Internet & Tech

Head east, and then go west?

AliExpress targets overseas sales, with big advances into Eastern Europe

Cainiao-w

Delivering results: AliExpress is also boosting distribution in Europe

This Saturday marks the 30th anniversary since the fall of the Berlin Wall on November 9, 1989. That night, thousands of jubilant East Germans poured into West Berlin in search of the consumer freedoms they had only seen on their TVs. The influx was a very visible symbol of how communism was crumbling across Eastern Europe. The Cold War was almost over and the West thought it had won. As the French philosopher, Regis Debray, put it: “There was more power in blue jeans and rock-n-roll than the entire Red Army.”

In the three decades since then there has been plenty of debate about the impact of the end of the Cold War era and whether the West has enjoyed much of a dividend. One aspect is that the former Soviet bloc countries have become wealthier, yet a cursory glance at the sales statistics shows that it is an e-commerce platform from a nominally communist country, China, that is benefiting most.

That entity is AliExpress, the global offshoot of Alibaba’s all-conquering B2C platform.

A recent Kantar survey showed that, across Europe as a whole, AliExpress stood second behind Amazon with 14% of cross-border online shoppers in 2018, compared to the American giant’s 25% share. But perhaps more telling is the countries where AliExpress is most popular: Poland, Romania, Russia, the Czech Republic, Serbia and Slovenia.

E-commerce aggregators such as Tamebay and Webinterpret offer alternative rankings to Kantar (and to each other). But what they share is a belief that AliExpress is ahead of Amazon and eBay in sales across almost all of Eastern Europe and the Baltic. In addition to Kantar’s countries, they typically rank AliExpress in the top three (usually above or below local competitors) in Bulgaria, Croatia, Estonia, Georgia, Latvia and the Ukraine as well.

So far AliExpress’s advance into the former Soviet bloc has flown well below the radar. That is almost certainly a function of its smaller size versus other Alibaba group entities such as Ant Financial and Alipay, which tend to hog more of the headlines.

It also reflects the fact that Alibaba’s ‘local-to-global’ strategy has been a more low-key affair than the group is typically known for. That may well be deliberate in an era when Chinese outbound M&A is under ever more scrutiny.

The group’s piecemeal acquisitions mean that its international e-commerce operations are also more diverse and multi-branded. Alongside AliExpress, Alibaba’s international arm embraces Lazada in Southeast Asia and Daraz in Pakistan, for example.

Earlier this year, Trudy Dai, Alibaba’s wholesale markets president, told the Financial Times that the company has always had a “global dream”. And that vision is likely to feature more prominently in future as Alibaba looks overseas for ways of sustaining the rampaging revenue growth it is renowned for at home.

Second quarter earnings, released last weekend, showed 40% year-on-year growth in sales, which was strong but not as good as the 54% it recorded the same time last year. Alibaba says future growth will come from more active user engagement, platform synergies and deeper penetration into less wealthy parts of China (currently 40% of internet users) compared to developed regions (85%).

At its investor day in Hangzhou, this September, Alibaba also provided more details about AliExpress. This included how the platform is now available in 200 countries and regions; that it supports payments in 51 local currencie; and that it boasts 8.7 million active merchants offering 2.5 billion products.

At the moment, most of those merchants are Chinese, but that’s starting to change now that the group is encouraging sign-ups from smaller retailers from other countries.

In late 2018, it launched an affiliate programme in Europe, before allowing merchants from Italy, Russia, Spain and Turkey to sell directly on the platform from May this year.

AliExpress is still a relatively small contributor compared to the rest of Alibaba’s e-commerce business. In the 12 months to August 2019, it generated paid gross merchandise value (GMV) of $10 billion (about a third of what Alibaba will make over the 24 hours of its annual Singles’ Day next week). Alibaba adds that 60% of AliExpress customers are younger than 35, with annual active customers (AAC) reaching 79 million as of the end of August.

Financial analysts say that Alibaba’s broader group of online platforms had 860 million AAC as of June 2019, of which 730 million were domestic (up from 600 million a year previously and 130 million international).

In the next five years, Alibaba has set a 1 billion customer target and is aiming for two billion by 2036.

Amazon hasn’t released similar figures on customer numbers since 2015, when it reported 300 million.

AliExpress’s biggest overseas market and its main target for the future is Russia. This October, it finalised a joint venture with the country’s sovereign wealth fund, Russia Direct Investment Fund (RDIF), plus MegaFon and Mail.ru, two companies connected to the oligarch, Alisher Usmanov, who is a close friend of the country’s leader, Vladimir Putin.

The Russians will own 52% of the new business, hoping that it will help local businesses to tap “billions of Asian consumers”, as RDIF put it.

AliExpress’s main selling point is the competitive prices for the goods on the platform. Few are big-ticket items. Aligurus, a site that showcases AliExpress, says the bestselling product last year was an iPhone glass protector at $1.05 a pop. Also featuring in the top 15 were $0.98 rainbow coloured toothbrushes (56,500 orders), teeth whitening powder (51,800), $1.89 fake eyelashes (40,400) and a $2.50 Gofuly watch (39,400).

Amazon doesn’t report its top products in the same way. But according to Edison Trends, its best sellers in the US in the same year were more expensive: led by books on 15.9% of sales, health and beauty (12%) and electronics (11%).

The US group is defending a strong position in its home market, as well as in Western Europe and Japan. AliExpress is trying to make more of a breakthrough in Western Europe, using Spain as its beachhead, or “strategic choice as gateway” according to its local operations director, Ruben Bautista. This year it has also established two physical outlets as part of its online-to-offline strategy. The first was opened in a shopping centre in Madrid in August and the second launches in Barcelona on November 11 (Singles’ Day).

In Italy, AliExpress was one of the sponsors for Milan Fashion Week, where it held its own catwalk show, inviting 15 competition winners from around the world. In Turkey, it purchased an undisclosed stake in online clothing store, Trendyol, in 2018, which then opened a store on the Chinese portal this year.

One of the main decisions for all the e-commerce platforms is how to compete on deliveries. AliExpress argues that price rather than rapid delivery is the more important consideration for its consumers. Nevertheless, Kantar reports that it has reduced international delivery times from 70 days in 2010 to 10 in 2018. During last year’s Singles’ Day, AliExpress set a goal of three days for 50% of it deliveries into Europe, for instance, using warehouses in Paris, Madrid and Moscow. A month later, it opened another warehouse in Liege in Belgium too.

This September it improved its service offering again, committing to free refunds to customers in Australia, Canada, France, Germany, Russia, Spain, the UK and the US.

Commentators wonder how AliExpress can make much profit on the sales on its platform, given how cheap most of the products are in the first place. One factor the group has in its favour is the sheer number of manufacturers based in its home market. In a recent research report on Alibaba, HSBC noted that 90% of mobile phone manufacturers, 80% of wig producers and 75% of toy makers are based in China, for instance.

Then, of course, there is its Singles’ Day shopping extravaganza, which totted up Rmb213.5 billion ($30.5 billion) in sales last year. This year it will be more of a global shopping fest, with more consumers using AliExpress in other countries. And there are already some Singles’ Day bargains being flagged, including a Huawei HiSilicon Kirin 980 smartphone for $712.50, versus a standard price of $3,750.


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