“Jack Ma’s worst nightmare has arrived,” China Youth Daily declared last week.
Regular readers of WiC will be forgiven for thinking that this is yet another story about the ongoing feud between Alibaba and Tencent. Not so. This time around Alibaba’s rival is someone less expected.
Last week SF Express, one of the country’s largest courier and delivery firms (see WiC214), announced plans to expand beyond logistics into convenience-store-like retail outlets. New Express reports that customers can place online orders at the stores – using specially designed tablets and screens – or pick up items previously purchased online.
What’s the big deal? Ma, who controls China’s largest e-commerce company Alibaba Group, has been working overtime to merge its online product with its offline experience. In April Alibaba made a $692 million investment in Intime Retail, which operates 36 department stores in the country. The deal means that Alibaba’s Tmall will have access to Intime’s inventory, broadening the variety of merchandise available. Meanwhile, its customers can pick up online orders in Intime stores.
But has courier firm SF Express beaten Alibaba to the punch? It has already opened as many as 500 of its neighbourhood service outlets – called Heike – in 70 cities and says it is targeting more than 1,000 Heike outlets by year-end. With more than 40 million clients using its delivery services, SF thinks there’s plenty of potential to support sales across its retail network.
So what does a Heike store look like? The chain offers dry cleaning, air ticket booking, cell phone recharging and bill payments for utilities. It also offers a range of convenience goods but there are no shelves with items stacked up. Instead shoppers get a product catalogue on tablet computers, with samples for those who want to see items before buying. Customers purchase through the terminals, scheduling delivery at the store or at home, says CBN.
“That [strategy] frees SF from the burden of inventory management, which has been a major concern for retailers for years,” the company says.
The concept is taking time to win over consumers (one weibo complaint this week was that Heike is a “virtual convenience store with no goods”). Nanfang Daily in fact sent a reporter to a store in Huizhou in Guangdong and he reported that most of the people at the outlet were there to pick up packages they’d been couried through the company’s core delivery business. Hardly anybody stopped to place an order in the shop.
But SF Express says it isn’t worried about how the business is developing. “Heike was born in a very short time. It is still in the exploration stage so we are not in a rush to set profitability targets. Our goal is to attract more shoppers through strong promotion of products and good service,” Yao Guang, manager of the stores in Huizhou told the newspaper.
Guo Zengli, director at the Mall China Information Centre, an advisory body, says SF Express is trying to exploit its logistics network to get into the retail sector. It thinks it can trump e-commerce rivals like Alibaba because it already controls so much of the delivery experience. Moreover the in-store concept could appeal to older people who want to try online shoppng but struggle with the internet (Heike uses large touchscreens, making it simpler for those who aren’t tech savvy). Of course, providing a physical location also appeals to those who prefer to see the product before they buy it. The Hong Kong Economic Journal reckons that these customers could account for as much as 60% of customers who don’t shop online currently.
In the initial phase SF Express is focusing on grocery sales, having launched sfbest.com two years ago. It sells premium food and beverages made by other companies and touts its cold chain as a major selling point. Cold chains protect and cool vegetables and fruits from point of harvest – through transportation – to the end consumer, ensuring produce is fresh. Doing it well is a demanding task.
“Take the most recent bestseller Yantai Cherries (from Shandong province). Our planes go straight to the source to pick up the cherries in order to deliver to our customers within 24 hours, or as we say ‘from twigs to tongue’,” Ceng Yun, director of Heike’s store operations told 21CN Business Herald. “This is something that is not easy to do because for many companies, resources are limited. We often see Alibaba and JD.com promoting delivery within 24 hours but behind the scenes, it is SF Express that is doing all the work.”
Customers agree about the freshness. “The food I bought on sfbest.com was fresh and well-packaged. That makes me want to buy from the Heike outlets,” one shopper glowingly told the Global Times.
Alibaba is trying to beef up its own courier capability, including an investment in logistics company Cainiao, whch has cold chain infrastructure in eastern China and plans to expand into other parts of the country later this year.
Similarly, Amazon China announced an investment of $20 million for a minority stake in Shanghai-based Yummy77 last month. Yummy launched just last year, offering seasonally-fresh meat, dairy and seafood for order online. Although the deal is small one, analysts say it is still significant as it is the first time that Amazon has invested in a Chinese firm since its launch in the country with Joyo a decade ago.
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