Alibaba powers ahead in retail as Amazon plays catch up

While Amazon remains mum over its on-off-on-again Singapore launch, Alibaba's online-offline strategy has cemented its footprint in the Chinese retail space, with further growth targeted for Southeast Asia.

Alibaba's strategy of marrying the online and offline realms appears to be paying off, pushing it streaks ahead of Amazon as both e-commerce giants now look to extend their gameplay into Southeast Asia.

Alibaba last week added three Hema stores in Beijing and Shanghai, which expanded its network of the physical sites to 13 across China and, in doing so, demonstrated how it had seamlessly coupled its online and offline infrastructures to power its "new retail" vision.

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Having already established a strong footprint in China's online retail space, the company in 2015 formulated a strategy to "reinvent" traditional supermarkets by introducing capabilities it had built up from its e-commerce heritage.

To drive this, since 2015, it had invested more than US$9.3 billion in offline stores including department store Intime Retail Group, which it acquired early this year, and supermarket operator Sanjiang.

Alibaba Group CEO Daniel Zhang said of the Intime buyout: "We don't divide the world into real or virtual economies, only the old and the new. Brick-and-mortar businesses will be able to create value for consumers if they are integrated with the power of mobile reach, real-time consumer insights, and technology capability to improve operating efficiency.

"Our combination with Intime will enable us to tap into the long-term growth potential of a new form of retail in China powered by internet technology and data," Zhang added.

In fact, Alibaba has adopted the same ideas from the shared-economy model that had helped the likes of AirBNB and Uber become household names, by tapping its Hema network to double up as fulfilment facilities for online orders.

On-site employees scan and pick up items listed in each order, prepping them for delivery, and each store serves a radius of 3 kilometres so deliveries can be completed within 30 minutes of the order.

The physical stores also are stocked with items that can be identified with barcodes, providing customers with information about the products as well as recommendations of similar products. Customers can scan the barcodes via the vendor's mobile app, which is linked to its AliPay platform that can be used to pay for purchases at the counter.

Hema shoppers can join a membership programme through their Taobao or Alipay accounts, enabling them to view and purchase available items from the nearest store. The app also tracks their purchase patterns, makes personalised recommendations as well as pushes product page customised for each user.

Basically, it's Amazon in the offline world--except Amazon isn't quite there yet, and Alibaba is.

So where is Amazon exactly? Well, it only made its first significant step into the brick-and-mortar realm with the Whole Foods acquisition last month, and it will take a while before it figures out how the integration should be done.

It also is still working through kinks in its Amazon Go concept store, which public launch had been delayed, and its network of physical bookstores is limited.

Southeast Asia still up for grabs, Alibaba-Amazon face off

And while Alibaba has been gearing up its efforts to expand into the Southeast Asian region, Amazon remains mum about its own plans despite rumours it is preparing to follow suit with a Singapore launch in the first quarter of 2017. Half a year later, Amazon remains missing in this neck of the woods, though, rumours have resurfaced that it is finally ready to push ahead with a debut this week.

Meanwhile, Alibaba has not been coy about its plans for the region. In April last year, it forked out US$1 billion to acquire a controlling share in Southeast Asian e-commerce operator, Lazada Group, and last month invested another US$1 billion to boost its stake.

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This deal gives Alibaba access to six markets in the region, including Indonesia, Malaysia, and the Philippines, and puts its Alipay mobile payment brand in front of consumers in four of these markets.

Also, in March, Alibaba announced plans to set up a distribution centre in Malaysia as part of a wider agreement to build up a digital trading network in the country. Anticipated to be ready by end-2019, the facility would serve as a regional e-commerce and logistics hub.

However, the successful rollout of Alibaba's online-offline strategy today is largely confined to its domestic market and it remains to be seen if it will be able to replicate the Hema store model in Southeast Asia.

Amazon's brand recognition also is stronger in this region and may offer the competitive edge it needs to come up ahead when, or if, it ever makes its debut here. The integration of Alexa with its online services can further beef up Amazon's gameplay, but it first will have to make the voice assistant app available in Asia.

Commenting on the possibility of Amazon's Singapore launch, Forrester's senior analyst Xiaofeng Wang noted that the US e-commerce operator faced strong competition and huge challenges in the market, in particular, from Alibaba's Lazada.

"Having been in the market for a few years, Alibaba-Lazada has a stronger understanding of the demands and behaviours of local customers as well as working with logistics and vendor systems," Wang explained. "It has been working on building an ecosystem since [Lazada's] acquisition of RedMart and launched its Liveup loyalty program that partners with other digital ecosystem players, such as Uber and Netflix."

She added, however, that Amazon had a well-established and trusted brand and offered a range of US products and brands, including books. Its Prime loyalty programme also had been successful in the US, though, how it planned to localised this to address the needs of customers in the region would be key to its success, the Forrester analyst said.

"As a major technology player, [Amazon] can also leverage its tech strengths such as personalisation and intelligent agents to provide a better customer experience," she added.

Forrester's senior forecast analyst Satish Meena said the Southeast Asian region, home to an online population of 228 million--across Singapore, Indonesia, Malaysia, Thailand, Vietnam, and the Philippines--was attractive to major online retailers.

"We expect that this will be the start of a direct face-off between Amazon and Alibaba in Asia," Meena said.

I believe it also is quite possible that both players will be looking to acquire, or establish a joint venture with, a brick-and-mortar retail or grocery network to fast-track their growth strategy in the region. Whether the first to do so is Alibaba or Amazon is anyone's guess.

One thing is clear, though, and that is Alibaba's vision of how the online and offline worlds can integrate already is playing out through Hema, and it won't be long before it finds a way to expand this beyond China.

Question then is, what will be Amazon's counter offer?