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[11 comments]

Alibaba invests in bricks to go with its clicks

April 1, 2014

There have been rumors over the years that Amazon.com was looking to open some sort of brick and mortar presence as a complement to e-commerce operations. Aside from some tinkering by its Quidsi business, the rumors have yet to pan out. While Amazon may never open stores, Alibaba, the Chinese e-commerce giant, has made the decision to invest in Intime Retail Group, which owns department stores and supermarkets, to make a concerted push into omni-channel retailing.

In a deal valued at $692 million, Alibaba will add merchandise from Intime's stores to its Tmall.com site. Orders placed on Tmall will become available for pickup at Intime's locations.

"We see significant opportunities to extend our e-commerce platform to physical retail, developing a more engaging, omni-channel and digitally-connected shopping experience," Daniel Zhang, Alibaba's chief operating officer, said in a statement.

Alibaba has been aggressive on the deal making front ahead of a planned initial public offering of company stock in the U.S. A VentureBeat article points out that while Alibaba is most often compared to Amazon, it also has similarities to Google and PayPal. The company generated around $240 billion in sales last year compared to Amazon's $100 billion.

FINANCIALS:     [NASDAQ:AMZN] [ HKG:1688]

Discussion Questions:

Will Alibaba become a major force in U.S. retailing in the future? Will its presence create pressure for Amazon.com to pursue an omni-channel strategy in the U.S.?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How likely are other e-commerce operators to follow Alibaba's omni-channel lead over the next several years?

Comments:

Alibaba is already a major force in global retailing already, so why wouldn't they become a key player in the US?

Online retailing is a bit more difficult in some countries due to logistics and regulations. But Amazon has managed to do well in other countries like the UK ... and has a growing presence in China with some innovative distribution strategies. Crossing country boundaries works both ways. The key will be earning consumer trust through high levels of service.

What is not clear is whether all strong ecommerce players also need a store presence. Consumers want choice, of where to buy and where to pick up or ship.

Amazon and Alibaba have many ways to serve consumers with pickup options in the US besides owning stores. Although, given the recent financials, there could be some US retail chains up for sale at bargain prices.

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Chris Petersen, PhD, President, Integrated Marketing Solutions

Interesting move. $690+ million seems high for a chain that currently only has 36 stores, but am betting expansion is clearly on their radar.

And I'm not clear if this is sending a message that the Chinese retail market is different from the US, but will be interesting to see how this plays out. Intime Retail does not currently have any US retail stores, so I'm not seeing any near term, 2014 pressure from Alibaba on Amazon to pursue an omnichannel strategy.

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Bill Davis, Director, MB&G Consulting

The Convergence of Online, Mobile and Bricks (COMB) WILL continue, apace, in retail. Shoppers have their brains (shopping centers) glued into their bodies, and wherever they go, and whatever they need, will serve them, not the supply chain. This is why I have said, "As long as people live in bricks and mortar homes, they will shop in bricks and mortar stores!"

I'm very serious about the need for retail to move from a supply chain focus to a shopper focus - very difficult in a SELF-service shopper world. I do believe that Amazon is the most shopper-centric retailer in the world, although I'm not terribly familiar with Alibaba, on a personal level. I do not consider it a question whether Amazon WILL move directly into bricks retailing, but rather, when. Alibaba obviously could be forcing their thinking "hand," but probably not.

Meanwhile, what Amazon has learned about shopper-centricity, is desperately needed by bricks retailers. If you don't get serious about shopper knowledge - pathetically superficial in the bricks world - someone who has, will be eating your lunch, by and by. Maybe sooner, rather than later. I offer thoughts on how to stay the growing erosion of bricks retail, by online, here: "Selling Like Amazon... in Bricks & Mortar Stores!"

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Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Shopper Scientist LLC

The bottom line for Amazon as well as Alibaba is fulfillment and distribution. That is what omnichannel is all about, isn't it? Letting the consumer buy whatever they want and get it when they want, and how they want.

Omnichannel simply means that products are sold seamlessly through multiple channels. It doesn't mean that the retailer must have a dedicated bricks and mortar presence to qualify.

Amazon has been perusing some interesting partnerships involving lockers and such, just as Alibaba has sought a relationship with Intime Retail. Both parties are trying to get products closer to the consumer to improve delivery and satisfaction.

IMHO, both parties are doing a pretty darn good job. Will Alibaba become a major force in the US? That will all depend on how well they sell themselves in this market and what additional services they will offer.

Just my 2 cents...

Lee Kent, Encourages retailers to meet share and learn, YourRetailAuthority

The US is clearly a great opportunity market for Alibaba. It will be interesting to know where the US stands on their priority list, as they consider the myriad of opportunities for them in existing and new markets.

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Matthew Keylock, Senior Vice President, New Business Development and Partnerships, dunnhumbyUSA

For $240B annual sales Alibaba (more that twice Amazon.com!) a $692 million investment in Intime Retail Group is a risk easily absorbed.

Why not explore a bricks and clicks convergence strategy? The business formula it derives may be very specific to the Chinese market and present a barrier to competing e-retailers from outside the country. Showcase department stores would be physical manifestations of the core brand as well as hubs in a distribution system.

On the other hand, the Alibaba magic may not translate easily in the U.S. or European markets. Logistics, lifestyle and the competitive landscape vary. A juggernaut in China, it still faces a significant branding challenge here, even if it acquires stores in some major cities.

No doubt, Amazon and Rakuten/Buy.com (Japan) and others are watching Alibaba's moves closely. For the present, I'd venture that Amazon would say it is evaluating its investments in physical retailing and distributions subject to its own vision and business model, not as a response to events in China.

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James Tenser, Principal, VSN Strategies

BIG is important to Chinese companies. They haven't figured out quality or customer service yet. The will become a presence in bricks and mortar retail, stumbling along because they won't take the time to understand the customer. Then they will connect with a brilliant western merchant...and look out.

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Jerry Gelsomino, Principal, FutureBest

Yes. Yes.

China's strategy includes having multiple slots in the top 10 retail brands in the world. Alibaba is a top Chinese online brand and adding store sales (assuming they are successful) makes them a candidate for one of those global slots; adding the US market probably seals the deal.

It will be exciting to see how they use in-store analytics. As an e-commerce retailer, they are addicted to rich customer analytics and know they cannot deliver an omni-channel customer experience without in-store equivalents. Expect their stores to be analytics-enabled from early on.

Christina Ellwood, Vice president, Marketing, Brickstream

I suspect Amazon will go where they think they need to go, but not sure how heavily it hinges on what Alibaba does. After all, retail shoppers are already omni-channel in their interactions with physical retailing environments. With things such as showrooming, loyalty apps, click to brick pickup services, not to mention in-store shopper tracking via beacons or WiFi taking hold, there is no question that shopping can be an omni-channel behavior for any item requiring any kind of price or feature evaluation. That said, brick and mortar transactions still predominate, with more that 90% of all US Retail Sales still taking place outside of e-commerce channels (according to the US Census Bureau).

So, to me, there is no question that large e-commerce channels will seek a piece of that pie. The bigger question is whether they will apply the same omni channel perspective to collecting and using in-store shopper behavior data as they do in the online world. With the right technology, measuring the right behaviors about how people behave inside the store, and then tying it back to their overall omni channel behaviors, ecommerce retailers are well positioned to learn, adapt, and grow in the physical retailing space.

David Rubini, Director, Product Marketing, Brickstream

Alibaba typically enters the value chain in places where (1) there is friction and (2) there is high margin. This is neither. It also doesn't put any new pressure on Amazon.

When it was founded, Alibaba.com solved the problem for foreign buyers who were looking for Chinese manufacturers and took a commission. As it evolved into consumer e-commerce, Alibaba solved a trust crisis for online shoppers with Allpay, a high margin PayPal-type service.

So far it has stayed away from the low margin logistical work of buying, picking, packing, and shipping. It remained the middle man.

Amazon, on the other hand, long ago entered buying, warehousing and fulfillment. And it has expanded its pickup service--Amazon Lockers, a predecessor to the recently announced Alibaba-Intime move. The Amazon grapevine for years has been filled with impending moves into physical retail.

Now Alibaba is going head first into bricks and mortar with Intime while Amazon continues to tinker. How curious. Alibaba got there first, but it doesn't create "pressure" for Amazon, a very different company. Alibaba is NOT twice the size of Amazon, it's about one-tenth based on revenue, with little overlap in markets.

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Dan Frechtling, Vice President, Global Product Management, hibu, PLC

Alibaba will eventually become a major force in the U.S., but entering a foreign market is no slam dunk - just look at Target's experience in Canada, which is certainly a much more similar market to the US than the US is to China. True, Alibaba has entered other countries, but US consumer sentiment is likely to be quite different.

Let's say they do get it right in the US. With their over 2M storefronts and PayPal-like payment service, it would seem to me that they would be a bigger threat to eBay than Amazon. They could indirectly threaten Amazon by undermining or providing a superior value proposition to the Amazon Marketplace, leading small retailers to migrate to Alibaba or reduce their dependence on the Amazon Marketplace. In turn, this would reduce the amount of data that Amazon would have access to, and potentially reduce the effectiveness of their merchandising and pricing decisions.

From a consumer perspective, it will take time for Alibaba to build up the kind of consumer awareness and loyalty that Amazon has generated over the years.

Bottom line: eventually, and not really.

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Alexander Rink, CEO, 360pi

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