Why many unmanned shops in China have closed

February 13, 2018 09:15
The biggest advantage of unmanned shops is savings on labor costs. However, labor cost is not that expensive in a nation of 1.3 billion people. Photo:  Xinhua

A number of Chinese companies have opened over 40 unmanned outlets across the country, hoping to improve slim profit margins in the retail business by reducing staff costs.

These operators include e-commerce firms Alibaba Group Holdings, Tencent and JD.com, home appliance retailer Suning, and China’s biggest private courier Shunfeng Express. Startups have also jumped onto the bandwagon.

The trend initially stoked concerns that traditional shops might run out of business and a lot of employees would lose their jobs.

But it turned out that more than 10 unmanned shops have already shut down, and those still in business are struggling with lackluster performance.

The biggest advantage of these unmanned shops is savings on labor costs. However, labor cost is not that expensive in a nation of 1.3 billion people.

Besides, cost is not everything. The role of selling products cannot be fully replaced by computers yet.

For example, an ordinary fashion shop in China may need to hire one manager and four sales assistants for a total of 17,000 yuan (US$2,700) in wages per month.

For it to convert into an unmanned shop, it has to install a lot of advanced equipment, such as cameras, sensors, facial and voice recognition devices, digital payment devices, etc.

More importantly, the shop has to set up an operation system based on artificial intelligence and big data. These costs will definitely be a lot more than 17,000 yuan a month.

Moreover, human interaction is an essential part of retailing.

A customer who walks into a shop may not always have a clear idea of what to buy. They may not know what is suitable for them either. This is where humans can make a difference.

A good, experienced sales assistant can quickly understand what the customer wants and recommend the right product or services.

Unmanned shops lack this element of human interaction.

Currently, these unmanned shops can only perform low-value-added functions such as product display and checkout.

As such, the costs of installing these machines and systems are still much higher than hiring human workers, while the actual economic benefits are limited.

This article appeared in the Hong Kong Economic Journal on Feb 12

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist