With economies in a fragile state due to COVID-19, many are wondering what Q2 and Q3 will look like, or if they’re even going to have a job. Retail brands that have incorporated AI are faring better. Today we speak with Max Peiro, CEO of Re-Hub about how Chinese companies have used innovation to get through this difficult time, and what the rest of the world can learn from their experiences.
Right now, people in China are carefully emerging as COVID-19 appears to be slowing down. With economies in a fragile state, many are wondering what Q2 and Q3 will look like, or if they’re even going to have a job. Retail brands that have incorporated AI are faring better. Max is going to tell us why, how Chinese companies can innovate to get through this difficult time, and what the rest of the world can learn from their experiences. Max, welcome and thank you for speaking with us today. Can you start us off by telling us a little bit about yourself and Re-Hub?
Max: Hi, Melinda. It’s a pleasure to be here. So about myself, I was born and raised in Barcelona, but I’ve been living in Shanghai since 2008. I always say that I’ve been extremely fortunate to experience first-hand this incredible transformation that’s happening in China in the last decade. And when I say first-hand, I mean during this time I founded two startups prior to Re-Hub, one e-commerce agency that I was lucky to sell to a European group, and a retail analytics startup that was acquired by South Bank. So basically, Re-Hub was founded based on two premises of my past experience. The first one, that corporations need to be agile and need to be efficient in order to drive sustainable growth. And in this fast-changing environment that we live in, in-house resources, legacy technologies are not enough to drive this agility and this efficiency. And the second point is that everyone sees operations with the startups as one of the ways to go, but in reality most of these efforts in startup corporate corporations fail. So, at Re-Hub we wanted to solve these problems, and what we do is we work with global brands in China to help them address specific business challenges by leveraging AI startups.
So, we focus on the demand side, we try to put the challenge first and, based on the challenge, find the most relevant solutions. When I talk about challenges, unfortunately, we cannot solve all the problems in the world like climate change or the coronavirus, but we mostly focus on three main dealers. One of them is growth, the other one is efficiency, and the last one is experience. So we try to solve businesses challenges that cover any of these three dealers. And we only work with growth stage startups, meaning that these are startups that we recommend to the brands, they already have a mature solution, they have a sizable team, and they’re used to work with global corporations. So we focus mostly on three categories: beauty, luxury, and CPG brands. And at the end of the day, what we aim to do is to try to bring our business expertise to understand these challenges that these global brands are facing, and leveraging also our experience with AI startups to validate the most relevant ones and introduce the ones that can solve specific challenges.
Melinda: So, in the intro I mentioned that brands that were already using AI and machine learning before the COVID-19 crisis have managed to fare a bit better during the crisis. Can you tell us a little bit more about that, and if you have an example maybe you can share it with us?
Max: I wouldn’t say it’s specifically about AI, but I think that it’s more about those brands that were already more agile were able to adapt better to the situation. And I think that probably the use of AI is one characteristic of these agile brands. Let me give you an example of what I think is an amazing brand that was able to quickly adapt to the situation. I’m going to show you, if you heard about it, it’s a name called Forest Cabin. It’s a local brand in skincare, and like all of the brands, when this virus hit, around 90 percent of their offline sales disappeared overnight. So, of course, you have a big problem, you don’t have the sales but you still have all the related costs. And especially in China, most of the brands, their shops stay open, so they had the rental, they had the salaries cost. So, they decided to turn all these offline sales assistants to live streaming to promote their products. So obviously this is something that to do it in a matter of days is extremely challenging, and this is an example of even if you decide to implement this, to turn all your offline employees into live streamers, you need the support of AI. So, for example, anything from being able to better train the employees, remember, these are sales assistants, these are not professional live streamers, or using AI in order to analyze the response or the feedback during the live streaming sessions in order to optimize them, or even to evaluate the performance of these live streamers. But again, I would highlight the agility of this brand and many others to react fast, and to be able to turn this challenge into an opportunity, and, of course, the ability of AI to support through this process.
Melinda: That’s excellent. I mean, you are in Shanghai today and you were telling me before we started recording that things are starting to improve a little bit. How are consumers reacting as they’re starting to come out of this period of quarantine?
Max: That’s a very interesting and relevant question, of course. I would say they react with cautious optimism. So at least in Shanghai, what I can see every day is that pretty much everyone is back at work, you see more traffic coming to shops, to restaurants, to cafes. But at the same time everyone is still wearing a mask, there are temperature controls everywhere. So I think that people are more optimistic, very positive, but still very cautious.
Melinda: Right. Well, that makes sense. Your company conducted a study about how people expect to spend money during this period. Can you tell us a little bit about how this research was conducted?
Max: Yes, so when this pandemic hit China, it happened very fast, right? And we realized that people were trying to reach conclusions on what was going on, they were trying to relate it to the previous experience with SARS, but in 2002. But in general, there was a lack of firsthand information on what customers thought. And, of course, it takes time to conduct research on customer sentiment. So, we decided to use machine learning algorithm from Zectr, one of the solutions that we have in our pool, in order to obtain this consumer sentiment. We released an online panel targeting 900 respondents from Beijing, Shanghai, and Guangzhou, and then we asked them 10 questions based on three scenarios: an optimistic one, a base one, and a pessimistic once. It took us around two days to design these questions, to launch this online panel, and then to collect the answers. Once we received these answers, we used Zectr machine learning algorithms to extract the insights in a matter of hours.
Max: So anything related to different psychographics, customer segmentation, preference to our specific categories according to a scenario. We’re able to, from defining what we wanted to obtain, to obtain these insights in less than four days.
I think it’s a great example on how nowadays you can use data, you can use different applications of AI to solve specific challenges.
Melinda: Wow, I mean, that’s so fast. We do that kind of research and we certainly aren’t able to do it in four days, that’s amazing. Can you tell us, though, so you had three scenarios and you were asking people different questions, can you tell us what the study determined or what information, what insights you determined through this research?
Max: Yeah, absolutely. At first what we saw is, it was across different segments and different geographies that pretty much the majority of consumers were expecting that it would take almost five months to return to normalcy. So they were expecting this to launch in the beginning of February, so around May to June for things to go back to normal, right? Even though it’s hard to understand what normal is, but normal life as we knew before this virus.
Max: So that the levels of spending didn’t change much, but there were changes in budget allocations. They were still, like, intending to spend the same, but their preferences changed. Some of the insights were quite obvious in terms of, of course, increasing consumption of household goods or packaged food, but some of them were quite interesting. For example, just a matter of example, we saw that under pessimistic scenario, meaning that if this situation lasts until the end of the year, the packaged food consumption would decrease. So maybe people would be tired of eating packaged food for so long, and they would just go back to trying to buy fresh foods. Or another one that I think is interesting is that we saw a decrease in the intention of consuming alcohol across all segments and all scenarios. So, this is something that probably in some other markets would see the opposite, right? An increase in alcohol consumption.
Melinda: Well, I mean interestingly in Ontario the liquor stores are considered an essential service, so I would suspect that in Ontario we would probably have the opposite.
Now that people are starting to come out and go to work in China, are there any interesting innovations that you’re seeing among retailers that you think are noteworthy?
Max: Yes, but I think also, I mean, Chinese ecosystem is quite different than the rest of the world. But I would say that the first one is, I wouldn’t say it’s an innovation per se because it was already happening, but I think it’s a confirmation of the importance of live streaming, right? I mentioned before about Forest Cabin turning sales assistants into live streamers, but we’ve seen a massive increase in live streaming, and I think that it’s here to stay, right? Another one is also the consolidation of O2O [online to offline]. I think that during this crisis, delivery companies like Humma were not only the winners, but the heroes, right?
I mean, they really supported the needs of millions of millions of people that were in quarantine, and I think that also this brings new opportunities, especially for CPG companies, to break down traditional distribution models. We’re seeing with a lot of our CPG clients that their highest priority to invest right now in the crisis, or getting out of the crisis, is on their O2O models, for example. And another one that I think is quite interesting is the interest in private traffic, and how to leverage marketplaces like the mall, etc., that was the common way to go when embracing online sales, but traffic on WeChat, for example. And same as before, I gave you the example of Forest Cabin and turning sales assistants into live streamers, we’ve seen many brands that did something similar but turning these sales assistants into online sellers. So, turning into their personal networks on WeChat in order to drive sales. I think this is a concept that we’ll see growing in China and could potentially be embraced by the rest of the world, which is the fact of putting more importance on private traffic and empowering the sales assistants in the stores also to embrace online. So, a true omni-channel experience from the supply side.
Melinda: Right. And that involves having a lot of trust in your sales associates because you’re now giving them a bit more power. I’m thinking about that one example, Forest Cabin that you gave to us, how did they get their staff ready so quickly?
Max: Well, confidence and trust is important, but as I mentioned before, here is where the importance of AI and different technologies is, right, on the ability of being able to provide them support. I don’t know specifically about Forest Cabin, unfortunately, they are not our client. I wish they were because they are a very innovative company, but we have solutions in our pool, for example, actually we recently launched given the importance of live streaming, right? So nowadays you can use machine learning, you can learn computer vision natural language processing to be able to collect information about the live streaming in real-time, and then you can use this information either to monitor and to assess the relevance, the response, but also to provide support to the sales assistant. You can even tell them what they need to reply or what things are working, and they need to continue pushing those things.
Melinda: So, in North America we’re kind of where you were in February and March. Are there any quick measures that companies could adopt now that can help them withstand the turbulence with a little more resilience?
Max: I would say that, obviously, the highest priority is about employee safety and damage control, so this is what we saw in China, and we’ll see it everywhere that it’s the highest priority for companies, but once this is achieved, I would say that it’s all about information. I think that what happens is that you need to make crucial decisions very fast. These type of decisions before, it would imply months of research and discussions, and now you need to make them on a daily basis. So I think that it’s important to have as much relevant information as possible. And in a sense, I think that obviously the importance of data, and I think that nowadays we have an abundance of data so it’s not a problem, but the importance of technology and different AI applications to extract insights, quick insights, based on this data, and being able to make informed decisions.
Melinda: Do you think that this crisis is going to provide impetus for brands to become more innovative and future focused? And maybe you could tell us anything that you’re seeing China in regard to that right now.
Max: Absolutely. I think that this has been, or it’s being, a wakeup call for many brands, and we’re seeing it already in China. I mentioned before what is our value proposition. In fact, we are receiving more requests from global brands for our solutions than before the crisis. So, I think that specifically China, yeah, I would say that a few aspects that are extremely relevant for them, the first one is short term to boost online revenues, right? Because I mean, offline, of course, it’s been hit hard and it’s going to take still several months to fully recover, so how to, in the short term, optimize their online sales. We are working a lot on marketing optimization, so optimize your marketing box, work on ROI. Also, anything related to consumer insights, I think that this crisis also, it took a dent on the consumer preferences and buying habits. So a lot of brands are concerned, rightfully concerned, about understanding the consumer’s perception and whether this change or not after the crisis, and anything related more midterm about omni-channel capabilities. I was giving you before the example of empowering sales assistants but now we see an increased interest, especially among premium and luxury brands, on really boosting their omni-channel capabilities.
Melinda: And do you think that these are universally relevant that they’re also relevant in North America, or do you think there’s a difference between what we need here compared to what they need in China?
Max: I think that the differences are mostly on which stage the company is, but I think there is something that is universal, which is to put the customer at the center. And I know this is something that all the brands are saying, but it’s about doing it, right? And I was talking right before about omni-channel, so in order to be able to deploy omni-channel, it’s all about having a unified view of your customers across the different channels. So, this is obvious that not that many brands nowadays still do it. And then, of course, like, being able to, once you understand what they need, being able to personalize your offering.
Melinda: Well, thank you so much for sharing your thoughts with us, and I’m going to link to the Re-Hub website in our podcast description, for anyone who wants to get in touch with Max and find out more. Thanks so much for being with us.
Max: Thanks a lot.
Melinda: Agility is something that needs to be built into a brand’s culture. It is a buzzword that you hear a lot. As Max mentioned, it’s like putting the customer first. That can begin to sound a bit cliche, and yet brands that fail to actualize these ideas may find it much harder to adjust on the fly when an unexpected disruption takes place. As the COVID-19 pandemic has demonstrated, being able to shift quickly is not just a nice thing to have, it can save your business from catastrophe. Working with innovators such as Re-Hub and leveraging their network of startup tools with a proven track record is one way brands can begin to develop more a agile culture. If you’d like to get in touch or read the research study I mentioned during my conversation with Max, I’ll link to both in the podcast description. Thanks for listening.
Max Peiro is the CEO at Re-Hub, a Shanghai based company that aims to promote retail innovation by fostering cooperation between brands and tech start-ups.
Think Retail is a podcast where top designers, strategists, thought leaders and business people discuss what’s coming next. For more information, email firstname.lastname@example.org.