Alibaba redraws retail fault lines, bets on physical stores
In a small village shop near the eastern Chinese city of Hangzhou, store owner Lu Qiwei uses his smartphone to place orders to refill stocks of instant noodles, rice and drinks.
Lu, 61, says he didn’t own a phone two years ago, but he’s now one of 600,000 people using a supply chain app made by e-commerce giant Alibaba Group Holding Ltd, aimed at drawing millions of Chinese mom-and-pop stores into its orbit.
The app is one part of a multi-billion dollar drive by Alibaba to extend its dominance of online shopping into physical stores, and build a data fingerprint for every consumer in China, where 85 per cent of retail sales are still made offline.
“We’re working to make the net in the sky and the net on the ground,” CEO Daniel Zhang said last month after Alibaba took a $2.9 billion stake in top grocery chain Sun Art Retail Group Ltd. “We will cover all consumers seamlessly.”
Alibaba’s strategy echoes Amazon’s $13.7 billion deal this year for organic offline grocer Whole Foods Market Inc — but with a twist.
China’s fragmented market means Alibaba is spreading itself wider and thinner, hooking an array of mall operators and stores to its mobile payment, logistics and inventory management tools.
Alibaba said it had no immediate comment on how the two companies’ strategies compare.
Over the past two years, Alibaba has acquired major stakes in big box retailer Suning Commerce Group Co Ltd, Lianhua Supermarket Holdings Co Ltd and Intime Retail Group Co Ltd.
It all adds up to a vital — but expensive — gamble as Alibaba looks to maintain rapid growth and meet huge investor expectations even as the broader online retail market slows. Alibaba shares have more than doubled this year.
“It definitely needs to be a priority for Alibaba,” said Jason Ding, partner at Bain & Company’s Beijing office, adding it would help the firm tap an older demographic that prefers to shop offline, and cut reliance on internet sales.
Alibaba’s offline push gives it reach and influence over China’s broader retail market. Its Tmall and Taobao stores have upended e-commerce in the market, and ties to many of the top bricks-and-mortar chains extend that influence offline. The push would add at least thousands of supermarkets and malls, and potentially millions of small local stores. Amazon’s Whole Foods Market has about 500 outlets in the United States and UK.
Over the past two years, Alibaba has acquired major stakes in big box retailer Suning Commerce Group Co Ltd, Lianhua Supermarket Holdings Co Ltd and Intime Retail Group Co Ltd