Jack Ma, founder of Alibaba, recently said: “In other countries, e-commerce is a way to shop, in China it is a lifestyle.” By 2015, ecommerce transactions in China are forecasted to hit $540bn and by 2020, China’s ecommerce market will grow larger than US, Britain, Japan, Germany, and France’s market combined.
There’s no doubt that Alibaba’s $25bn IPO in October changed the game for the e-commerce industry as a whole. What turned out to be the largest global IPO in history, has raised questions about the possible ramifications for already established online retailers, luxury brands and whether Alibaba is now a threat to their businesses.
The answer is not necessarily. Indeed, Alibaba has a robust international expansion plan that may change the way consumers shop in the West and Far East, but this could also benefit luxury retailers due to the growing unmet demand of Western products from Chinese consumers.
Alibaba’s IPO could give Western brands solid new opportunities to access Chinese consumers in abundance. Alibaba and its subsidiaries (Taobao, Tmall) have approximately 500 million registered users with 70 million daily visitors on Taobao alone.
Making purchases online from China for luxury goods based in America or Europe is still difficult for Chinese consumers. But as part of Alibaba’s international expansion plans, they will now enable Western retailers to sell to Chinese consumers on their marketplace platform Tmall international (similar to Amazon).
With its recent IPO, the company is now realising the revenue potential of allowing Western brands to sell to and access their customer portfolio, something that was previously shielded. This will allow Alibaba to create new revenue streams due the growing demand for Western goods by the Chinese who account for nearly 50 per cent of total global luxury sales.
One of the benefits of Alibaba allowing Western retailers access their Chinese customers includes a potential reduction in the number of counterfeiters that use Alibaba’s Aliexpress and Taobao platforms to sell fake branded products. This, in turn will force Alibaba to attempt to tackle the huge intellectual property and counterfeiting issues that the company faces on its platforms. Ultimately, however, by allowing Western retailers to reach the Chinese markets, Alibaba will open a two-way-street in international online trade, something that was previously absent in luxury fashion.
Some western retailers that have tried and failed to compete with Alibaba to bring Western goods to China include eBay and Amazon. Both do not yet possess the capacity to compete with Alibaba’s scale and customer following in China. Amazon China accounted for less than 3 per cent of total online transactions in 2013. And Alibaba recently reported that their total sales in 2013 were greater than that of eBay and Amazon’s combined.
Alibaba will ultimately have to adapt to the market Western customers are used to by listening to and implementing their feedback as well as streamlining their supply chain process to deliver goods from the West to the Far East and vice versa. But by allowing Western retailers to reach the Chinese markets, Alibaba will benefit considerably, namely by expanding on its core business model and thus maximising revenue potential from its international retail partners. With Alibaba’s new dominant presence in the US post-IPO and its budding international retail partnerships with Tmall, it seems the West have yet to see the true spending power of the Chinese.
Reported by Jessica Anuna