Alibaba Group Holding Ltd. (BABA) and Amazon.com Inc. (AMZN) may be the world’s most dominant e-commerce players, but they are both making moves into the brick-and-mortar space because their access to large troves of data and their fulfillment abilities allow them to provide for a better customer experience in physical stores.
Amazon announced on Friday that it was buying Whole Foods Markets Inc. (WFM) for $13.7 billion, further solidifying this play, while Alibaba has been working on its “new retail,” strategy for some time now.
“This deal is a total validation of our strategy,” Alibaba Head of External Affairs Brion Tingler told TheStreet. Both players are learning that when you hit a certain level of success in online sales, the next step is to help offline players better utilize their strengths.
While Alibaba and Amazon are both combining the best of offline and online shopping, Alibaba has coined a specific term for it: New Retail. This strategy combines the best of offline and online shopping by allowing customers to touch and test products inside physical stores, but also giving them the option to order any item they see to their doorstep while still at the store.
You can buy lunch at noon at a store, while also ordering seafood to arrive at your house at 6 p.m.
In addition, New Retail stores use data to determine what products customers are most likely to buy at store locations so it can stock them accordingly. Ma thinks this data-driven “New Retail” strategy is essential for Alibaba because he’s thinking ahead and while the e-commerce sector may be growing rapidly now, it will soon face challenges. “This is why we are adapting and it’s why we strive to play a major role in the advancement of this new economic environment,” he wrote in a letter to shareholders in October.
Revamping brick-and-mortar stores instead of just focusing on e-commerce is important because e-commerce is only about 15% of China’s total $4.8 trillion retail market, Alibaba vice chairman Joe Tsai told TheStreet earlier this week. The other 85% is still brick-and-mortar shopping. “The traditional way of thinking about retail vs. e-commerce is that they work against each other, where e-commerce is cannibalizing retail,” he said. “But it doesn’t have to be that way.”
Alibaba is already quietly putting this New Retail strategy to the test in both supermarket settings and a department store.
Alibaba has a solid presence in the China supermarket scene, with a 32% stake in Sanjang Shopping Club Ltd. and an 18% stake in the Lianhua Supermarket chain held by Shanghai-based Bailian Group, which Alibaba formed a strategic partnership with in February to help the retailer increase sales with the use of big data. Alibaba is now running multiple brick-and-mortar China-based supermarkets that utilize two-thirds of their space for traditional retail needs and one-third of their space as an omnichannel fulfillment operation, Tsai said.
The stores are doing 15,000 orders online per day. “That’s really made the retail space more efficient, or increasing the sales-per-square-food of this retail space,” Tsai claimed.
Following closely behind, Amazon’s deal for…