Alibaba’s expansion to brick-and-mortar stores started two years ago with a series of investments and acquisitions that worth as much as US$8 billion. To strengthen the offline foray, the Chinese e-commerce giant, which earns hefty profit margin because it does not hold inventories, is rewriting its asset-light model by opening Hema Xiansheng brand and Alibaba staff-less convenience stores.
In its latest move, the company is taking a bottom-up approach in revamping China’s retailing landscape. Alibaba is reaching franchise partnerships with grocery stores in residential communities across China in a move to upgrade these shops with its technologies.
The licensed physical stores will be much smarter and well-targeted. For example, customer preferences and purchasing history data from Ling Shou Tong (LST), Alibaba B2B platform that’s being used in over 500k stores, will be analyzed to provide curated plans on product offerings and marketing campaigns. All-around services will be offered such as merchandise channels and orderings, logistics, marketing, and more.
“There are over 6 million community grocery stores across China, mostly family operations. 70% of such stores are based in third- to sixth-tier cities. 80 percent of the shop owners are above 45-years-old, a group that’s not accustomed to smartphone and new technologies. The lack of technological support resulted in low efficiencies and thus meager profits despite hard work with an average daily operation time range from 12 to 15 hours,” said Lin Xiaohai, vice president of Alibaba.
Tmall.com will license more than 10,000 physical stores in China this fiscal year, the company disclosed.
The first licensed store completed its upgrade recently and was reopened to the public this Monday. Instead of the shabby designs that are typical for a community store in lower-tier cities, the upgraded store has a more modern look that’s similar to high-end convenience stores such as Lawson’s or 7-11.
E-commerce vs brick-and-mortar
E-commerce makes physical stores sound so outdated when it started to take hold in China at the beginning of this century. The heated debate on which model is going to gain supremacy in China’s retailing industry has gone non-stop since then, only peaking in 2013 when Alibaba’s Jack Ma and Wanda Group’s Wang Jianlin, Chinese tycoons in e-commerce and offline retailing industry, made a 100 million yuan (US$16 million) bet on which model would claim a bigger share of the retailing market.
A few years later, it seems that the debate is no longer applicable: the boundary between online and offline is becoming less and less clear. Both e-commerce and brick-and-mortar stores are playing—and will continue to play—crucial roles for modern retailing. A new retailing format where offline/online shopping experiences are connected and optimized through internet technologies is on the rise. Alibaba’s Jack Ma dubbed it as the New Retail.
Jack Ma might be the first to coin the term, he’s not the only one to detect this trend. Alibaba’s arch-rival JD plans to open more than 1 million JD convenience stores across the country in the next five years, in addition to launching 10,000 JD home appliance stores offline.
Meituan-Dianping also entered the field by opening its first offline concept store last month. Another tech behemoth Tencent is taking a more tentative move in venturing offline this week to open WeStore, its brick-and-mortar store for official branded merchandise.