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August 31, 2015

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Home » Business » Benchmark

In retail, the line between online, offline is blurring

China’s e-commerce giants are going offline to pair up with their old foe retail stores in a bid to further lift their influence and consolidate their market positions.

It’s all part of the continuing convergence of online and offline commerce.

Alibaba said on August 10 it will invest 28.3 billion yuan (US$4.6 billion) of shares in domestic home appliances and electronics retailer Suning Commerce Co, allowing both companies to share online and offline marketing.

In turn, Suning will invest 14 billion yuan to acquire 1.1 percent stake in Alibaba.

Just three days before Alibaba’s announcement, online retail platform JD.com said it will purchase a 10 percent stake in supermarket chain Yonghui for 4.31 billion yuan, in an effort to combine offline outlets with existing logistics services.

JD.com said it hopes to beef up its fresh fruit and vegetable deliveries by tapping into Yonghui’s food supply chain.

A growing number of e-commerce operators are expanding into fresh foods, which they see as a booming home-delivery market. Earlier this year, JD.com launched a mobile application called Daojia to help sell fresh foods. It also made an investment in fruitday.com.

“Strengthening logistics services is the big trend in e-commerce, and the collaboration between Alibaba and Suning is a prime example,” Yvonne Xu, a research analyst with WPP’s research unit, Kantar Retail, in China, told Shanghai Daily.

She said she expects tie-ups between online and offline players to become more frequent amid what is called the “omni-channel” strategy of marketing.

In mid-2013, Suning Chairman Zhang Jindong proposed that tax authorities should impose business taxes on web retailers to create more equilibrium between online sellers like Alibaba’s Taobao and bricks-and-mortar stores.

Taobao rebutted that argument, noting that many of the individual vendors on its site have sales of less than 240,000 yuan a year and aren’t liable for business tax.

The standoff is now irrelevant. “If you can’t fight them, join them” seems to be the new business mantra. Hu Chuncai, an independent retail consultant, said the large number of visitors to Alibaba’s Tmall platform is reason enough for Suning to forget its earlier hostility.

On August 17, Suning and Laox, in which Suning holds a controlling stake, opened their official stores on Alibaba’s Tmall. The flagship Laox store on Tmall is introducing imported goods to Chinese online shoppers.

Daisy Zhuang, a Shanghai clerical worker in her late 20s, said she almost never visits any of Suning’s retail stores anymore, but she frequently checks the retailer’s online store to look for kitchenware and gadgets.

“The Tmall official stores offer me new channels to look for new offerings of electronic appliances, and with various kinds of new products, Tmall is now more attractive than before,” she said.

“Improving logistics services and increasing awareness among consumers in third- and fourth-tier cities will be a major benefit for Alibaba in this new alliance,”Internet consultancy Analysys International wrote in a research report.

In the three months ended June 30, Tmall made up 36.5 percent of Alibaba’s gross merchandise volume, up from 25.5 percent from the second quarter of 2013, when the company first started reporting figures.

“The future of online business lies in offline, and the opposite holds true for offline businesses,” Alibaba Chairman Jack Ma said at ceremonies signing the agreement with Suning. “We have to combine each other’s resources to build greater success.”

In the second quarter this year, Alibaba’s Tmall site had a 54.1 percent market share in China’s business-to-consumer market. That was followed by JD.com’s 24.8 percent. Suning’s online unit Yigou was in third place with 3.7 percent.

Total B2C transactions in the second quarter this year rose almost 50 percent from a year earlier to 467 billion yuan, according to Analysys International.

Some commentators said the No 1 and No 3 players were joining hands to gang up on No 2 in the market.

Gartner analyst Zhang Ju said Suning’s Yigou online unit is lagging rivals and would face difficulties in developing online-to-offline services without help from Alibaba.

Suning’s bricks-and-mortar outlets will be used to showcase merchandise sold on Tmall and Taobao for consumers who want to see what they are buying before they place orders online.

Suning Vice President Sun Weimin said the tie-up is not just about eliminating competitors but rather about creating a bigger vision for both companies going forward.

“Online and offline players will be better positioned if they cooperate,” he added.

Kantar Retail said its data suggest that consumers who used to seek cheap merchandise online are now focusing more on the shopping experience, the quality of products and after-sales services.

“The key issue is that Alibaba and Suning need to better integrate their logistics services for the partnership to yield the best results,” Kantar Retail’s Xu added. “And Suning will have to figure out how to monetize as much as possible from visitors to its Tmall store.”




 

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