China’s retail innovation 2025: AI, XR, and the future of shopping

For decades, the global retail playbook was written in the West. Today, that playbook is not just being rewritten in China — it’s being rendered obsolete. The conversation is no longer about livestreaming or mobile payments; those are yesterday’s headlines. The new frontier is a deeply integrated, AI-native ecosystem where the boundaries between online and offline, human and virtual, and entertainment and commerce have completely dissolved. This is Reverse Innovation 2.0, and it’s a quantum leap beyond anything the West has yet to imagine. China has become the world’s only at-scale laboratory for a future where retail is predictive, personalized, and perpetually “on.” Concepts that sound like science fiction in London or New York — such as AI-powered virtual salespeople, fully immersive extended reality (XR) shopping experiences, and true Online-Merge-Offline (OMO) integration — are already a reality. For global brands, the imperative is no longer to simply learn from China; it’s to fundamentally rearchitect their strategies around its innovations or risk becoming relics of a bygone era. The sentient store: AI as the new shop floor The most profound shift in China’s retail landscape is the rise of AI, not as a tool but as the core infrastructure of commerce itself. As Alibaba Group Vice President Han Xi stated in September 2025, AI is now the “backbone” of e-commerce, with the ultimate goal being a “considerate and secure AI shopping assistant” for every user. This vision is already taking shape in the form of AI-powered virtual salespeople. These are not clunky chatbots but sophisticated, human-like avatars that can run livestreams 24/7 with unwavering energy and product knowledge. The results are staggering. According to iiMedia Research, China’s virtual human industry is expected to surpass $90 billion (RMB 640 billion) in 2025. Across the country, brands are integrating AI hosts into their livestream e-commerce strategies to cut costs and improve efficiency, employing human hosts during peak hours to engage viewers and virtual hosts during off-peak hours to maintain traffic. For example, JD Cloud’s multimodal digital human platform Yanxi (言犀) enables 24/7 livestreaming and automates millions of daily interactions. As of June 2024, it had served more than 5,000 brands, offering virtual hosts that cost one-tenth of human hosts and deliver conversion rates exceeding 30% during off-peak hours. These AI avatars excel where humans falter. As Alexandre Ouairy, co-founder of the Shanghai-based firm PLTFRM, which has deployed dozens of AI avatars, notes, “When we look at the sales, the sales are better for the first few minutes or the first hour with a real person, but then it goes down because that person gets tired.” In contrast, AI hosts maintain a “very standardized” attitude, delivering a perfect pitch every time. This isn’t just about endurance; it’s about creating a new, perpetually optimized sales channel that is rapidly becoming the norm. Phygital 2.0: The OMO and XR revolution While the West still talks about “omnichannel,” China is perfecting Online-Merge-Offline (OMO), a far more radical integration of the physical and digital worlds. In 2025, this is evolving into what can only be described as “Phygital 2.0” — a fusion of OMO with extended reality (XR) that turns every interaction into a potential point of commerce. Leading Chinese fashion brands are designing their physical stores not as points of sale but as content studios. Pop-up flagships now feature AR try-on mirrors, in-store livestreaming corners, and interactive installations that feed directly into social platforms like Douyin and Xiaohongshu. The goal is to create a seamless loop: a customer might discover a product through an AI-driven ad, try it on virtually using an AR filter, experience it in a highly curated physical store, and then share their experience online, creating a new cycle of discovery for others. This is where XR is moving from gimmick to game-changer. The consumer metaverse market, which surpassed $107 billion in 2025, is being driven by immersive retail experiences. Through virtual try-ons, 3D product displays, and other features, users enjoy the feel of in-store shopping with the convenience of online retail. Studies show that virtual try-on functionality has reduced return rates by up to 30%, significantly improving user satisfaction. This isn’t about creating a separate metaverse; it’s about layering digital experiences onto the physical world, making every moment shoppable. The predictive playbook: From personalization to pre-commerce The final, and perhaps most significant, innovation emerging from China is the shift from reactive personalization to predictive commerce. Western e-commerce focuses on recommending products based on past behavior. China’s AI-driven ecosystem aims to predict what a consumer will want before they even know it themselves. By analyzing a vast and interconnected web of data — social media engagement, location data from OMO interactions, viewing habits on video platforms, and even biometric data from in-store sensors — Chinese tech giants are building a 360-degree view of the consumer. This allows for a level of hyper-personalization that is simply not possible in the more fragmented Western digital landscape. As Han Xi of Alibaba put it, the goal is to “seamlessly fulfill our potential consumption needs.” For example, an AI assistant could spot a user’s interest in hiking on Xiaohongshu, note their city’s upcoming holiday, and suggest hiking boots, a waterproof jacket, and a portable charger — delivered before they even think to search. The new retail playbook The strategies that defined success in the 2010s are now liabilities. The new playbook, written in China, demands a radical rethinking of retail fundamentals. Embrace the AI sales force: Brands must experiment with AI-powered avatars and virtual assistants, not as a novelty but as a core part of their sales and customer service strategy. The 24/7, perfectly on-brand salesperson is here — and soon, it will be table stakes. Build phygital ecosystems: The store is no longer just a store; it is a content hub, an experience center, and a data collection point. Brands must design physical spaces that are seamlessly integrated with their digital platforms, using XR and OMO principles to create a unified brand world. Shift from reaction to prediction: Brands must invest in the data infrastructure and AI capabilities to move from basic personalization to predictive commerce. This requires breaking down data silos and building a holistic understanding of the consumer journey across all touchpoints. The flow of innovation is no longer a gentle current from West to East; it’s a tidal wave moving in the opposite direction. The companies that will thrive in the next decade won’t be those that simply adapt their existing models to new markets, but those willing to tear up the old playbook and embrace the radical, AI-powered future of retail now being built in China.

How China is building the future of AI-powered retail

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How China is building the future of AI-powered retail