Alibaba’s future may be based on stationary sales (BABA)

BI Intelligence

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Alibaba CEO Jack Ma, Vice President Joseph Tsai and CEO Daniel Zhang discussed the company’s strategy and vision with Bloomberg on the occasion of Alibaba’s recent 18th anniversary.

Building infrastructure appears to be central to Alibaba’s future plans, which appear to focus on the spread and development of physical assets as well as e-commerce infrastructure, including marketplaces, logistics and a payment system.

Alibaba wants to bring the technology and usability of its Hema stores to shopping malls. Hema is Alibaba’s line of grocery stores equipped with technology that allows customers to pay through the app, get additional product information via barcodes, and even place orders from the store. Hema stores also use machine learning to customize the fresh food offerings at each location, making each store unique and tailored to consumer preferences. Introducing this technology into malls could boost brick-and-mortar retail sales, as improvements to the shopping experience and product offerings would likely attract customers.

Alibaba can integrate this technology into shopping malls in two main ways:

• The Chinese e-commerce giant can build and take over stores and shopping malls. Alibaba is already active on both fronts – it acquired the Intime department store in January and is currently building its own shopping center, More Mall, which is scheduled to open in April. Having full control over its properties could allow Alibaba to maximize the value of its technology and experiment and create a prototype that could spread.

• Alibaba may also be looking for store and mall partners, Tsai mentioned to Bloomberg. Tsai suggested that acquiring multiple properties is a bad use of capital, so working with third-party stores may be a better option. This could accelerate the spread of Alibaba’s innovations and provide it with a new source of revenue as a retail technology provider. However, it can be difficult for stores to fully utilize this technology.

Brick-and-mortar stores could be the key to Alibaba’s future. If Alibaba is able to expand its store network, it will likely be able to grow its fulfillment operations together, as each store could potentially ship products from a store’s inventory like Hema, helping to ease the delivery process. Zhang suggested that with such development, Alibaba could generate 55 million parcels per day to 1 billion per day. This would dramatically improve the company’s logistics capabilities, enabling it to cement its reputation for fast order fulfillment and stave off competition from rivals like JD.com.

Brick-and-mortar retailers have found themselves on the wrong side of the digital shift in retail, with many stuck in a dangerous cycle of declining foot traffic, declining comparable store sales, and increasing store closures. More than 8,600 retail stores could close in the U.S. this year – more than in the previous two years combined, brokerage firm Credit Suisse said in a recent report. Meanwhile, e-commerce-only transactions are driving the success of digital commerce — none more so than Amazon, which accounted for 53% of U.S. online sales growth last year, according to Slice Intelligence.

In response, many retailers have turned to omnichannel fulfillment methods that leverage store locations and inventory to better compete in e-commerce. These omnichannel services, including ship-from-store and click-and-collect, can help retailers manage their digital transition by:

• Increasing online sales by offering cheaper and more convenient delivery options for online shoppers.

• Reducing the increase in shipping costs as online sales volume increases by leveraging your store network for delivery.

• Keeping stores fresh by turning them into fulfillment centers that attract customers to pick up their online orders.

However, few retailers have mastered these new order fulfillment services. While these companies have spent years optimizing their supply chain and logistics networks to deliver goods to their stores or directly to customers, most have yet to figure out how to profitably incorporate their store locations into the e-commerce delivery process.

Jonathan Camhi, research analyst at BI Intelligence, Business Insider’s premium research service, outlined why retailers need to move to an omnichannel fulfillment model and the challenges that complicate the transition for most companies. This omnichannel fulfillment report also details the benefits and challenges of specific omnichannel fulfillment services such as click and collect, ship to store, and ship from store, providing examples of retailers that have been successful but have problems with these methods. Finally, it discusses the steps retailers need to take to optimize omnichannel fulfillment for lower costs and faster delivery times.

Here are some of the most important findings from the report:

• Brick-and-mortar retailers must reduce delivery times and costs to meet online customers’ expectations for free and fast shipping.

• Omnichannel fulfillment services can help retailers achieve this goal while keeping their stores up to date.

• However, few retailers have mastered these services, leading to rising shipping costs that negatively impact their profit margins.

• To optimize costs and fully realize the benefits of omnichannel services, retailers must undertake costly and time-consuming transformations of their logistics, warehouse and store systems and operations.

Full report:

• Describe in detail the benefits of omnichannel services such as click and collect and ship from store, including reducing delivery times and costs and increasing store traffic and sales.

• Provides examples of various retailers’ successes and struggles with omnichannel delivery.

• It explains why retailers struggle to manage costs in omnichannel fulfillment, which eats into their profits.

• It outlines what steps retailers must take to optimize the costs of omnichannel operations by placing inventory where it best meets customer demand.

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