Three Innovative Ways Alibaba is Shaping the Future of Retail
Alibaba is a Chinese eCommerce giant generating more transactions than Amazon and eBay combined. Alibaba holds the record for the largest initial public offering (IPO) in US history, raising $21.8 B in its 2014 IPO. It has three main eCommerce sites: taoboa.com, tmall.com and alibaba.com. Taoboa.com, similar to eBay, is a marketplace that connects individual buyers and sellers. Tmall.com connects retailers and consumers and features brands such as Apple, Gap and Nike. Alibaba.com is a B2B platform that connects exporters with companies around the world.
Despite the growth of eCommerce in China it only represents 15% of retail sales and Alibaba has an 11% share of the retail market in China. In order to capitalize on the 85% of sales that do not take place online Alibaba made a move into physical retail in 2015. Alibaba’s futuristic Hema supermarkets, use of augmented reality and modernization of China’s mom-and-pop convenience stores provide insight into how it is using digital to transform retail.
Hema supermarkets - a look into the store of the future
Alibaba launched its first Hema supermarket in 2015 as part of its “New Retail” strategy. New Retail according to Alibaba’s Founder and Executive Chairman Jack Ma is “the integration of online, offline, logistics and data across a single value chain.” It is an initiative aimed at connecting online and offline retail and digitizing stores in order to provide a better customer experience.
In Hema supermarkets customers shop using the Hema app on their phones. They can scan a product’s QR code and get product information and recommendations for complimentary items. Products also have digital price tags that are updated in real time. When customers are finished shopping they pay using Hema's mobile app which is linked to Alipay. Alipay, founded by Alibaba, is an online payment app that has more than 500 million users. It is the world’s largest online payment platform with more users than PayPal. Customers use Alipay to shop online, offline and even pay their bills. The Hema app also remembers shopper buying behavior and leverages machine learning to make personalized product recommendations for customers. The stores serve as fulfillment centres and customers can have groceries delivered in 30 minutes, if the delivery address is within three kilometers of a Hema store.
According to Alibaba Hema’s online orders account for more than 50% of total orders. Sales per sq. foot in its Hema stores are three to five times higher than in traditional supermarkets. Alibaba currently has five Hema supermarkets with plans to have 35 Hema stores by the end of 2018.
Augmented reality – creating a better customer experience through digital
Singles Day is the world’s largest shopping event. It’s Asia’s version of Black Friday and Cyber Monday but with larger sales than those two days combined. The event has turned into a shopping phenomenon with Alibaba promoting discounts on its eCommerce platform during a slow sales period before the Lunar New Year. For its big Singles Day sale in both 2016 and 2017 Alibaba introduced an augmented reality game similar to Pokemon Go called Catch the Cat.
Shoppers playing the game try to “catch” a virtual cat located in thousands of retail stores across China. Players receive discount coupons and prizes when they find the Tmall black cat mascot using Alibaba’s mobile app. The game successfully drove traffic into retailers including Starbucks and KFC where the virtual cats were located.
As part of the Singles Day shopping event, Alibaba also set up 60 pop-up stores in over 50 malls across China. One of the features of the pop up stores was a “magic mirror”, a screen that uses augmented reality technology so that shoppers can “try on” cosmetics and apparel virtually. L’Oreal, one of over 100 brands that participated in the pop-ups, allowed shoppers to “try on” lipstick using the technology. Shoppers sampled different shades of lipstick and blush and if they were happy with their virtual look they scanned the products’ QR code on the screen and ordered the product from L’Oreal’s store located on Alibaba’s online site. Items were then paid for using Alipay and delivered to the customer’s home.
Convenience stores - better performance through modern data and analytics
In August 2016, Alibaba launched a retail management system targeted at mom-and-pop convenience stores called Ling Shou Tong. Ling Shou Tong means “retail integrated” and it is an attempt to leverage digital technologies to provide merchandising and inventory management assistance to convenience stores.
Nearly 600,000 mom-and-pop stores which is approximately 10% of the market in China use the platform. A store owner can use the app associated with the platform to refill their stock. Then the inventory is shipped from Alibaba’s warehouses eliminating the need for middlemen which should be more cost effective. The platform gives retailers access to analytics including recommendations on what items the retailer should buy based on what is popular. The app also helps retailers refine their merchandising and in-store promotions.
In exchange for free use of the platform Alibaba is able to use the retailer’s stores for fulfillment and delivery. Alibaba also receives data from the mom-and-pop retailers on customer shopping patterns. This and Alibaba's other retail initiatives enable Alibaba to extend its reach into offline retail where the majority of retail sales take place in China and take a leadership role in the modernization of retail.
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