What Alibaba Can Teach Retailers About How to Compete Against Amazon
This is the second part of a three-part series on how retailers can compete better with Amazon. This article looks at Alibaba and how its tech. investments provide insight into what the future of retail will look like. Part One focuses on four companies that have implemented winning strategies and Part Three focuses on what recent product and service launches from Amazon say about its future priorities. You can read Part One here and Part Three here.
When thinking about how to win in the age of Amazon retailers can take a look at Alibaba, China’s eCommerce giant, for inspiration. While Amazon is often seen as the leader it is actually Alibaba that has made a number of telling first moves. eCommerce penetration in China is 15%, higher than the 9% penetration rate in the US and 7% in Canada. Alibaba’s tmall.com site captures 51% of China’s retail eCommerce sales and despite its success Jack Ma, Alibaba’s founder, believes the future of retail is tied to bricks and mortar.
In 2015 two years before Amazon’s purchase of Whole Foods Alibaba opened its futuristic Hema grocery stores. Since then Alibaba has invested more than $9 billion in bricks and mortar retail. With a focus on innovation Alibaba’s foray into bricks and mortar has been anything but conventional. It has focused on convenience, personalization and digitizing stores and in the process Alibaba is reinventing the customer experience. Here are four examples that provide compelling insight into the future of retail.
1. Your smart phone = personal shopping assistant
Alibaba opened its first Hema supermarket in 2015 as part of its “New Retail” strategy. New Retail according to 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 Alibaba’s Hema supermarkets customers shop using the Hema app on their phones. They can scan a product’s QR code and get product information, cooking instructions, nutritional 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. The Hema app also remembers shopper buying behavior and leverages machine learning to make personalized product recommendations for customers.
2. Just when we thought delivery couldn’t get any faster
One of the key features of Alibaba’s Hema grocery stores is that online orders of groceries can be delivered in 30 minutes if the delivery address is within three kilometers of a Hema store. In April of 2018 Alibaba announced that customers can also have groceries delivered at any time of day through Hema’s new 24-hour grocery delivery service. Alibaba found that 80 million customers were visiting its taobao.com and tmall.com websites between 12 am and 4 am and most of those customers are women over the age of 30. Night owls now have an even better reason to stay up late.
3. Buyer’s remorse, a thing of the past with try before you buy service
In June of 2018 Alibaba launched a “try before you buy” service for customers shopping for fashion on tmall.com Alibaba’s business to consumer website. Customers can order up to seven items and have them delivered to their home. They can try those items on and keep the ones that they like. The items that customers do not wish to keep can be returned for free and the ones they do keep are charged to their Alipay account. Customers must be part of Alibaba’s loyalty program with advanced standing and have a certain credit score to be eligible for this service. Amazon has a similar service called Prime Wardrobe. Alibaba plans to expand the service so that customers can reserve items to be tried on in-store when they arrive.
4. Is a cashless society a matter of if or when?
Most people in China’s major cities pay for purchases using their smartphone. Shoppers pay using either WeChat or Alipay the country’s most popular mobile payment platforms. Alibaba launched Alipay in 2004 to resolve issues of trust in the payment process between buyers and sellers. People use it to make payments across Alibaba’s eCommerce platforms but also to make payments for everything offline from dinner at a restaurant to clothing at a store to a taxi ride. With more than 500 million payment accounts such a popular payment platform provides Alibaba with rich customer data. China is much further ahead than the US in this area, Chinese consumers spent $6 trillion on mobile payment platforms in 2016, 50 times the amount spent in the US. One of the popular features of Starbucks' mobile app is the link between payment and its loyalty program. It is telling that Starbucks, a retailer, has the number one mobile payment app in the US ahead of the payment apps provided by tech companies, Apple and Google.
5. Facial recognition - a new way to make purchases
An Alibaba affiliated company launched “Smile to Pay” at a KFC location in China in September of 2017. At self-checkouts customers place their order using a kiosk. Then a camera imbedded in the kiosk’s screen scans the customer’s face. Facial recognition payments technology is then used to verify the customer’s identity. Customers also enter their phone number into the kiosk as a safeguard against fraud. Customers must be registered with Alipay, Alibaba’s mobile payment app to facilitate the transaction. The technology is offered at a tech heavy concept store. According to Joey Wat, Yum China’s president the store is targeting “young, tech savvy consumers who are keen to embrace new tastes and innovations”.
A woman uses Smile to Pay at a KFC in China
Photo credit: Alibaba
Mobile is a large part of the shopping experience in China. Alibaba has gone as far as saying the shopping experience in its Hema stores start when the customer downloads the Hema app. Instant gratification through fast shipping and an always available delivery service is also a key priority. Finally, retailers that look more like tech companies, leveraging big data and technologies such as artificial intelligence are winning.
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