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Amazon gets the press, but Alibaba and Asia are surging in online sales

March 21, 2013 by Chris Petersen — Owner, IMS

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I was asked again in a recent Retail University class why we spend so much time on Amazon and e-commerce. Actually, that is a very good question on two levels. At the most basic level, Amazon has become the poster icon for disrupting retail by changing consumer behavior. But, at another level Amazon is not the only "A" player in e-commerce. In fact, the dominant player that we should be studying worldwide should probably be Alibaba. They are certainly well positioned in the largest consumer market, with skyrocketing e-commerce growth.

In Retail University, I have been increasingly asked about the trends and potential of e-commerce. A couple of people questioned whether online e-tailers are that much of a factor for most retailers. The argument was that online only accounts for 10-20% of sales in most categories … so why should traditional bricks and mortar retailers be worried? The simple answer is that the best online retailers, like Amazon, are growing at 25% a year, while the largest retailers like Walmart are struggling for low single digit growth. 

The more important reason why studying e-commerce is so important is that it is fundamentally changing consumer values and behavior. Consumers are increasingly pre-shopping for information and prices before they even go to a store. The advent of smartphones has enabled consumers to literally shop online while standing in the store aisle. As consumers get comfortable with online quality and the levels of service, they are increasingly shopping online and making their final purchases there. Not just with Amazon in the west, but especially in Asia markets with growing purchasing power.

China has Asia's and perhaps the world's liveliest e-commerce growth

While Amazon and the western markets often get most of the retail press, China has one of the most comprehensive e-commerce markets. Virtually anything can be bought online. While the current estimated B2C e-commerce is estimated at "only" $280 billion, the 25% growth rate parallels the sky rocketing trends worldwide. In doing our retail research, we recently ran across a great infographic on the growth and potential of e-commerce in China.

In looking at the stats on size of the market and the rising middle class, it is easy to see why China is poised to blow by the US e-commerce by 2014.

It will be Alibaba … Not Amazon leading the way in China

It is very interesting to note that the infographic on China's e-commerce was in fact published by Jim Erickson, who is the managing editor for Aizila, the corporate news website for Alibaba Group. Alibaba certainly seems to be working on getting the word out about e-commerce in Asia, and their success story as a part of that.

If you haven't heard of Alibaba, it is probably because they function as a "holding group." They own the very successful Taobao.com marketplace type site, which has soundly beaten eBay in China. From their successes with small shop-owners, Alibaba has gone on to launch a separate B2C site for retailers and brands called Tmall. Tmall literally offers Chinese consumers everything from lace panties to Lamborghinis! In short, Alibaba's Tmall is poised to be a fierce Amazon competitor with dominant market share in China.

Battle of the Big As … Alibaba vs. Amazon

Amazon purchased Joyo.com and has managed only a 3% share of China's B2C commerce. Walmart-backed YiHaoDian has only managed a 0.7% share in China. Like Amazon, Alibaba has managed to capture more than 50% market share in China. To put growth potential into perspective, Amazon revenues last year were about $98 Billion USD. If Alibaba's Tmall manages to maintain 54% in a China market that grows to $265 Billion in 2013, then Tmall's $143 Billion USD will rival if not surpass Amazon.

These facts and figures take nothing away from Amazon's phenomenal growth and success. They are clearly positioned to be the A player in the West for years to come. But, what makes Alibaba's future so bright is that they are achieving their revenue and growth in a market with lower median family incomes, and only 40% share penetration of internet in the population!

Great forecast stats do NOT guarantee success … Ask Amazon 

While e-commerce is "hot" with a lot of potential upside, it still involves the retail fundamentals of meeting consumer needs and exceeding expectations on service. Amazon has been very successful in highly competitive markets by focusing on removing "pain points", making its services best of breed, and earning the consumer's confidence. Good prices are necessary but not sufficient.

Ailbaba would do well to take pages from Amazon's playbook. Amazon has built a tremendous brand reputation and consumer loyalty based upon consumer centricity: 

• One click ordering and ease of use
• Consumer ratings of quality that can be trusted
• Quick shipping in as little as 24 hours
• Options to pick-up at site locations like convenience stores
• Multiple ways to pay including debit and even cash at pickup
• Immediate order tracking at moment of purchase
• Easy to understand and use return privileges if consumer is not satisfied

At the end of the day, it's all about the consumer regardless of country

The infographic on B2C e-commerce has some very interesting stats on Chinese consumers. In looking at the charts below, I'm struck by how similar consumers are around the world. We all want a good price, but we also highly value both quality and service. In reality, this applies to any form of retail, whether it be e-commerce or stores. This is certainly true in China.

There will come a time that the "e" completely drops out of e-commerce. And, that time could be just around the corner in China and much of the rest of the world. To become the new #1 of ME-tailing online, Tmall must address the same consumer confidence, quality, and service issues that Amazon continues to set new benchmarks for.

In our Retail University classes, one thing is abundantly clear about our curriculum: Omni-channel is quickly becoming the new normal for retail worldwide. It's just that we must now add the other Big "A" of Alibaba with Amazon to capture the worldwide phenomenon.

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