After years of being blamed for killing independent bookshops, e-commerce giant Amazon opened its first physical bookstore in Seattle last year. Taking the bricks-and-mortar strategy one step further, the tech firm recently applied to open more physical storefronts – also in Seattle – as customer pick-up hubs. These new locations will allow customers to drive in, park, pick up their items and take off in under 15 minutes. Customers can place their orders online and schedule their pick-up window.
Over in China the country’s leading e-commerce firm Alibaba has also just unveiled another plan to beef up its offline presence. The Hangzhou-based company will invest $305 million for a 32% stake in Sanjiang Shopping Club, one of the largest discount supermarket chains in Zhejiang province.
The move is part of Alibaba’s ongoing strategy to integrate offline shopping into its internet marketplaces. Just last month, the company’s founder and chairman Jack Ma told reporters that pure e-commerce firms will soon become obsolete: “The era of pure e-commerce business will soon be over. In the next decade or 20 years, e-commerce will be replaced by a ‘new retail’, a format that integrates online and offline shopping,” Ma predicts.
Alibaba’s rival JD.com is proving even more aggressive in building its bricks-and-mortar network. The company has already launched a grocery delivery business in Beijing with the supermarket chain Yonghui, in which it invested $700 million last year. JD.com is also working with US retailer Walmart to launch an online-to-offline business that promises a delivery service from select Walmart stores for orders that are placed on its platform, says Beijing Business Today.
“Three or four years ago, bricks-and-mortar retailers viewed e-commerce firms as their biggest threat. In the blink of an eye, the two are more chummy than ever,” comments China Securities Journal.
Analysts may find it ironic that after years of bulking up its e-commerce platform Suning is going back to its roots and cultivating more physical stores. The electronics retailer recently unveiled plans to roll out more than 1,000 convenience stores next year, selling mostly groceries and other household products. Shoppers can purchase their groceries online – using the Suning app – and have the products delivered to their door within an hour.
Analysts believe only the retailers with a more integrated business model will remain competitive. “When consumers shop online, they still crave for interaction, whether it be consulting with the seller or touching and feeling the actual product. That’s the advantage of ‘bricks-and-mortar and internet’ model. It unleashes the spending power of those who still shy away from e-commerce with the loyalty of internet shoppers. It is something a strict e-commerce firm cannot achieve,” adds China Securities Journal.
Many foreign retailers are finding it difficult to battle on two fronts (both online and offline). The likes of Marks & Spencer and Parkson Retail Group have been reducing their number of stores in China – and in the former case will exit mainland China entirely (see WiC346).
Tying up a big foreign brand to a powerful state firm used to be a fashionable way to woo Chinese consumers. It is no longer a winning formula. China Resources, for example, sold back its stakes in 21 of Walmart’s outlets for Rmb3.3 billion ($480 million) to its American partner just last year. And there was more bad news last month as Liaoning Chengda, a state-owned trading firm, said it is selling its stake in six Carrefour stores because they have been bleeding cash. The French hypermarket’s Shenyang store, the worst performing outlet of the six, is said to have lost as much as Rmb125 million ($18.1 million) in 2015.
One way to buck the trend is – yes, you’ve got it – to expand online-to-offline business. In fact, National Business Daily reported that Carrefour will extend its O2O delivery service to Suzhou and Wuxi after rolling it out in Beijing, Shanghai, Kunming and Chengdu earlier this year. The retailer is also moving away from its traditional hypermarket model in favour of smaller convenience stores, as it maps its new China expansion.
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