China Holds the Key to the Future of Retail

by | 27 August 2019

Ten years ago, China represented a mere 1% of global e-commerce. Today it accounts for 42% of the global e-commerce market, managing more transactions per calendar year than France, Germany, Japan, the UK and the U.S., combined. In our summer retail trends article, we highlighted how China and the Alibaba Group, in particular, could potentially influence retailers as they cast a wider net for the global consumer.

After hearing Erica Matthews, who is head of Corporate Relations at Alibaba, present on the Inside out understanding of the China market at a recent event hosted by Bloomberg Intelligence and Coresight Research, we discovered we weren’t too far off the mark.

China holds the key to the future of retail

Alibaba estimates over $768 billion worth of purchases across its retail marketplaces and projected revenue of $57.8 billion for 2019. And although it trails behind Amazon, Alibaba is banking on its New Retail Strategy and its growth initiatives to drive long-term, sustainable value for customers and partners. Alibaba asserts the future of New Retail begins with consumers at the center of the value chain. The premise isn’t unique, but the speed in which CEO Jack Ma, and his soon-to-be successor Daniel Zhang have ramped up Alibaba’s retail marketplace as a consumer-centric platform sure is. The general idea involves the complete digitization of all commerce to unite the online and offline consumer experience.

When you consider the growing influence of the empowered consumer on retailers and brands, it starts to make sense. From increased usage of mobile technology during the shopping experience to crowdsourcing reviews online and the growth of the collaborative economy, consumers are already at the center of the retail strategy. And according to Ma, that’s how it should be. Creating a customer-first environment is at the heart of Alibaba’s value system, fueling Ma’s vision to “build an e-commerce ecosystem that allows consumers and businesses to do all aspects of business online.”

About the E-commerce Ecosystem

The success of Alibaba’s e-commerce platform is driven by its retail marketplaces, Taobao and Tmall. Alibaba earns a commission for each transaction placed on the two platforms as well as subscription fee revenue charged to sellers who actively maintain storefronts in the marketplace and utilize Alibaba’s menu of services.

Taobao is the consumer to consumer (C2C) platform that facilitates sales of goods between individuals. Leveraging an interactive app, Taobao connects over 700 million consumers to 190K+ brands daily. Fueled by AI, Taobao content drives user recommendations and conversational content in real time. Considered a “super app” by folks outside of China, Taobao combines all the apps we have on our phones into an all-in-one platform. Their highly engaged consumer segment, Gen-Y (18-39), which has a median age of 29, accesses the app eight times daily, according to the data presented by Matthews. Zhang has referred to Taobao as a “social commerce app” one where users interact daily before making any purchasing decisions. As they cross-research, users are actively sharing product recommendations in real-time chat and live stream environments.

Tmall Global is the business to consumer (B2C) platform expanding cross-border relations. With over 20,000 international brands across 77 countries and regions, Tmall provides brands operating outside of China with a designated location to facilitate sales to Tmall’s broad consumer base. Retail partners gain access to the wealth of data from Alibaba’s consumer spending habits to create a customizable brand experience as well as test out new product ideas through its market research division, Tmall Innovation Center. For instance, last year Alibaba collaborated with Mars to source a new spicy flavor for their Snickers bar.

Livestream Shopping

Livestream shopping is the key component for young entrepreneurs and small businesses to gain traction with consumers on both platforms. Alibaba’s marketplace features over 600,000 products on livestream channels throughout the day, spotlighting top influencers like Zhang Da Yi, a model and e-commerce entrepreneur and “The Lipstick King” Li Jiaqi, known for his lip color obsession and ability to sell thousands of lipsticks in record sale times.

One thing to note about Alibaba customers, they expect to see short-form and livestream content and their enthusiasm for video streaming is palpable, generating close to $5 billion in sales in 2018. While livestream shopping is a new medium to the U.S. market, the concept of video shopping — QVC and the Home Shopping Network — has been around for over 30 years. And perhaps in a nod to the East, QVC recently expanded its content offering to include video on its online and mobile platforms, a sign that livestream may rise in popularity soon enough.

Where’s Alibaba Headed Next?

Alibaba actively supports China’s rural markets to ensure the opportunity of global commerce is accessible to its population of 600 million, a growing segment of buyers and sellers. Their expansion strategy may target retailers in developing markets, case in point the recently launched toolkit to support U.S. small- and medium-sized businesses, but their eye is on emerging markets across Southeast Asia and Africa —countries such as India, with a high population density and a weak infrastructure. Alibaba has invested billions of dollars into entrepreneurial endeavors in India, a burgeoning economy that as we reported back in 2017 would one day surpass Germany and Japan to become the third-largest economy by 2025. India is holding steady rounding out the top five, but with Alibaba’s backing, there’s no doubt in my mind what the future has in store.

And What of the Future?

In 2017, Alibaba asserted that a foothold in traditional retail will pave the path toward growth. The company has invested upwards of $8 billion since then into online as well as brick-and-mortar retail, quietly acquiring such retailers as OpenSky, a connection-based shopping platform, NetEase Kaola which sells household appliances and products targeted at parents, Beijing EasyHome Furnishings, a brick-and-mortar retailer whose 223 stores offer home décor and home improvement merchandise, and the wholesale operations of Germany-based Metro AG, which has 95 stores in China.

Last year, China surpassed the U.S. to become the world’s largest retail market with total sales reaching $4.9 trillion. The surprise is that more than 80% of those purchases happened at physical locations, reminding retailers everywhere that there is still a vast opportunity to engage more directly with customers on a personal level in stores.

Anjee continues to be an insatiable enthusiast of all things retail. She’s a student of culture with a pulse on future shoppers and the fleeting trends constantly changing the retail landscape…driving retailers, landlords and developers crazy!

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