Skip Ribbon Commands
Skip to main content

How Alibaba is changing retail in China

​​​​​​​​​26​​​​​​​​​​​​​​​​​​​​ Sep 2014

How Alibaba is changing retail in China

Remarkable economic growth and the rise of the digital generation have collided in China, serving as a catalyst for the e-commerce boom


China's home-grown online shopping giant, Alibaba Group, began trading on the New York Stock Exchange last week in what became the world's largest IPO to date.

Founder Jack Ma's decision to go public appears to be more than a moneymaking exercise; it's part of his plan to 'be bigger than Walmart', a declaration that has turned global attention to the e-tail revolution that's gripping the People's Republic.

According to a 2013 McKinsey & Co report, online retail in China could generate up to US$650 billion in sales by 2020 and the market will equal the current combined total of the United States, Japan, the United Kingdom, Germany, and France.

It's a meteoric rise for an industry that lagged far behind the West until recently.

"Five years ago, e-commerce was in its infancy in China but it has exploded," says Steven McCord Head of North China Research, JLL.

What began as a B2B trading boom - Alibaba connected retailers in Europe and North America with Asia - evolved into a C2C marketplace connecting small sellers with consumers, much like eBay. Now, the thriving B2C platforms are bringing the big brands to all corners of China's vast geography and giving major malls a run for their money.

"Clothing sales, in particular, have grown rapidly," adds McCord. "Chinese consumers are very comfortable buying clothing online whereas in the US, e-commerce grew out of goods such as CDs and books – things you didn't need to try on."

Modernising malls

China's army of confident online shoppers favour Alibaba's C2C Taobao platform to buy unbranded, mass market apparel. For big brands, they log on to Tmall's B2C marketplace before setting foot in a department store.

The latter is presenting the biggest change to the physical retail space. Domestic e-commerce research firm iResearch estimates that the B2C sites' market share grew from less than 14 per cent in 2010 to 40 per cent in 2013.

E-commerce has cannibalised brick-and-mortar sales in several retail categories, jeopardising many chain stores' sales growth," adds McCord.

But this doesn't mean mall development is slowing in the short term: China's 30 biggest retail cities housed 633 malls at the end of 2013 and this will increase to 1,145 by 2016.

Rather, shopping centres are adapting what they offer to accommodate the rise of e-commerce:"The shopping centres of the future will contain the things you can't get online: food & beverage, entertainment, and concept and experience stores," says McCord.

"The number of small specialty stores will decrease; people will go to shopping centres for food, entertainment, and activities for the whole family. -shopping centres are increasingly a destination for parents, and often grandparents, to bring their children and they spend large amounts of money."

A leapfrog for logistics

The success of China's e-tail revolution lies largely in its speed and efficiency.

"People in China like the quick dispatch on offer and, in many cases, goods arrive in a matter of hours," says McCord.

Everything in the e-commerce supply chain, from storage, to IT services to digital marketing, is benefiting from the investment in e-commerce infrastructure.

"The e-commerce market's structural reorientation towards B2C platforms makes the logistics sector the most attractive real estate opportunity in China," he says.  

For Alibaba Group, after its first weeks on the global stage its ultimate profitability is still up for discussion, but one thing is clear: the way goods are shopped for, paid for, stored and delivered is changing across China, driven by a seemingly unstoppable consumer demand.