The recent news regarding Chinese e-commerce giant Alibaba.com’s U.S. $692 million investment in Chinese department store operator, Intime Retail giving it a 25 percent stake in the company is quite possibly a watershed event in the marriage between online and retail sales. (Full disclosure – Alibaba.com is a recent client).
What Alibaba appears to be addressing is ‘reverse-showrooming’. Theoretically Chinese shoppers would purchase items on their smartphones and pick them up from a retail store instead of using brick-and-mortar shops as glorified product displays for goods they ultimately purchase online. Again theoretically as there is no direct statistical evidence this is actually occurring.
From an article in Pando Daily – ‘American web companies have long been rumored to open their own storefronts. Google has been rumored to be creating a store for its tablets, laptops, and other physical products since the beginning of last year. Amazon was expected to open its own physical stores in Seattle in 2012. Neither company has opened or hinted at opening such stores, but the rumors persist. Now it seems that Alibaba will beat them to the punch, just like it did with same-day delivery.’ (And to nobody’s surprise Amazon.com is considering the same idea.
The Wall Street Journal added, ‘Alibaba, whose Taobao and Tmall shopping sites dominate China’s e-commerce market, said in the release it would “explore opportunities to combine the strengths of Alibaba’s Internet commerce technology and platforms with Intime’s physical retail presence in high-end department stores and shopping malls.”
“Seeking to leverage its large caches of shopping data and advertiser network, Alibaba has been moving quickly to help shoppers pay for goods and services, not just online, but also in bricks-and-mortar stores. Known in the industry as ‘online-to-offline,’ a number of recent Alibaba investments have been aimed at expanding the company’s reach into China’s malls and restaurants.”
I’ve had a few conversations with friends and associates of mine living in China regarding buyer behavior and the idea that Chinese like (even prefer) going into a retail store to have first-hand experience in handling and experiencing a product yet go home to purchase the products online. Sounds familiar right? Reportedly that kind of showrooming is what brought down Circuit City and Borders Books (Best Buy was able to retool and revamp its offerings and remains a relevant if not a slightly wounded U.S. retailer).
Pando alum Hamish McKenzie wrote in 2013 that American e-commerce companies could learn from the same-day shipping prowess exhibited by their Chinese counterparts:
‘Same-day delivery – the Holy Grail for US ecommerce giants such as Amazon and Google – has been a reality for a while in China. Here, Meeker shows that Jindgong (formerly known as 360buy), the biggest threat to Alibaba’s Taobao, achieves that efficiency sometimes by means of bicycle. In China, ecommerce plays a more important role than it does in the US because the country’s bricks-and-mortar retail infrastructure is still under-developed, especially outside of the big cities. There’s also a lot of competition, forcing online retailers to go to greater lengths to attract customers.
One way these retailers manage to pull off such fast delivery is by employing multiple people who take care of different stages of a journey. In Shanghai, for instance, a man on a motorized scooter might hand off a package to someone who is waiting inside the turnstiles at a subway station. That person will then take the package to the appropriate stop, at which he meets another man with a scooter to whom he can pass off to the package, without having to leave the paid area of the station, for the final mile delivery.’
And what of Amazon’s efforts? As Mr. McKenzie wrote?
‘Amazon realizes it can’t keep losing money on buying customer loyalty. Amazon Prime is already driving up overall shipping costs, which will in turn add to Amazon’s delivery costs, prompting higher Prime fees. If that happens, Prime looks less and less like a bargain. Shoppers find better bargains on other sites and opt for the discount over Amazon’s fast shipping. In that case, revenue growth keeps slowing, while shipping and digital-content costs rise.
So it’s not so much that Amazon’s revenue growth is slowing, it’s why. If it’s something Prime can reverse, Amazon’s future looks bright. If not, it will mean customer loyalty may be too slippery a thing even for Amazon to grasp for long. The quest for the best deal may be more powerful than Amazon realizes. So Amazon spends and spends, but it’s not enough to keep enough shoppers coming back.’
It’s a major issue for Amazon.com and with the advent of the new Amazon Fire TV module the company continues to make efforts to create more value for Amazon Prime members.
What’s most important to keep in mind is that the trend behaviors of Chinese consumers and U.S. consumers are so different in their origins that they cannot and should not be used as a road map for the future. What works in the U.S. will not likely work in China and the same is true in reverse.
Same day delivery is indeed the retail holy grail. Are you ready for it?
The Way I See It - Mark Kolier 