I’m sitting at the Shanghai airport, heading out to the USA shortly. I’m exhausted.
It’s been a crazy couple of days out in Hangzhou with Alibaba for Singles’ Day. And just running around Shanghai. Great. But exhausting.
Alibaba and e–commerce in China/Asia are going to be a big subject within this class. I think it’s really worth your time to get into more and more of the details of this. And especially their big yearly shopping festival.
So here are a couple of take-aways from this year’s Singles’ Day.
Alibaba has at least 4 levers for driving growth.
Daily sales (gross merchandise value) for Singles’ Day 2019 was $38B. This is up from $30B last year. And that was up about 23% from the previous year. So this is a lot of sales and it’s still growing pretty fast.
And if you look at retail sales in China overall, it is growing at about 8% per year. With e-commerce growth at about double that (around 18%). And yet Alibaba is growing even faster at 30-40%.
So how are they doing this?
I think there are four big levers at least for their growth.
#1 is the increasing # of users on their platform. About 500M consumers took part in Singles’ Day this year. Up from 400M last year. Most of this increase was from lower tier Chinese cities and SE Asia. And here are probably another 100-200M they can add in the next year. Plus they can expand to other geographies (difficult but doable).
#2 is the increasing spending per user. As Chinese consumers grow in discretionary income, they will spend more and more. This is the “lifestyle upgrade” everyone always talks about. They can buy more expensive clothes, take vacations in Paris instead of Thailand and so on. This is a nice long-term trend that e-commerce is particularly good at capturing.
#3 is the expansion into physical retail. E-commerce is about 25% of Chinese retail right now. That means there is another 75% of retail they can bring online. And new retail is doing this slowly but surely.
#4 is “innovation-driven growth”. More on this in my next point.
“Data plus innovation” might offer endless growth opportunities.
The TMall Innovation Center is a really interesting idea. It is based on the belief that most consumers are not getting many of the products and services they actually want. Because retail has traditionally been about creating the same set of mass-market products for everyone. And this has been done without a lot of detailed data. Just market studies.
But Alibaba has tons of data and consumer profiles. And they are increasingly studying these to find product ideas that consumers want but have not been offered. Or maybe products that consumers don’t know they want until they see them.
And then TMIC works with brands and merchants to create these products and bring them to market. Examples of this include Spicy Snickers (launched at Singles Day 2018) and Oreos’ nuts (launched this year).
This “data plus innovation” approach might turn out to be an endless source of opportunities for new products and services. Where consumers are continually presented with new items over time and are continually shifting their purchasing behavior. This is not unlike what we see in entertainment, where there are always new shows and consumers are consistently changing what they watch.
So what if the demand-supply situation for most products and services could be become a continually changing situation? I call this innovation-driven growth.
New retail offers three big changes for the economics of most businesses.
Looking at the supermarkets and department stores that are being digitized by Alibaba, it strikes me that you can really change their economics in at least three ways.
Change #1 is increased operational efficiencies (i.e., cost savings). When the Intime department store in Hangzhou went digital, one of the first things they did was digitize operations. They moved their IT systems onto the Alibaba cloud and started using their digital tools – like mobile apps and mobile payment. This let them reduce the number of cashiers in this one store from 100 to 5. Because sales staff could now process payments. Operational efficiencies are an early win for going digital.
Change #2 is moving the customer relationship to a mobile app. Retailers like department stores and supermarkets have been limited in their interactions with customers to when they are physically in the story. That didn’t offer much of a relationship. But by creating a good mobile app (which both Intime and Hema did), they now have a two-way relationship with their customers no matter where they are. That is really powerful.
And it lets customers order when they are not in the store, which change the economics immediately. So Hema is seeing 60-70% of their orders now coming from customers not in the store. And I think Intime will see something similar. That increases the sales per square meter of floor space immediately.
Change #3 is on-demand delivery. If you are within 2-3 kilometers of the physical store, you can order and receive your item within 20-30 minutes. This effectively expands the radius of the store from its physical walls to a 2-3 km radius. Suddenly people sitting on their sofas can order a sweater or a dinner – and get it almost immediately. That is a big change in the economics.
Chinese companies have a real advantage in on-demand delivery given the high urban density in the country. Amazon doesn’t have this in most cities so their delivery time from Whole Foods is more like 2-3 hours. Plus the labor costs are higher.
Ok. that’s it for today. I’ll have this week’s podcast up shortly. Lots of cool stuff happening in e-commerce this week.
Thanks for subscribing and have a great day,
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