It looks like Alibaba is about to take a leap into the offline world as it is the lead contender to buy a struggling retail chain in China for $2.6 billion. The company in question is In Time Retail Group which operates 29 department stores and 17 malls predominantly in the eastern province of Zhejiang where Alibaba’s home town of Hangzhou is to be found.
In Time has been suffering from the predations of its would-be saviour due to the fact that the retail experience it offers is poor at best – so much so that In Time is a great example of why online and mobile have been so successful in the Chinese market.
Chinese retail is a fragmented and frustrating experience where decent service and information with regards to inventory, product lines and so on is routinely not available. Consequently, when an online offering appears where this information is clear, and one is able to easily purchase goods and know when they will be delivered, shoppers quickly adapt. It is the terrible offline experience with regards to almost everything that has allowed so many other goods, services and activities in China to rapidly migrate from offline to mobile.
In Time operates a similar model to Alibaba where it provides the building, and merchants and brands pay to sell their products at its locations. This makes it a good fit for Alibaba, and if Alibaba can use its technology and logistics to massively improve In Time’s service and its experience for shoppers, then it has a chance to take a piece of the still massive $4.5 trillion offline retail market in China.
By contrast, online shopping is still relatively small (but growing) at $711 billion or 16% of total Chinese retail sales. Consequently, if Alibaba can use what it has developed in online to hugely improve the quality of the shopper experience in the offline world, it could take a meaningful slice of the market.
It is worth noting that, China is a massive and hugely fragmented market where retail happens in millions of locations, and that In Time is present in only one province. Consequently, I see this as an experiment to see whether Alibaba’s skills in online will also work in offline.
Although Walmart clearly understands retail, it does not understand China, which is why it has largely failed to make any impact despite years of trying. Hence, there is a clear opportunity for Alibaba – but it is very likely to take a long time, requiring a vast amount of investment for this to come become a big part of this company.
This is why I see this experiment starting in Alibaba’s home town with very limited scale until it is proven that it can work.
I continue to prefer both Baidu and Tencent over Alibaba as its valuation remains too rich for me and I see more value elsewhere.
This article first appeared on RadioFreeMobile
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