, instead of points of sale.”

Chinese mega-operator Utour not phased by Ctrip’s moves

Utour is one of Chinese largest travel outlets, driving bookings primarily through the online channels. Bin Feng, the outspoken chairman of Utour Group, sees this emerging blend as the right way to build his business, saying:

“Our brick and mortar stores are doing very well. The expenditure for marketing is not going to increase, but we will spend what we need to promote the product in the market. No matter if its online or offline, you have to combine the two. That’s the way you can go into the future.”

These moves towards competing both in the online and offline arenas are creating a frenzy of activity. The fact that most of these businesses are also partners, as far as supply and distribution, is not lost on those involved.

When it comes to personalization, this can create some friendly competition on pricing supply for partners.

“We want to customize our offering to the specific needs and preferences of the customer. We have moved beyond the standard package offer, which is one-size-fits-all. We can offer more, pricing-wise, than before. We have a relatively synchronized pricing mechanism. The price I give to Ctrip compared to other partners, it depends on whether our partners take us seriously enough. If a smaller client takes us seriously, I will give them a discount because they can give us bigger volume. But this also applies to Ctrip, this is my philosophy as well.”

Feng also sees methodical growth as the key to successfully holding off Ctrip’s ambitions to open hundreds of stores across the country.

“[Store] development is painfully slow. It’s slow because we hope that, in order to guarantee the quality of the service, that we open 100% stores as directly operated. The stores need to address the needs in each specific city. Some can have larger floor plans and others cannot.

“We need to stay close to the community, so we can’t move too fast. Stores, for one thing, can help you develop word of mouth. Your loyal customers can bring in additional revenue stores. And you can ensure all stores are profitable.”

In response to his comment about all stores being profitable, the room audibly laughed out loud. There’s a clear challenge to deliver profitability across a broad portfolio of physical stores — especially in the Chinese market. Feng responded quickly:

“Yes, all stores are profitable! You have to put in efforts for many years, and cannot hope to achieve success overnight. Allow yourself to move slowly enough to become excellent. So you shouldn’t move too fast.

“From that perspective, we will come committed to our direct operation approach to combine online and offline in some regions and areas. If you want to provide solid tourism services, the fast-growing outlets will have problems. What grows fast, can die fast!”

Photo by Nic Low

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Nick Vivion

About the Writer :: Nick Vivion

Nick is the Editorial Director for tnooz. Prior to this role, Nick has multi-hyphenated his way through a variety of passions: restaurateur, photographer, filmmaker, corporate communicator, Lyft driver, Airbnb host, journalist, and event organizer.



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