Alibaba Opens A Physical Store: Eyeing A Broader Market?

As the global retail e-commerce market continues to grow, it is expected to reach $2.5 trillion by 2018. However, it would represent less than 10% of the total global retail market. ^[1] China is the world’s fastest-growing e-commerce market with growth of more than 30% in 2015.  However, e-commerce sales are expected to be around 17% of total retail sales in the country in 2018. ^[1] Taking a page from Amazon’s book, it appears that Alibaba (NYSE:BABA)  is now looking to offer a human experience to its customers by opening its first ever physical store in North China to boost sales of its imported products. ^[2] With global importation being one of its key focus areas for 2016, Alibaba appears to be trying to bring these products to a broader Chinese market and give consumers a more social shopping experience.

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Global Imports Key Focus Area For 2016

Alibaba’s physical store stocks imported goods ranging from food items to kitchen tools and is strategically located in the port city of Tianjin. Demand for imported products is rising in China and one of the key focus areas for Alibaba in 2016 is global imports.  According to Internet Retailer, 61% of Chinese consumers say that they would pay more for a product made in the United States. Moreover, 26% of Chinese online consumers buy imported goods from foreign sites and the country is forecast to spend $245 billion on imported products online by 2020. ^[3] E-commerce appears to be the easiest way for Chinese consumers to buy imported products.  Alibaba is trying to tap into this trend, providing a more integrated shopping experience with its e-commerce platform and a physical store, thus expanding its market size significantly. E-commerce accounts for less than 15% of total retail sales in China and, with a physical store, Alibaba would get access to a much larger market.

“Human” Shopping Experience, Integrated Commerc

Alibaba is introducing an increasing number of imported products in the Chinese market, providing an option for consumers to physically inspect, touch and feel products before purchase.  This appears to be the right strategy. The physical store should attract both online shoppers, who want a more human shopping experience, and consumers who do not prefer e-commerce. The imported foods segment of the store could drive traffic, as it is difficult to purchase these products online.

In November 2015, Alibaba’s global rival Amazon opened a physical book store in Seattle after experimenting with temporary “pop-up” stores. ^[4] It appears that leading e-commerce giants are now looking to expand their brand appeal and provide an integrated shopping experience to consumers. Although physical stores require higher investments and increase operating costs, a few stores in strategic locations will likely enhance the brand value of the company.

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1. Retail sales worldwide will top $22 trillion this year, eMarketer, December 2014 [↩] [↩]
2. Alibaba goes brick and mortar in Tianjin, China Business News, January 14, 2016 [↩]
3. Despite Market Uncertainty, Chinese Imports  Rise via ecommerce, PFS Web, August 2015 [↩]
4. Amazon is opening a physical bookstore called ‘Amazon Books’ and here’s what it looks like inside, Business Insider, November 2015 [↩]