Westerns forget to look east and the rise of Alibaba and its innovation
In our last post, we discussed the Amazon purchase of one the largest US retail malls and turning it into a distribution center. It is both symbolic and ironic that a once thriving mall is being razed to make way for an Amazon distribution center. Is this the fate of retail in the future? Lest we get blindsided by “Amazon-mania”, we need to also look eastward at the innovation from the other giant ecommerce player, Alibaba. While Amazon will tear down a mall to build a distribution center, Alibaba is actually building a new mall for retailers! Clearly, the transformation of retail is much more than Amazon, and more than the shift from stores to online. Alibaba’s construction of a retail mall is clear sign that future “retail” success will involve, and in fact require much greater strategic collaboration across multiple partners.
Westerners fixate on Amazon and forget to watch Alibaba’s innovation
We have written many posts and analyses focused on the “Amazon Effect” on retail. Bezos has lead Amazon to be one of the most innovative retailers responding to customer needs and shifting behaviors. Beyond the double digit annual growth, Amazon deservedly grabs headlines for services like Prime, multi-billion dollar purchases of retailers like Whole Foods, and the rapid evolution of distribution to fulfill rising consumer demands for delivery the last mile. Amazon’s breadth and successes seems unmatched … or is it?
While the west is fixed on Bezos and “Amazon-mania”, Jack Ma has been leading Alibaba to be the powerhouse of ecommerce in the east. Alibaba has surpassed Amazon in terms of market cap and revenue. Alibaba ships as much as 4 times as many packages per day as Amazon. But aside from sheer growth and market share, Alibaba is making significant strides in terms of innovation, especially in the areas of blending online and physical retail:
- Alibaba launched the Hema app to order groceries from your phone in 2015
- Alibaba has one of the largest mobile payment services in China
- Alibaba commands a larger share of B2B business under its multiple brands
Alibaba is actually building a 5 story physical mall for retailers!
Retail in Asia has reported that China’s pioneer in ecommerce has embarked on building physical space in a mall specifically designed for retailers. This is no “mini-mall”. According to Retail Asia, Alibaba’s plans for its new “More Mall” include:
- Location near Alibaba’s headquarters in Chinese city of Hangzhou
- 40,000 square meter plot of land for the mall
- Five floors of physical space for retail stores
- The mall is scheduled to open in 2018
Clearly Alibaba is not thinking small. It is almost as if they are building a physical space for many of their premier “marketplace” sellers. And of course, Alibaba is adding its new concept stores like a physical rendition of Hema supermarket for groceries. While Amazon may have its own Amazon Go and Whole Foods stores from their acquisition, Alibaba will now have an entire retail mall as an their experiment in physical retailing.
The power of customer experience is drawing online to physical stores
In the previous post, we highlight the irony that consumer traffic had been diverted from US malls via the shift in omnichannel consumer behavior to shop online. Whereas Amazon is tearing down a former mall to build a distribution center, Alibaba is building a physical retail mall from the ground up. Entirely different circumstances and conditions, but both cases are indicative of the rapid evolution of retailing to meet consumer expectations of shopping anytime anywhere, with delivery where it suits their needs.
However, the really significant trend for the two ecommerce giants is the move toward physical retail. Both are realizing the power of the consumer experience and engagement in store. You simply cannot replicate consumer behavior in-store in the same ways online. Moreover, while consumers no longer “think about” channels … shopping and purchase are seamless across time and place. Their phone is just as likely to be their portal for information on the go and purchase in store. And, you can bet that Amazon and Alibaba have fully integrated plans to capitalize on mobile purchases in their physical retail spaces, as well as using consumer phones to track real time consumer behavior in store.
What does all of this mean for the future of retail?
Is the Amazon conversion of a mall to a distribution center a sign that retail malls are dying? We cannot predict a retail mall apocalypse. The US malls catering to customer needs and emphasizing an engaging experience continue to draw traffic. One clear take away is that customers will choose how and when to shop, and take delivery. Future US mall configurations could very well have a distributor at its core – supplying the mall stores and collective automated pick up zone for mall click and collect.
Will Alibaba’s building a retail mall be the future of retail? Too early to tell, but what a magnificent experiment in new levels of partnership and collaboration between ecommerce giants and their marketplace retailers. In many ways, Amazon and Alibaba are distributors as much as they are retailers. Who knows when a consumer oriented distributor might partner in, or even build a mall optimized for both retailers and their omnichannel customers?
The best way to predict the future is to create it
The future of retail is coming at the speed of light from the East and the west. Amazon and Alibaba are the two greatest disruptors of traditional bricks and mortar retail. They are also focused on creating new models that will serve the rising expectations of today’s customers, both online and in physical spaces formerly known as “stores”.